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

Markets. Real assets such as Agriculture, Real Estate, Collectibles, Commodities, and infrastructure are at their cheapest relative to financial assets since the late 1920s. When you look at some of the metrics on some of these you see monetary policy. They prop up financial assets. Emerging market real estate is really quite cheap. Depending upon the type of real estate, there are different kinds of metrics. Student housing, for example, looks cheap in Latin America but in the US it looks expensive. People are going into Britain and buying real estate. Companies that export outside of the UK are doing quite well.

Financial services. If you look at their ability to manage their rate exposure, they can’t manage it in Europe with negative interest rates.

Investing in US Companies. Short term currency risks are the fastest way to lose money. Be very careful round currency risk. There is more currency risk and uncertainty to come. Look for a fund that manages currency risk for you.

Favourite commodity recommendation with stability 5 years plus. There is decreasing supply of trees worldwide and increasing demand. Timber should appreciate 6% over the next 30 years. You need to increase exposure as you see supply coming off line and decrease as demand comes on line.

Market. He remains positive on the market, as he feels US earnings have turned the corner. As we get into 2017 and possibly into 2018, you are going to see an acceleration of earnings. That is going to result from a number of thinks such as continuing consumer spending, CapX picking up and exports, which will be retarded a bit because of the recent 3.5% increase in the US$. Looking into 2017, once we see oil prices having some stability, then we will start seeing a pickup in activity in Western Canada, which will start the earnings flow. He is pretty fully invested, but will pick out names that represent great value, and if necessary, will sell something in order to buy it. Sees good value in the banks right now, a potential for energy stocks which can go up a lot more, and the cyclicals that benefit from capital spending.

Energy. He doesn’t necessarily believe $60-$65 for 2017. If we see a good base at $50-$55, there will be a good follow-up improvement.

Percentage of gold stocks a portfolio should have? He likes to use 2% or 3%. It’s a good asset class. (See Top Picks.)

Resources.

Oil has been an energy that was chronically oversupplied for the last couple of years. He is happy with the trends on the “supply” side, especially on OPEC’s and primarily in the US. A little disappointed on the “demand” side, not quite what he expected like in 2015, but still growth year-over-year. Now you have the Algiers “sort of” commitment to at least try and formalize an agreement of production for OPEC. He hopes that is the “line in the sand” to say that $50 is the floor, and hoping for something closer to $60-$65 by the end of 2017.

Natural gas in the short-term, is more likely to go up. There has been a big reversal. With less injections over the summer, the supply side has kind of normalized.

Zinc looks good from here. It has come off from its lows earlier this year, and is now over $1. There is some momentum as the market continues to digest the coming shortage. Through 2017 we could see prices approaching $1.20-$1.25.

Copper seems to be stuck just above $2 a pound, and justifiably so. There are a number of projects still getting built and coming on over the next couple of years, which creates that overhang over copper prices. He is assuming that everybody builds everything more or less on time, and that supply comes into the market and should keep prices in the $2-$2.25 range.

Market. Stocks may not be cheap, but they look better than other investments out there. The TSX is trading at around 19X and the S&P is at around 18X. Not cheap, but cheaper than bonds. We are still in an environment where you can still have multiple expansion, but what is going to happen is that earnings are starting to come back. They are getting better in the S&P, and will probably get a lot better in 2017. Energy alone could take your earnings from about 120 to about 132 next year in 2017. Markets are expensive, but with higher earnings you are going to have a cheaper market. Thinks interest rates are only going to go up once, expects Hillary to get in, Republicans are probably going to get the House although they might not get the Senate, and markets like gridlock.

For safer dividends, Telco or Banks? Banks. Their payout ratio is about 48% and trading at above their 5-year average. Telecoms are much higher than that and are basically bond proxies.

Oil or pipeline stocks? Pipeline stocks are enablers and are a lot safer. They are going to earn money over the next couple of years, almost regardless of where the price of oil is. A lot have guaranteed contracts. Oil companies are different, but he thinks we are in an exciting place for the Canadian oil patch. The stocks are still expensive on $50 oil, but at $54 oil (his price) the valuations are getting pretty good. On pullbacks, lower than these levels, you can start adding to your oil positions.

Split shares? These can work well. It depends on the mechanism they are using. In some cases, they take the capital of the bank, and do a 2 for 1, and take the dividends and give them more to the preferred shareholders. If it is done in a corporate finance way, the fees are not too bad. If you get the direction you are looking for, they can work very well. The problem is, if you got a double on the common without the dividend, and the bank stocks don’t go up quickly, then you can amplify your losses.

Short-term bond ETF? You could look at iShares DEX Short-Term Bond ETF (XSB-T) or iShares 1-5 year Ladder Corporate Bond ETF (CBO-T). These are great instruments for asset allocation and there is a lot of liquidity there.

Markets. When volatility enters the market place for equities, it means you have increased dispersion. Not all stocks are correlated in one direction or the other. With market neutral investing you are on the right side of the market. Until the last month it was pretty much a straight ride up except for the Brexit dip. November 8^th is a wild card and the Fed meeting in December is an even larger wild card. Canadian foreign ownership limits on housing will definitely have an impact. A housing slump in Canada could come from an increase in rates and a recession on the demand side. Frankly we need a pullback on the housing market.

Banks. The banking system here is more regulated than in the US. We have the big five. The risk is that consumer debt levels are at ratios where the US was in ‘05/’06. There is more risk over the Canadian banks than the US ones.