A Comment -- General Comments From an Expert (A Commentary)

Market.The result of the election was obviously a surprise. There were 2 things for optimism. One was the Republican Congress that their tax cuts would likely go through, and 2) Trump re-instilled a confidence level that the average guy had lost over the last few years. When he got elected, there was Short covering, and a lot of portfolios were light in equities, so in they came. The system is so locked up tight, there is not very much of a chance that he would unravel this whole thing. The environment is still very positive for the American banks. In Canada, a lot of this has been front end loaded. Banks have had a fantastic year, and will benefit from a steeper yield curve. The opportunity for loan growth is greater in the US than they are in Canada, because Canadian consumers are in a lot of debt. He is sceptical of the ability of OPEC to orchestrate energy prices to go higher. The Saudis still control energy prices and supply, but it is not the cartel that it was in the past. Also, there are 500 million barrels of inventory that it is sitting waiting.

Inverse ETF’s? Why pay somebody? If you are not comfortable in Shorting a stock yourself, you shouldn’t buy inverse ETF’s. Most of these are very big and liquid, and are easy to Short. You could even buy Puts on them.

Energy ETF? He doesn’t have a recommendation, because he is not tilting to energy. There are 2 big ones. iUnits S&P/TSX Capped Energy (XEG-T) and BMO S&P/TSX Oil and Gas (ZEO-T). If he were going to choose one, it would be ZEO-T, which would give you the broadest diversification.

Gold ETF? This depends on what you want to do with gold. Gold is basically trading at its marginal cost of production. If you want a bit of leverage, just buy iShares S&P/TSX Global Gold (XGD-T) or Mrk Vectors Gold Miners (GDX-N). They are very similar.

Markets. It has been an interesting couple of months. It is difficult to translate a Trump victory into investment strategy. Some of the run in certain stocks have been impacted by policy reform and it is probably over done. Changed policies will not get implemented until third or fourth quarter of 2017. You should own companies that will work regardless of the outcome of policy reform in the US. He has a bias to Canada but has exposure to other parts of the world. The cost of capital in Canada will go up as a result of many rate increases in the US. These rate increases will impact interest sensitive sectors. Not all of a REIT’s debt gets refinanced in any given year. This insulates them from the full impact of rate increases.

Market. Since the election, it has really been a sector move, as opposed to an across-the-board move causing all these new highs. Where we are getting the oil/gas, financials and industrials to move, the healthcare, technology and consumer discretionary stocks are not moving at all. It is important to understand why these moves are being made. Investors should continue to stay diversified in their portfolios. You never know when things are going to take off. For people who don’t want to have 100% exposure to the equity market, there is nothing wrong with being in the bond market, as long as you continue to have a laddered bond portfolio, so as interest rates rise, you will always have something maturing every year for cash that you can roll into something higher. You can still get 5%-6% yields in the bond market with BBB and BB high-yield investments, where the balance sheets are strong and you can still take advantage of it. Don’t discount the fixed income market just because interest rates are going up. On the dividend side, with rising interest rates, you are going to have pressure coming from telecoms, REITs and utilities. In utilities, most of the construction is done so the rate bases aren’t growing, and at the same time because of higher bond yields, there is going to be competition. S&P 500 is trading at roughly 21X earnings, which often signals a peak. If you take out extraordinary items, it is trading at 25X. We are bubbly right now, so it is nice to have some cash on the sidelines.

Suggestions for getting into gold? Has looked at gold ETF’s, and doesn’t like them. When you add it all up, the actual MER is not .6%, but is closer to 1%, which is too much of a take away. He would prefer just buying gold wafers and sticking them in a safety deposit box. It is the safest and cheapest way of doing it. As long as the US$ continues to stay high, the price of gold is not going to move in a huge way.

Market. The US economy was growing even before Donald Trump was elected. We’ve had very steady employment gains, and are starting to see some wage increases. For Canada, there was a bounce back in GDP, and things are improving. She constructive on equities, because the profit growth is there. It turned positive in the 3^rd quarter. If Trump reduces corporate taxes and repatriates funds, it is something that he will do quickly, which will improve after-tax profits for US corporations. Longer-term, she believes the secular growth is in emerging markets, so now might be a good time to look at names that have not moved. Emerging markets have been lumpy, and a stronger US$ puts them in a difficult position.

Market. The Fed raised interest rates by 25 basis points, which was expected, but also said that they could raise rates 3 times next year, rather than 2, and the market sold off. Thinks that rising interest rates will be directed by whatever Trump is doing and thrusting the economy forward somehow. It hit the Cdn$ today, but will probably ease off tomorrow. We are in that critical period of being not quite at the end of the tax year, so everything that is being trashed is going down, while people take tax losses. The Trump rally is a totally brainless rally that is picking everything up, but all you can do is sit through to the end of the year, and hopefully have a good result by the last day of the trading year, and then start having a correction.

Buying gold stocks on tax loss selling?Gold has sold off under the Trump market, and has been cycled down. At some point, there is going to be some fundamental event that will drive them. The stocks will rise again. There is a significant lowering of grade and discovery and production nowadays, and it will continue to be needed. One setback at the moment is India, where Modi has killed all the big notes, and in the short term killed the gold festival. Now is the right time for buying more.

When do you Sell or lighten up?He very seldom sells, except for things that have gone down for tax purposes. There is also a tiny bit of trimming on some big stocks. He has no precise methodology, and he often gets it wrong.

Market. He has been bullish all year. In June, he felt that very clear leadership had emerged in financials, industrials, energy and technology. This feeling hasn’t changed, other than accelerating since the election. Sadly, the most over owned parts of the market, bond proxies, utilities, telcos and REITs had the highest risk, given that we were so low in interest rates. Trying to position in the market is way too defensive. Cash is sitting on the sidelines. $180 billion came out of equity mutual funds over the course of the year, and that money is not yet replaced, not even close. For those waiting for some kind of 10% correction, they are going to be disappointed. The economy is inflected and valuations for equities can expand from here. The 5 quarters of negative earnings growth in 2015 was an inventory correction. At precisely the moment the market got most bearish, February 2016, the global purchasing managers index (PMI) turned higher. Economic indicators started beating expectation. What was expected to be a 5^th quarter of earnings decline, turned into earnings gains and revenue gains, which began a cycle of estimate revisions. Post the election, most analysts are gun shy about raising their numbers until they see more concrete evidence. As a market participant, you can’t do that. By the time it is clear, you are too late.

Market. Nobody expected this size of move in the market. When you are at this level with the S&P 500 and in new territory, you can’t really call it a Cap. At some point, there is going to be a little fatigue built in, and probably is going to happen on a catalyst event. He is still bullish on the market. We are still in that favourable 6 months of the year. We might see a rotation since some of the sectors have done so well.

Economy. Everybody is expecting the Fed to raise rates tomorrow, and he is in line with that, but what happens after? Are they going to be dovish or hawkish going forward? The people in the Fed are real doves, so they will only raise interest rates 25 basis points at a time.

Markets. The US$ dollar broke out above resistance. But it will cause problems for emerging market debt. He thinks there is a bottoming in gold. The gold producers are starting to bottom sooner. Commodity producers’ stock price anticipates moves in the commodity. XRE-T has been under pressure with the rise in bond yields. REITs have come back a little bit since the end of November. He thinks the 10 year bond yields in the US will break the trend and pull back. Overall he thinks markets will push higher into December but Mid-Feb. to mid-March there will be some pretty big volatility as with other changes in party after a presidential election. He thinks there will be a rally after that.

Educational Segment. How to Use Stop Losses. It is part of risk management. Look at your position sizing. Do you have too much in one stock because it has done so well. Knowing when to sell is a hard thing. Look at the beta of your portfolio. To exit, you could use a volatility stop (VSTOP – Google it). ‘VSTOP’ is a calculated stop loss point that incorporates the volatility in the stock. Look at moving averages. You might sell if it breaks the 10 day.