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

US energy stocks? He would be cautious. Not convinced we have set the stage for oil prices to step up from current levels. The more conservative way to play US energy is through a name like Exxon or Shell. Your cash will come in handy if you have patience, so perhaps take a half position, but he wouldn’t be in a rush to get into oil at all.

Market. Gold spiked, the VIX spiked and stocks sold off today, pretty much on a broad-based sector. A US news network had Trump coming out ahead of Clinton by 1, and all the other polls had narrowed. Clinton’s lead of 8 became 4, so there was about a 4-point swing across all polls. As much as the market doesn’t like a lot of things Hillary might do, they are very nervous on the unknown of Trump. Before the poll came out, there was chatter on what happens if Hillary gets the White House and the Senate and all of Congress, which would be negative for many sectors. Insulin stocks were under the gun last week when Novo in Europe was battered, based on Europe lowering sales and lowering pricing powers. Today, Bernie Sanders tweeted that Lily increased the price of their insulin over 20 years at 2000%. These nominal rates of price increases that you see and hear about in the media are not really what people pay. They are discounts, so the net price of drugs is really what is important, but the media doesn’t catch on to those. Healthcare is really in the radar of Short sellers right now, which he thinks is an opportunity, but we have to get through the election.

Markets. There is a non-decision from OPEC. He does not think anyone should be surprised. It helps with position squaring. TSX stocks are pricing in $65 oil by the end of the year. Don’t chase the strength in the energy sector. The US Election is the laughing stock of the world. It is tragic that the strongest economy in the world is going through this embarrassment. They are still bringing up the Email issue so there must be new information. Our mini budget tomorrow: Ripping up roads and fixing infrastructure is not the best spending we can do. It is not going to get the economic output they expect.

Adjusted Profit and Adjusted Losses. The earnings you report to internal revenue service then companies have some things backed out that are onetime items and are not regular operations. There are so many things included in this that earnings are always 10% higher than GAAP earnings. He prefers to look at valuating stocks with GAAP earnings.

Gold. ZGD-T is the equally weighted gold. XGD-T also. ZJG-T is juniors. There are many different ways to play it. He has 5% exposure to gold right now. He thinks gold will bounce back to $1300 on market uncertainty.

Educational Segment. Fundamental Indexing. Market Cap indexes are the traditional way to do indexes and fundamental indexing looks at cash flow, profitability, dividend sustainability and so on. It is a rules based approach that focuses on the strength of the underlying companies. Market weight is a popularity contest. E.g. Nortel. It went from 3% to 30% of the TSX index. It represents a key flaw of market weight investing. You would have ridden it all the way back down. VRX-T did something similar being 9% of the TSX 60 at its height. Returns are better in fundamental indexing rather than market cap indexing. It will not win over every part of the cycle but long term it wins. Larry’s guest runs his screen once per year. Running it more often incurs trading costs and so on. Research shows you only run it once a year. These funds have a few basis points more MER and are worth it.

Markets. We are in the early throws of a bull market in Canada. People are still scared by ’08. Commodities are instrumental in turning the ship. Canada is about Mining, Energy and Financials. If oil retests last winter’s lows the bull market is off. Housing cannot crash like the US 10 years ago because we do not have no-recourse lending. We would feel it in the economy, though. All systems are a go in the US.

Canadian Insurance Companies. He prefers Lifecos now due to valuation. The catalyst is that lifecos have been under a dark cloud for many years but if we see any kind of an uptick in interest rates, it would be a real boon for these companies.

Bonds ought to be an important part of your portfolio, but he would suggest caution in investing in bonds bow. The difficulty is that the yield is about 1.2% on a gov’t 10 year. If you subtract tax and inflation there is not much left.

Markets. The top line S&P and TSX seem to be holding it but there is a lot going on underneath. Now investors are selling cyclicals and going to defensives. He is much more value focused. He is finding pockets of value here but is holding 40% cash. A Trump victory would cause a knee jerk reaction in the form of a sell off. Certain stocks would be bid up. If Trump got in the Fed chairman could be replaced and that would impact financials. The biggest risk to the market right now is OPEC and the discord, as well as the US election and the total uncertainty. The market may sell off no matter who wins.

Banks. C-N is the only one he owns. It trades below book value and the dividend should increase more than its peer group. In Canada the best one is TD-T because you have a US growth platform.

REITs. They trade off on long term rates more so than short term. The US 10 year has gone from a low of 150 to 180 and this is why the US REITs have all fallen off. In Canada it is sentiment driven. They complete with government bonds for your money even though REITs outperform bonds. If you have a long horizon, stick with them.

Markets. There are BMO executive changes taking place. Bill Downes is 74 and approaching retirement. The most likely replacement is rather young and so if it is next year, then 46 would be the age of one of the younger Canadian CEOs of Canadian banks ever. He likes banks and owns them with favourites being TD-T and BNS-T but he also likes US banks and almost had one as a Top Pick. There are bigger beneficiaries in the Canadian banks. Stock valuations are not that demanding and they are nice holds. Industrials and consumer discretionaries have signs of a rotation so that the market itself might be sideways. If we get more GDP numbers then the economically sensitive sectors could benefit.

Markets. He has hedged and is short in some of his portfolios. He does not know how this US election is going to play out. Short term there are a lot of negative influences on the S&P. We could have an explosive upside rally after the election.

Markets. The S&P has been bumping up and down. We have been looking at hesitation. The market is looking at hesitation with the US election, which is an overhang. If the Democrats take both houses there could be a lot of overhang because of that. There is still a lot of uncertainty out there. The Fed is out there with their raise of rates in December. There is nothing driving markets higher or lower. It is a Physiological impact. Once a year whether they need it or not the will raise interest rates.