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

How to play Pharma in light of the US Election. It is going to be a long and drawn out process. If Clinton gets elected it will take months and months and months. He would avoid the sector.

Sell in May and go Away? You want to be easing off in your beta and going away in May. This is the time to get in.

Uranium stocks. It has been crushed since Mar’11. The seasonality is about this time going into April. But we have such a factor that has taken effect outside of seasonality. Until the new uranium power plants start buying there will be a lot of shut in supply. It is a macro trend. Wait until you see a turn around.

Markets. There are risks out there and the Market likes to climb a wall of worry. Inflation will slowly tick up here and you are seeing it in the yield curve here and in the US. The risk is that you have higher inflation and slower growth. People are going on about valuations and he just doesn’t see this excessive bullish sentiment that people are talking about. A lot of people have missed the stock market since 2009 and have been in the debt market instead. With Brexit and all the other things going on it does not take away from the fact that dividend yields are so much higher than bond yields. This quarter should be flat or better on the earnings side. You should see better numbers in oil so the market should be able to do better going into the end of the year. Everyone is looking for the market to come down and he thinks it is more likely to go up than pull back. The unintended consequences of QE are happening now and you are seeing lower inflation and higher valuations. People are caught up in thinking there is something else.

Market. The market is a little bit long in the tooth, but there are going to be opportunities for stocks to grind higher over the next 6-12 months. Doesn’t think a recession is imminent and equities are still going to be the preferred asset class for the next 6-12 months, but not a smooth ride up.

Energy. There is a major resistant point at around $51.67. Expects $45-$46 is the floor, but it is going to be hard to get over the $51.67 boundary, but will probably will take some OPEC help to get over that. Once we get over $51.67 he could see it easily moving to $60.

Market. The markets have probably lost a little of the momentum that they had in the previous quarter. Commodities have not necessarily been as strong as they were, but some of the more growthier are starting to accelerate again. Once earnings come through, we’ll probably see some acceleration if they are good. There was a real focus on energy, materials and banks at the beginning of the year. As we enter the 4^th quarter, there is more interest in those areas.

Market. Fundamentals are mixed, yet markets are still at their highs and keep grinding higher. Some concerns are the upcoming US election, how the BREXIT fallout might look over the next couple of years and, most importantly, what is going to happen with the bond market. We have had ultra low interest rates; a reason investors have pushed equity valuations up to relatively high levels. If we see an inflection point here and start to see rates turning higher, what will that mean for equity valuations. Can they stay at that 18-18.5X earnings levels where they are right now? He would worry a little about valuation metrics on Canadian consumer stocks, and whether those valuation levels can be sustained.

Marijuana stocks? He doesn’t own and has even contemplated trying to Short some of them. You want to be very careful on the timing because it is almost the next emerging bubble in the Canadian market. When you start to look at some of the underlying fundamentals and the market valuation of some of these companies, there is nothing in the way of profitability and very scant revenue numbers in many cases.

Market. Revenue growth for the S&P 500 for the last 4-5 years has been quite anemic. Global growth continues to be very slow. That situation is unlikely to change meaningfully in the next year or 2, and is being reflected in very low interest rates. Thinks investors are beginning to figure out that stock buybacks are going to slow down. Revenues have been pretty flat, except for companies that are growing very fast, and yet dividends and stock buybacks are increasing at an increasing rate. Companies have been gorging on very, very low interest rates and borrowing a lot of money and are now in a situation where many of them have increased the borrowings to a considerable extent. They are losing flexibility at a time when technological disruption is really taking root in many, many different industries, and are increasingly unable to respond to competitive threats because of very high debt levels, low growth levels and very high dividend payout ratios. Thinks investors are beginning to slowly realize that the “increasing the dividend” and “increasing stock buyback” stories at a time a time of very anemic economic growth, actually may be increasing risks for investors.

Markets. 40% of the Dow companies are reporting this week. The numbers so far have been good. We have been adjusting to the new earnings reporting standards. Adjusted earnings are rising a bit now, but the old GAAP earnings are up 15.37%. If you consider the market multiple we are trading at 23 times earnings. He does not see the earnings growth in Europe that analysts are forecasting. He does not agree with a lot of the adjustments being made currently. The uncertainty around the EU and Brexit will prevent the signing of current trade deals being anticipated. The Canadian economy is struggling. We are stressed here. Canada has one of the best debt to GPS ratios in the world, but you can’t do that. You have to add in the provincial part. That puts us at 95% and up there with all the other countries. He does not think there is room for more stimuli in Canada.

Bond ETFs. As we all age and face retirement, the rule of thumb has always been more safe money and fixed income. After tax and inflation you have negative real returns for the next 30 years in almost every country in the world. Bonds are a losing bet. You will be worse off every year. A 60% bond portfolio does not make sense anymore and is a big challenge going forward.

ETF to Short Canadian Real Estate? You would have to short XRE-T or another real estate ETF and you would have to do it in an unregistered account. REK-N in the US is an inverse of the real estate market in the US. Hedge funds short a real estate company as a proxy into the real estate market when they want to short that market.

If you study performance of Mutual funds and managers, 85% don’t beat the market after fees. The industry will not go away. Within 10 years Mutual funds will be held in inverse of current proportions to ETFs compared to what they are now.

Educational Segment. Smart Beta ETFs. They are smart indexing products. Low beta or volatility strategies address investor outcomes using Beta. They look for low beta. If you weight beta and ensure diversification across the market place, you get less risk. Low beta is not expensive but in line with the market place. There is also a ‘quality’ based set of ETFs. They look at debt to equity to reduce volatility. These ETFs are managed by computer and not actively managed by a portfolio manager. You pay a bit more than a non-smart ETF. The low volatility and higher quality strategies have historically done better through history.