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

Mortgage REITs. Mortgage rates are close to historic lows. If they go back up it would benefit the US mortgage REITs. Income is declining because the end of the yield curve is declining. If they go back up, then so should the mortgage REITs.

Canadian Markets. There are a lot of areas that are so cheap that they just can’t get out of their own way. There are a lot of good yield proxies, some of the REITs that are paying 7%-9%; some of the industrial companies with really good dividends will probably have some very good upside. Then there are those that are not cheap, but have very good dividends, and even better EPS growth. There is a lot of cash on the sidelines. This is a market that is likely to go higher.

Economy. We are in an environment where we are going to have low interest rates for quite some time. The Fed will raise rates every chance they can, but it still does not replace the fact that there is “central bank” buying out there, and we are in a deflationary world which will take some time.

(A Top Pick Oct 2/15. Up 53.27%.) Emera instalment receipt (EMA.IR). This is something where you can put one 3^rd down, get paid effectively 12% on a note. At that time, he thought we were heading into a tough macro as well as a tough time for the stock market. We are at a time right now where investors have to put down the other two thirds to get the whole play on it, but he is not interested in that. He recently got out of this.

Oil Stocks. Western Canada needs around $60 oil to really work. In Cdn$ terms we almost hit that about a month ago, and that is enough to make people feel good and to believe that it is no longer a total disaster. Then the oil price slips, but the feeling is an awful lot better. But it doesn’t mean that we are actually off to the races.

Gold. There has been such an amazing move in gold. He likes to look at this in Cdn$ terms, and we are really at all-time highs. If you have your gold mine in Canada with the Cdn$ costs, you are very profitable and you had a good run. Shouldn’t be too overenthusiastic.

Markets. So far we have seen pretty good earnings from some of the companies that have reported to date. Overall he is happy and, if anything, has probably seen a bit of an earnings trough going back a quarter or 2. Starting to see some acceleration both from revenue and earnings across the board. Valuation on Canadian banks, especially when compared to the US, are sky high, and is something he is watching, but feels we will see some kind of pick up in inflation going over the next 12 months which will increase interest rates and which will be positive for bank earnings.

Gold. Thinks the world is going to look at central banks and realize that they don’t have full control the way most people think they do. As a result, gold is probably going to become a currency, not just a commodity. At the same time, you might also see the US$ being strong.

Markets. The S&P 500 is showing wide divergence in stocks, more than is historically normal. A lot has to do with different central-bank policies and the secular changes in the economy. The US$ is going to continue to show strength against other world currencies, because the US central-bank is ahead of everybody else. The European Central Bank and the Bank of England are in a very expansionary monetary policy mode. Bank of Japan is considering “helicopter money”, which could consist in part of having the government issue bonds to the bank of Japan with no maturity and zero interest rates.

Gold. The argument for gold on the basis of negative real rates is valid. Gold has certainly been tracking real rates. In an environment where it costs money to put your currency in a bank, gold is pretty attractive. Money printing is one of the core arguments for holding gold. It is a purchasing power hedge, and has been for a long period of time. When you look at what is going on in the US, M2 is growing at 6% a year. There are not many periods in history where you can go back and see where you have been printing Fiat currencies at that type of rate, without having some type of inflationary response down the road. Gold is a purchasing power hedge that protects investors from that depreciating value of currencies. He doesn’t see gold going back materially, and sees this as a buying opportunity.

Platinum? A good portion of demand comes from industrial applications. It is a little bit like silver in that you not only have to get the monetary component right, but you also have to think about what is going on with industrial demand. At the moment, most industrial demand comes from automobile catalysts, typically diesel. With the scandal on Volkswagen and diesel admissions, there is the expectation that demand for diesel in passenger vehicles will go down. It is also hard to be positive on platinum demand for autos in Europe.

Markets. Trump is ahead of Hillary according to weekend polls. We will see after this week if Hillary is still gaining momentum. The majority of earnings on the S&P will be in by the end of this week and they are better than expected. There is a lot of potential for growth over the next couple of quarters, but there is also room for disappointment. He is worried about a correction up to 20% over the next 6 months.

US Stocks and Bonds. Caller is 75% US. The world is a little over 50% US. He likes being overweight in the US, but he would like to hedge against the currency risk. You can also be overweight Canada to get the dividend tax credit. He would be looking to trim the US exposure.

Canadian Banks. He would start liking them 10% lower. We are at the upper end of the trading range. He would hold through ZWB-T, but when it got 10% lower.

ETFs vs. individual stocks. The biggest difference is diversification.