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

Market. He is seeing some value, especially in defensive parts that have sold off. Feels the bond markets moved a little too aggressively, really all based on an increase in inflation expectations. When you contemplate some of the policies that could get implemented in 2017, they may not have as big an impact on inflation as people think, especially the infrastructure spend. There is a lack of shovel ready projects that probably won’t materially contribute to economic growth in 2017, it is a 2018 initiative at best. Tax cuts could have a very big impact on corporate profitability and consumer spending. That makes him feel a lot better about earnings growth materializing next year. However, the pullback we have seen in some of the defensive sectors such as utilities and REITs, is a good buying opportunity. If interest rates go up a lot more, it is going to put a negative dent in economic growth in the US, because the US$ is going to rally, and because it does cause financial conditions to tighten, and actually impairs the one bright spot in the US economy, the ability of the consumer to spend and borrow. He has seen a bit of a transition from the defensive sectors that led the market in the 1^st half of the year, utilities, the staples and the telcos, where they were doing very well, but have now actually become laggards.

Market. The strangest thing is the obsession with the election. This is probably a huge opportunity, because you have the Republicans in control of both the House and the Senate within the Congress. They control the presidency, so we are going to get tax reform. We are going to get deregulation which is massively bullish. The market is pricing in a number of rate increases. There has been a significant increase in long-term yields. The marketplace is saying that it thinks interest rates are going to be higher and that the financial repression is ending. This is hugely positive and hugely bullish.

Gold. Gold was very interesting at $250 an ounce in 2003. The price of gold at that time was probably into the 70 or 80 percentiles of the cost curve. Absolutely nobody was making money. He feels that a lot of these things are “buy the rumour” and “sell the news”. Today there is a lot of leverage out there. He also believes the US$ should do well, which is never good for gold.

Market. Oil companies have cut costs and got rid of marginal projects to such an extent that when and if energy prices rebound, there is enormous leverage. Oil, generally speaking, has a long cycle, and is now more efficient. Staple and discretionary stocks have come back, but still look expensive. They are really good companies, but are rich and they have just started to turn over a little and get a little bit cheaper. He keeps hoping they will keep dropping, giving a better opportunity.

Market. From June until November, there were very clear themes leading into the US election, sectors that were outperforming on a relative basis that were all economically sensitive sectors. Investors were very defensively positioned coming into the market. The election took place and those themes took off. The positioning was so defensive, and people were so cautious going in that they ignored what was happening in the market and some of the economic changes that were taking place. From June until November, the cyclical sectors of the market had very clear relative price performance. Going into the election, the sectors leading were semiconductors, financials, materials, technology and industrials. Those sectors don’t lead the market if we are about to head into a big problem. We are now at one of those moments where we have to put the pedal down a little. The next 2 years are likely to be very strong. Economic and earnings data is getting better. Stocks are cheap relative to other assets. It is important to know what to Buy, but also what to Sell. Since June the things that act like bonds have been weakening, and sadly that was the most crowded part of the market. Doesn’t think interest rates are going up in a hurry, but will likely see 10 years of rising interest rates. REITs, utilities, telcos, etc. are likely to underperform.

Markets. Ottawa wants an end to coal for 2030. If he was the CEO of a utility, then he would probably view Trump’s bringing back coal as a temporary thing in that kind of timeframe. The world is moving away from coal and the coal jobs are not coming back. OPEC is going to talk up a cutting back on production of oil, but they have always cheated. If OPEC cuts back then the US and Canada will just boost theirs. He thinks there might be a freeze on production levels. Oil stocks on the TSX are priced for $60-$65 oil. If oil goes up to $60, these stocks could go a little higher than they are today, but they are basically discounting this level. You could be a buyer on dips, but don’t chase it. Oil is lower for longer. Fixing roads and bridges is not going impact any US infrastructure ETFs as they are pipelines and utility stocks. There are no companies in these ETFs that would benefit. The exposure is zero to Trump’s infrastructure spending.

Educational Segment. Momentum and value in smart beta ETFs. Vanguard has a couple of smart strategies. They think smart indexing is an active strategy. They debate Larry in disagreeing it is active in that it is a set of rules. The Momentum strategy is benefiting from a behavioral bias in the market place where investors are slow to react. The Liquidity strategy focuses on companies that are smaller and don’t trade as much, aren’t in the news as much and so may be undervalued. Investors overpay for liquidity in the market place. Less liquid names, also have more risk. A quarter of Vanguards assets under management are actively managed.

Markets. The US$ and the Markets have both been going up due to the Trump effect. They will need time to digest what has just happened. It is important to consider changing government regulation and how it effects each stock you might invest in. The market is starting to discount that we will see less regulation and lower taxes in the US. Trade policies changing are murkier and will have to play out.

Grocers. With a US deregulated and lower taxed growth environment in the US, cyclical businesses will start to get very interesting. A lot of safe stocks like groceries and utilities have people hiding in them. They will have more headwinds than people are used to.

Gold. He believes gold is an alternative currency but with no debt. It does well when there is a concern about one of the reserve currencies in the world (countries have debt). Gold has been struggling as the US$ has been getting stronger. This has been a headwind for gold. He believes gold will always have its place and that it will pick up in the mid to long term.

China and Banks under Trump. Banks are at the bottom of the list of those to be concerned about due to China. There are many benefits to Trump policies for Banks. TD-T is an excellent way to play US banks as well.

Resource Stocks.

Gold. No one expected the move on gold last year, and we are almost replaying that again this year. 98% of people are saying that there is going to be a Fed rate increase in December, so gold has been selling off. In Jan-Feb the TSX gold index was up 40%, and he expects we will see this again. Thinks there is going to be a lack of further interest rate increases, it will be sort of a hesitation by the central bank when they don’t know what the Trump administration is going to be doing. Also, Trump talked about spending money and cutting taxes, and typically that is inflationary, which is good for gold. Also, in the early part of the year you have the Chinese New Year and a restocking of gold. Seasonally, up to about the end of February, is a good time to own gold. Expects there is another month of weakness to go in gold, another 10% down. During that 3-4 week period, this is time to start buying back in. He typically buys gold stocks, the ones that have the good commodities that aren’t affected by currency run ups and are in safe jurisdictions.

Crude oil. We will know in about a week’s time. OPEC is having a meeting, and whatever comes out of that is going to drive the commodity forward. If they come out with a positive statement that they are going to cut oil by 1 million barrels, mid-$50 is about where we would stay next year. Canada has to work on getting pipeline access.

Gold. This is a currency and is sentiment driven. Expects there will be a very volatile year next year. We have had the Trump election, which scared everyone. Europe is going to go through all this next year. Germany has an election and there is a lot of opposition to Merkel. There are the problems with immigrants coming in causing a lot of problems and people are upset. France is the same thing. Could the European union fall apart? Britain was the first domino. Other countries see that and don’t want to be left. Gold is not a long-term hold; you trade on the rallies.

Markets. You have to focus on growth. One of the big industries is infrastructure. Industrials also had a big surge. A lot has to do with military and the build out of America. The financial sector is pushing back on excessive regulation. The 10 year government bond has increase dramatically in the last 10 days. Trump will drop taxation and streamline regulations in so many industries. Cash repatriated by companies can go into infrastructure.

US Banks are enjoying a spread that is widening. The banks are going to make more money. Deregulation gives a fantastic stock market boom.