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

Market. We are in a strong seasonal period, and with the Trump election, people have come to the realization that although there are quite a few unknowns, net/net it is a pretty positive development for markets in the near term for a potential stimulus and confidence in the economy. In the last 5 years, we have had an economic recovery, but it has been a grudgingly slow economic recovery. A lot of that had to do with business confidence. One potentially exciting thing that comes out of the Trump election is that we could get some higher confidence, where businesses start to invest a little more. Thinks Trump and both houses are positive for the economy, and we are going to see slightly better than expected growth. Also, with the potential tweaking of tax rates, there could be stronger than expected growth, which is very positive in this low interest rate environment.

Marijuana? These have had huge runs. None of them are really making money, and some of the valuations are absolutely nuts. If he were doing anything in the sector, he would be Shorting some of these. To him it is just inevitable that eventually the valuations are going to go down.

Market. The market has gone almost a decade without a correction, and you normally don’t go that long, so something was going to happen. He is 60%-70% cash and just waiting. Doesn’t want to get caught flat footed again with another massive correction and no money to deploy, so looks at corrections as an opportunity rather than as a disaster. He doesn’t buy the argument that rates are going to go that much higher. We live in a world with very little inflation and technology destroys a lot of jobs, more than we create. There is also a demographic issue in the developed world where we are getting older.

Market. He is not a fan of Trump, but he is certainly acting presidential, a total surprise. We’ll have to wait and see. OPEC reached an agreement, and implementation is in January. Whether they keep the agreement or not is a totally different question. Oil has a long way to go to get back to balance. Thinks there will be a consolidation in the low $50. Expects the price is going to go higher in 2017, simply because they haven’t put the money in that makes the oil come off the other end.

Telcos, utilities or banks? Utilities haven’t been acting that well, nor has BCE. This a buying opportunity. He would be on the sidelines with utilities as they are more sensitive. Yields tend to be lower than the telecoms. Wait until after December 15 when he believes there will be a rate increase. With the bond market selling off and bond yields coming back, and not yielding as much as banks or telecoms, the utilities are still vulnerable. He would stand back and wait for the next 6-9 months to see what happens. (See Top Picks.)

Gold? Which company? He is not in gold, but believes that until he sees the whites of the eyes of inflation, we are not going to see it. We are building an environment of higher oil prices, fiscal stimulation, bank regulation, etc. which are bound to create more inflation if they are carried through. If inflation starts to show up, then he’ll have a hard look at gold again.

Market. What Trump plans to do is to reverse course from what has been going on for the past 8 years, and take away the emphasis on monetary policy and low interest rates, and move over to fiscal policy. There are 4 things coming along. 1.) Tax cuts, which can be fairly quick, and would be a nice boost for corporate profits. 2.) Up to $5 trillion of infrastructure spending, designed for all those people who have lost their jobs. 3.) Potential changes to the Dodd-Frank act for the banks. 4.) A major repatriation of all of the overseas cash that is sitting in bank accounts of many corporations. These things are quite bullish for the market. He suspects that the US$ is going higher, and gold is going lower. You put your money into the financial stocks, which are going to be huge beneficiaries.

Market. He had been quite cautious on bonds prior to the US election. There is still risk out there. There is going to be uncertainty as to how US policies will be implemented, and if the Trump administration is protectionist at all. So far, he seems to have moderated some of his views. Talking about tax cuts, deregulation, infrastructure spending all of which are generally very pro-growth and good for business, and ultimately good for the US economy and equities.

Marijuana stocks? He wouldn’t invest in any marijuana stocks. If you have made some money, he would suggest you take some profit. A lot of these companies are growing quickly and could become much bigger, but looking at the valuations and market capitalizations that are being placed on these companies, it is reminiscent of the tech boom back in 1999 and 2000.

Will the growth in a dividend stock negate any negativity from a rising interest rate? In the short term, there is a risk that you get a rotation impacting companies, but if you have a company where the dividend can consistently increase, investors are generally willing to pay for that. If you have a long-term view and you like dividend stocks, these types of companies are not a bad place to be.

Canadian Banks. These have been good long term stocks to own, but in general, US banks are more attractive. They’ve been depressed and valuation multiples have been about the same as Canadian banks. However, the environment is going to be better as far as rising rates for better net interest margins. The US housing market has recovered, but still has room to grow, whereas the Canadian housing market has concern that it is at a peak and is leveling off.

Market. The ground has shifted since Donald Trump’s election. He has come in with a view of lower taxes, “Making America Great Again” and interest rates have gone up 75 basis points in the last 3 weeks. Thinks we are in a decisive turn on bond yields. It is possibly the thirty-year turn. Yields have got ridiculously low. Commodities now have bids that we have been waiting decades to see.

Convert Cdn$ to US$ or buy Cdn stocks that have a lot of US exposure? He buys US stocks for areas in the marketplace that we don’t have in Canada. In the next 12 months, he believes the US will outperform Canada by quite a bit. More importantly, US interest rates are prone to rise faster. Owning Canadian companies with US operations gives you a secondary effect.

Market. He sees the market move as a secular one. It took years to develop, and it will take years to unwind. Although November was a catalyst that allowed for the acceleration of the process, it really started earlier than that. The 10-year treasury bottomed in July at about 135, and is now about 1% higher. Interest rates had generally started to move, and some of the related industries reacted to that. Anyone looking at what has happened over the last couple of weeks, might be thinking it is too late and that they can’t get into this rotation, should think again. He thinks it will go on for some time. Over time the reflation trade moves that we have seen will continue, and will reward the types of companies we have seen over the last couple of weeks. About 95% of his clients have a balanced portfolio, and in the fixed income portion, he has been very short on the curve. That has allowed him to come out of this with a very short duration of around 2 years. Currently he is about 50% overweight in the financials.

US Market. Post the election, risk assets have rallied hard, and stocks are up 3%. Small-cap stocks are up 11%. The safe assets, US treasuries and gold, have sold off hard. Thinks that both asset classes have moved too hard and too fast in the short term. However, clients should still continue to be overweight equities relative to bonds, and to be fully invested as you are not earning anything in cash these days.