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

US infrastructure ETF’s? This is difficult, because a lot of these tend to be a little mislabelled in the sense that they tend to be utility plays. He is working on the thesis of “Where is this money going to be spent?” if “helicopter money” is going to be initiated. He has yet to find a good infrastructure ETF.

A green or socially responsible ETF? There have been a number of countries that have signed on to the Paris Accord to limit carbon emissions by 2020. If you look over the last couple of years, any green ETF has been very disappointing. There are going to be bright spots in the future. One of the industries he feels would be ripe for an investment at some point, will be solar. It is going through a consolidation, and they have to get the demand up. The way to do that is to lower the cost of solar panels, which is exactly what has happened.

Market. When the Fed raises interest rates, he doesn’t believe they’re going to do it at each of the next few meetings i.e. in a fast cycle. Rate increases are likely to be gradual because there is still subpar economic growth in the US and in other regions. If they hike rates too aggressively, you would see financial conditions tighten. We are in a low yield environment, and people have gravitated to dividend stocks in search of better yields, and if you look at certain sectors, there is certainly a risk that there could be a rotation out of so-called defensive and expensive dividend paying sectors. What he tries to do is to identify companies that have a very sustainable free cash flow yield that are generating a lot of money with clean balance sheets.

Markets. Credit is becoming a major threat in China. This has been a major risk for years. 100% of the growth in China has been fueled by debt since the Lehman moment. You see an increase globally in defaults in debts since 2015. There is a warning signal here. Trump is picking up inch by inch. He has a reasonable chance here.

How to Short. The simplest way is to buy a long ETF with inverse exposure, avoiding those with leverage. You can cushion the downside or profit from corrections. We are almost certain to have a recession within the next two years. You can’t short in your RRSP, so you have to buy inverse ETFs.

Parking Cash. He assumes that means risk-free. There is nowhere to park cash risk free with a yield. It does not exist today.

Covered Call Strategies. When he is neutral to negative, he wants to hold things that he can get more yield from and that have less market risk. Covered calls do this.

Agricultural ETFs to take advantage of sector mergers. You won’t get a pure exposure to those affected. They will be 4-7% of the ETF. COW-T has 80% exposure to the US. MOO-N has closer to 40% of the chemical side of things.

Buy silver and sell gold through an ETF. He is not sure there is an ETF to do this.

Educational Segment. The market thinks the likelihood is 18% for a rate hike. He thinks they will go for it this week, however. They have not unexpectedly raised rates since 1994. ’94 was the worse bond market we had for a generation. This will not be similar. It is all about the psychology of how they do it. We will almost certainly get another recession in the next couple of years and Canada and the US will have to go to negative interest rates. Economic numbers are getting worse, but the market has not reacted.

Markets. Investors have been moving into economically sensitive sectors since Brexit. We are seeing signs that US profits are actually going to turn positive after a number of quarters of negative earnings growth. We are finally going to see earnings growth year over year. Stocks are not cheap right now. Interest rates are starting to move up around the world. The negative yields have started to lift and certain areas are starting to turn positive. The market moves ferociously to talk of a quarter point move in interest rates.

Canadian Banks. Definitely one of the sectors to consider if you want a yield, as long as you are willing to think long term. The challenge is that you have to be able to ride up the volatility. The valuations are quite modest. To start buying today you should stagger in over time.

Canadian Telcos. A sector for people who want to invest for yield and income. T-T is the most attractive on a valuation basis and SJR.B-T is most attractive on a turn-around basis. They are doing things that should see the company improve.

Money Markets. The biggest focus is what has happened with money markets over the last few months. Many people have noticed that the TED spread has risen and also the LIBOR OYF spread and is being blamed on the US money mark reform, which takes effect Oct 14. This is a pretty big change. They are requiring prime money funds move to a floating NAV, and potentially “gate” their unit holders. That has caused a lot of money market money to move off into treasury funds, which means it is harder to place commercial paper, and has widened the spreads. Thinks it has nearly tripled the LIBOR rates, which a lot of short-term corporate loans are pegged to. So it has actually caused a tightening in monetary conditions. (These rules do not affect Canadian Money Market funds.)

Jardine Matheson. Safe and reliable? A holding company, and holds a wide variety of assets around Asia. Not a cheap stock, and trades at a significant premium to its NAV. Their assets are largely in emerging Asia, and he has a dim view of the emerging Asia.