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

Markets. Both US and Canadian markets have had a pretty good run from their lows. TSX was up 20% from January lows, and the US about 16%. It isn’t surprising that we are getting a bit of consolidation or pull back. Markets seem to be wanting to find a reason to pull back, so everyone is focusing on BREXIT, which has been an overhang for the last few days. It looks like a lot of the official agencies are calling for a quicker pass to rebalance supply and demand on oil. If crude hits $50-$60, that may be enough to have some additional supply come on stream in North America. Doesn’t think the Canadian economy will go back into recession, given that the US economy is recovering, and we are their largest trading partner. Banks have had a nice run from the beginning of the year, and are still very well reasonably priced based on historical valuation levels. They are yielding over 4% and are continuing to increase their dividends. Pulling back a bit, so now is a good chance to get in if you don’t have exposure.

Markets. This is a really interesting market. Everybody is peering around every corner for what could derail the market. There are lots of jitters. The percentage of bullish advisors in the US is still hovering around 20%, not much above the 30 year low that it hit a few months ago. Also, Brexit is coming up, there are concerns about China, concerns about other countries in Europe, so there is no shortage of things to worry about. Yet we are at about 2.5% from the highs in the S&P 500. He runs a model that tracks the percentage of securities in a particular market that are performing well technically. Since February there has been a slow steady improvement. Even in the last 10 days, where the market has been wobbling around, there has virtually been no damage to that indicator. Money is working its way into stocks despite all the big concerns. As we go through the summer, stocks can actually probably go a lot higher. When you look at the return they are generating on their capital, versus where you can go to buy a piece of fixed income, the risk premium you are getting paid as an investor is very significant, not to mention the yield. The markets looks pretty attractive and we just have to get through some of the noise. There are all kinds of great companies that are better than the market, with really strong balance sheets and very strong dividend growth, north of 10%, and you are not taking on that balance sheet risk of buying a government bond at no yield. We are in a secular bull market for stocks where you tend to get better returns on the long-term average.

Elliott wave theory. Not a big proponent of this. It is only after the fact that we can we evaluate whether it worked or didn’t. The conclusion is that nothing works all the time, and it is about managing risks.

Consumer staples? Portfolio managers have to stay fully invested, and want to get defensive if they think markets are going to pull back. They go into lower volatility names like utilities, some healthcare like big Pharma (if they are not too expensive), and consumer staples. You could use SPDR Consumer Staples (XLP-N) in the US or iShares S&P/TSX Cap Consumer Staples (XST-T) in Canada. Alimentation Couche Tard (ATD.B-T), Loblaw’s (L-T) and Metro (MRU-T) are the big weights in the latter. These are more defensive and likely to fall a bit less when markets correct, but not likely to go up when markets go down.

Educational Segment. Downside of negative interest rates. Negative interest rates are really stealing money away from pensioners and savers. Did a little heat map of the term structure of interest rates going 2 to 30 years in the various countries. Canada, US and UK still have relatively normal yield curves, although yields are pretty much as low as they have ever been. However, in Europe and Japan you’ve got negative interest rates. There are over $10 trillion of government yields with negative interest rates. Last week the ECB started buying corporate bonds, and there is a good chance that some corporates are going to be able to issue bonds with negative interest rates. He showed a 2006-2016 chart of the total returns of the entire US market comparing the history of stock and bond returns. When stocks go down, bonds are generally the offset. The problem in the pension world going forward is that interest rates are so low that in order to get that balance return of 6%-7%-8%, you have to use stocks, but only if you can handle the ride. The volatility is very, very different. If global bonds are going to yield 1%, in order to get your 7% in a balanced portfolio, you have to get 14%-15% in stocks. Where valuation is today, that is not doable. A passive “buy and hold” portfolio is going to be very challenging.

Markets. When looking at both US and international markets, she is always concerned about valuation. She has a very long-term investing style. Right now, the US equity market is looking a little rich. It has hit all new highs for the S&P 500. Has crossed above $17,500, which is the first time since the 90s. That tells her the markets are very vulnerable to any type of disappointment, whether it is of concerns in Europe or China. Valuations are so high right now because the US is the best house in a bad block. Britain looking to exit the euro can be a big concern for Europe. Europe is looking for a big earnings contraction this year, and are not expected to have growth until the 4^th quarter this year, if they are lucky.

Markets. There is a global rally in government bonds, and that is very concerning because there is $10 trillion of sovereign (US$) that are trading at negative yields. That is a significant issue because we have never really been there before. Many people, including himself, think it is because the banks are running out of ammunition. They have done everything to lower rates, even going to negative rates in Japan, which has created a huge problem, and a bubble is essentially forming. We haven’t had rates this low in 500 years of recorded history, so it is hard to see how this ends well. The poor jobs report has set back expectations even more substantially than what they were set back already. The bond issue is something that will affect us all at some point, because we don’t know how it is going to unwind. He is fully invested, but on both sides of the market, and is looking to be more aggressive on the Short side in the cyclical names. Also, starting to pick away at some gold names.

Forestry sector? Stocks are cheap and have been trading down. If you are willing to take a longer-term perspective, at least 6 months, they are all attractive. Expects there will be a solution to the softwood lumber dispute. There is some evidence that the millennials are forming households.

Markets. Looking at the mid-caps that he focuses on, he is not seeing great operational results, and as a consequence is very surprised at how robust the market has been in the last little while, and he would be cautious. He has been pulling in risk, both on the Long and Short sides.

Markets. The TSX has had a big run, which was powered by the 3 big ones, financial, energy and materials. We have just had a correction and he wouldn’t worry about it. It is a normal, healthy correction. The long-term chart showed a low in 2008/2009, a low in 2012 and another one this year. Each low is higher, and now it is trying to break out. A peak occurred in 2008 and a double one occurred in 2015, which are called bull traps. He is sure the low of 11,500 will not be violated.

As a short-term+ intraday trader of stocks below $1, which 3 or more indicators and setups are best for taking decisions? A lot of day traders turned to long-term investors because they got the trade wrong. He would not trade anything under $1 unless there is big volume. If it is trading less than 100,000 shares a day, he wouldn’t touch it.

Markets. When it looked like Hillary, not Bernie, might be the next president then the markets calmed. You could keep the banks, then. She will go forward against the other gent and the Americans are less embarrassed about their citizenship. In the end Brexit doesn’t matter, although he thinks in the end they stay in. These large political events are disturbing just because they are there and they get in the way. He does not know if a Brexit will cut them off from the EU markets. He does not think they should leave. Resource stocks have disproportionately led the markets higher.

Markets. Global 10 year yields have declined because global growth has not really progressed very much since the recession. Inflation is still low, but in the US, pressure on wages is starting to happen, but not enough that the market cares yet. Janet Yellin advised they were going to delay increasing interest rates again. This will probably be delayed until the fall, and may be only 1%. He is more cautious now than he was in January. TSX is trading around 17.5%-17.8% times earnings, which isn’t cheap. That is the top of his valuation range for the year. He is positive on oil prices, although they are a little ahead of themselves now. Demand is still there and growing at 1%-2%. If energy gets up to $55-$60, then he would pare back his energy holdings somewhat. Longer-term he doesn’t see the dividend growth that he probably saw over the last 2 cycles.

Markets. He is guardedly optimistic. Valuations are reasonably full. The market is climbing a wall of worry, probably because rates are so low with some expectation that they are going to stay low and people are being dragged into equities as the sort of best house in a bad neighbourhood. The TSX has underperformed for quite some time and is finally picking up some steam. The million-dollar question is, is that sustainable. Higher interest rates in some instances is probably a better thing. It will allow the financial system to function in a more normal fashion.

Markets. The market has been grinding higher for a while. The S&P 500 1-year number is now + 1%. The TSX, even though it is on a tear this year, is still minus about 2.5%. We have had this on/off, on/off Fed watch with interest rates, which has caused all of the volatility. You have a bifurcated market in both Canada and the US. Sentiment is at all-time lows, so it is creating a sort of contrarian, very surprising “grind up”. Two big mistakes that people made were bailing in the February downdraft, which is maybe why we are not having a “sell in May” phenomena right now, and people feeling that interest rates were going to go up and the US$ would resume its strengths. The key is to cut the big losers quickly and do a little bit of rotation on the side.