ENR Market Outlook November 2017 Executive Summary · ENR Market Outlook 2017 Executive Summary:...

November 2017 ENR Market Outlook

Executive Summary:

Global major stock markets have generated a 16.5% return in 2017 – the best annual gain since 2014 and the third

best calendar year since the 2008 financial crisis. Emerging market equities have rallied 30% this year, the biggest

calendar year gain since 2009. The S&P 500 Index has gained 17% this year but has lagged the Dow Jones

Industrials Average, up more than 19% as cyclical stocks dominate performance;

The U.S. markets’ technical breadth has been excellent with the advance-decline line strong, new highs versus

new lows rising, and bullish signals confirmed by the Dow Jones Transportation Average, smaller companies and

recently, rising commodities. The bull market remains technically strong;

In the United States, stock market declines have grown shallower over the past two years and are snapping back

sooner. The S&P 500 Index has gone 246 trading days without trading more than 3% below its record high – the

longest streak ever for the benchmark. The broader market hasn’t declined 10% or more since February 2016;

The MSCI World Index of major bourses, hasn’t declined more than 6.6% since the summer of 2016, and like the

S&P 500 Index, hasn’t posted a meaningful decline since February 2016 when it sank 20%. It’s the same story for

the emerging markets, on a wild tear since the first quarter of last year.

Non-government fixed-income securities mostly declined in value in October. High-yield debt, corporate and

mortgage bonds, and emerging market debt all posted modest losses as stocks hit fresh highs across markets

worldwide;

As China’s Xi Jinping ascends to the zenith of power in China and commands more authority than even Deng

Xiaoping and possibly Mao, the investment implications for global investors are important. Fears are growing that

perhaps Xing will seek to take a government stake in the fast-growing e-commerce companies dominating the

global marketplace: Tencent Holdings and Alibaba Group Holdings. Both Chinese behemoths now rank among

the top ten most valuable tech companies in the world along with Apple Inc., Facebook and Amazon.com. One

wonders if the Chinese government won’t force Tencent and Alibaba to work closer, sharing user-profile data and

other financial information. The government is also starting to take capital stakes in internet companies to gain

board seats and influence corporate strategy;

The European Central Bank (ECB) will trim its asset purchases in January to €30 billion ($35 billion) from €60 billion

($70 billion) currently as the euro-zone recovers from a multi-year debt crisis in its southern periphery and a

protracted economic slowdown since 2010. Business and consumer sentiment continues to improve across the

19-nation bloc. The ECB, however, will continue to ‘softly taper’ asset purchases of (mostly bonds) until September

2018;

Japanese stocks are on a tear, now at 21-year highs following the successful re-election of Shinzo Abe, a weaker

Japanese yen, and strong corporate earnings. The Japanese central bank remains the largest buyer of Japanese

stocks, ETFs, REITs and bonds.

France has emerged as a potentially leading euro-zone investment destination for business following the

introduction of lower corporate tax rates and falling individual income tax rates under Emmanuel Macron. Also,

France is benefiting along with Germany as multinationals leave the UK due to Brexit. Starting in 2018, the French

government will scrap its ‘wealth tax’ on everything, except real estate assets, cutting the tax by 70%. A 30% flat

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2 ENR Market Outlook

tax rate will also be introduced on capital gains, dividends and interest income. The Paris CAC-40 Index has gained

13% this year in local currency terms and 23% measured in USDs;

The U.S. Dollar Index continued its ascent in October, rising 1.7% but still down 7.6% in 2017. One of the worst-

performing currencies last month, the New Zealand dollar tanked more than 5% vis-à-vis the USD following the

central bank’s decision to keep rates steady and new spending priorities by the Labour government;

The benchmark Reuters-CRB Index of commodities posted its most profitable month in October, rising 2.4% on

the heels of stronger oil prices, rising base metals and a rally in most soft agricultural commodities. The index,

however, remains down this year, off 2.6%;

The International Monetary Fund (IMF) warned that risks loom amid a current euphoric market outlook as a $135

trillion-dollar debt load pressures the G20 or the world’s biggest economies. The IMF, part of the World Bank,

stressed that debt-servicing costs are already taking a toll on companies and consumers, and threatens to trigger

another financial crisis. The IMF found cause to worry in the growing non-financial sector debt in G20 economies,

which in 2016 reached $135 trillion dollars or about 235% of aggregate annual economic output. The United States

and China each accounted for about a third of the $80 trillion-dollar increase in debt since 2006, according to the

IMF. The body isolated those countries where debt-servicing ratios were most acute, including Australia, Canada

and China;

The exchange-traded-fund (ETF) industry, dominated by Blackrock, Vanguard, Schwab, Invesco, Fidelity and State

Street, continues to gain momentum as new and existing players cut management fees to draw assets. In October,

Franklin-Templeton Investments announced a series of new country funds to compete with Blackrock’s iShares.

Templeton, which prides itself as one of the oldest global value investors in the United States, is finally throwing

in the towel to compete with passive sponsors. The new Franklin FTSE Japan ETF, for example, will offer the lowest

expense ratio in the industry at just 0.09% per year compared with 0.48% for a comparable product offered by

iShares Japan ETF. The top three ETF companies (Blackrock, Vanguard and State Street) control 70% of the entire

global ETF industry, according to Forbes;

ETF inflows continue to hit records. Fund-flows into bond ETFs and stock ETFs hit fresh records almost every

month. The inflows into bond funds thus far through September 30th have already exceeded the 2012 record by

34% to $241 billion dollars, according to Bank of America Merrill Lynch. Amazingly, investors are still lunging for

the equivalent of ‘bread crumbs’ in the bond market after a massive 35-year secular decline in interest rates;

Ireland has nearly completed paying the last tranche of borrowing from the depths of the 2008 financial crisis.

Ireland’s bad bank (NAMA), was established in 2009 following the states’ bailout of its financial system. NAMA

redeemed the final €500 million ($582 million) of government-guaranteed debt, three years ahead of the target

it sought to meet in 2009;

We recommend avoiding most bonds, especially high-yield debt, emerging market bonds and leveraged loans.

Credit spreads for these and other high risk fixed-income securities have compressed markedly this year and are

approaching record lows last seen in 2007. We prefer floating rate investment-grade bonds, Treasury-Inflation-

Protected Securities (TIPS) and short-term Treasury bonds. Investors are advised to maintain short durations or

avoid most bonds altogether in favour of cash. Compared to 12 months, 90-day U.S. T-bills now yield 1.17% versus

0.32% in November 2016;

ENR still prefers global equities to bonds. We’ve raised cash to upgrade ahead of another expected Federal

Reserve rate hike in December and rising short-term rates. However, we’ve been warning for months that most



stocks are overvalued and supported by still prevalent low global interest rates and rising corporate earnings. A

correction is long overdue at this point. Though the economic cycle – now into its ninth year of expansion -- is

advanced, dangers lurk ahead of the Fed’s plans to reduce its balance-sheet this fall. Stocks still provide the best

relative values in a prolonged cycle of low inflation and exceptionally low interest rates. Investors should be

mindful that ‘bubbles’ are forming in some sectors of the stock market in late 2017 and bond yields are likely to

drift higher in 2018. Bonds are exceptionally expensive and should only be purchased mainly as a hedge against

deflation. In the fourth quarter, the Shiller CAPE S&P 500 Index hit its second-highest ever valuation after 1999 at

31.5 trailing earnings;

ENR’s growth-based portfolios, ENR Global Contrarian and ENR Aggressive Growth, hold 68% and 80% in global

equities, respectively, as of October 31. Both programs also own hedges in gold and silver, Swiss francs and

Japanese yen amid an expensive market and rising global interest rates. The ENR Global Contrarian Portfolio has

gained 8% in 2017 and the ENR Aggressive Growth Portfolio is up 14.5%;

ENR is pleased to announce that Wiener Privatbank SE has expanded further this fall following the planned

acquisition by Arca Capital Group. Based in Bratislava, Slovakia, Arca Capital Group manages $1.63 billion dollars

in assets, mostly in international private equity and financial services. The group (founded in 1999) is currently in

advanced negotiations to buy-out Wiener Privatbanks’ two primary shareholders, contingent on the approval of

the Austrian Financial Market Authority, expected in the second quarter of 2018. The planned purchase will be a

great opportunity to bundle Wiener Privatbank’s expertise in investment and asset management with the sales

strength of the Arca Group. Wiener Privatbank remains committed to and will continue to service its U.S. client

base and their asset managers, insurance and IRA service-providers. The bank’s headquarters will remain in

Vienna, providing an ideal strategic location for the planned expansion of the group in Central and Eastern Europe.

For more information, please contact our office in Montreal or Mr. Conor Hayden at Wiener Privatbank in Vienna.

Global Equities

Your Late-Cycle Market Check-List

The following was published recently for ENR’s Advisory Extra (self-directed) clients. I think it pertains to all investors, too.

As we approach the latter stages of this bull market in financial assets, investors should take precautions and adjust their

portfolios. This is a late-cycle market environment as we head into December. You don’t have to engage in a wholesale

liquidation of your stocks; market-timing is impossible anyway. It would also trigger a big tax bill, if held outside of a tax-

deferred account. Instead, follow these suggestions to ensure you’re braced for a new economic cycle, and possibly, a

bear market later in 2018 or 2019:

If you’re less than five years away from retirement, reduce your stock exposure to a maximum of 35%. If you’re

adamant about maintaining more equity exposure, be patient and wait for a correction in the market before

buying again;



Raise your cash balances. Cash might not yield very much but it’s a wise option for those investors sitting on some

unrealized stock market gains and little or no cash reserves. Compared to 12 months ago, U.S. 90-day Treasury

bills now yield 1.17% versus just 0.32% on November 1, 2016;

To invest for safety, you need cash, short-term Treasury debt and insurance coverage that can buffer sudden

market shocks (e.g. 2008, 2000-2002, 1998 etc). These assets, along with a sensibly purchased home, have a long-

term expected return of about zero after inflation. But, unlike equities and most fixed-income securities and

commodities, they offer little risk of catastrophic loss;

Hedge your growth stock portfolio now. If you have a portfolio consisting of 65% or more in equities, consider

buying hedges; a true hedge will provide you with a negative correlation to stocks in a down market. It’s insurance.

The deeper the sell-off, the better the odds of strong performance from things like Swiss francs, the Japanese yen

and gold. You should only buy a reverse index ETF like the Pro Shares Short S&P 500 ETF (NYSE-SH), for example,

after the market breaks. You don’t need to purchase something like the Pro Shares Short S&P 500 ETF now; market

breadth remains very strong and there’s no signs of an imminent break in the primary trend, unlike 1998 and mid-

2008. But it’s something to watch carefully and possibly consider when we head into the next bear market cycle.

Remember, this is already the longest economic expansion since WW II and the second-longest bull market in

history – two important market anecdotes worth considering.

For now, the Swiss franc, Japanese yen and gold should be purchased if you hold 65% or more in common stocks.

Please see our recommendation table for complete details and trading symbols;

Focus on strong companies with wide economic moats and strong cash-flow. In a recession, most stocks post

double-digit declines. But big blue-chip stocks that pay rising dividends usually perform better and lose much less.

Small-cap and mid-cap equities fare the worst amid a recession.

After Years of Hardship, Greece Beckons No other country in the European Union (EU) has suffered more financial pain than Greece since the emergence of the

debt crisis in 2010. Since 2009, Greek GDP (gross domestic product) has contracted 23% and logged its first expansion

earlier this year, barely growing 0.4%. Its debt mountain, at an estimated €314 billion ($366 billion), according to the New

York Times, is unlikely to ever be repaid; Greece, we believe, will need some sort of debt forgiveness from creditors.

In June 2015, the Greek government shuttered its banks for almost a month, limiting cash withdrawals at the time to just

€60 per day. The IMF and European Commission (EC) immediately suspended loans.

After receiving several bailouts from the EC, the International Monetary Fund (IMF) and World Bank, Greece is finally

turning the corner – albeit slowly, in late 2017. The calmer climate has attracted the attention of investors, especially in

the United States, where companies and financial firms appear to be intensifying their search for deals as the Greek



economy shows signs of stabilizing. Hedge funds have circled for months targeting undervalued companies traded on the

Athens bourse, including distressed financial shares.

Greece is probably the cheapest investable stock market in Europe. And it’s cheap for good reason. A busted financial

system, an economic depression and soaring unemployment until last year all added tremendous strain on the economy

and its population. Greece is still far from emerging where it was prior to the outbreak of the debt crisis in 2010. But based

on valuations and the contrarian nature of this market, it warrants an investment for investors with a 12 to 24-month

horizon. The stock market has gained more than a third over the past year but relative to its highs over the last decade

and beyond, the rally is a pittance.

For aggressive-risk investors, Athens won’t be a free lunch, either. The economy is still struggling, tourism is way below its

pre-crisis levels and its politics remain volatile. Greece is probably not going to remain in the euro-zone or monetary union.

But it can muddle-through for the next several years until fresh borrowings will be required to service the interest on its

massive debt-pile. Volatility will remain a prevalent theme in Greek financial markets.

Though it’s up sharply this year (+19%), its miles away from its best levels eighteen years ago and 43% below its best level

in 2014 – four years after the emergence of its financial depression. Compared to most other international markets, many

selling at record highs and lofty valuations, Athens is a colossal bargain.

Just how cheap is Greece? The MSCI World Index trades at 20.8 times trailing earnings and 2.36 price-to-book. The MSCI

Emerging Markets Index sells at 15.3 times price-to-earnings and 1.74 times book. But the Athens Stock Exchange is dirt

cheap in comparison at just 0.33 times price-to-book – or a huge 67% discount to book-value. An investor can buy €1

worth of stocks in Athens for just €0.67 cents.

The Global X MSCI Greece ETF (NYSE-GREK) is a great vehicle to ride the recovery in Athens. The ETF has good liquidity

and charges 0.62% in total annual expenses. The Fund holds 32 Greek companies with a big bias towards financials at a

combined 29% of the portfolio. The financials are extremely cheap -- even after a big rally recently. Top holdings include

Hellenic Telecommunications, Alpha Bank AE, OPAP, National Bank of Greece SA and Eurobank Ergasisas SA.



BUY the Global X MSCI Greece ETF (NYSE-GREK) at market up to $10.33. Place a 20% stop-loss on your entry price.

ENR Market Outlook Portfolio

The ENR Market Outlook Portfolio mostly consolidated in October. Despite another winning month for the MSCI World

Index, our high concentration in dividend stocks, including several names in food and beverage, resulted in lower prices.

Among the laggards, Kraft-Heinz (Nasdaq-KHC), Nestlé (Zurich-NESN) Edgewell Personal Care (NYSE-EPC) and Procter &

Gamble Corp. (NYSE-PG) were considerably weak. Still, it’s largely been a good year for our selections with PayPal Holdings

(Nasdaq-PYPL) leading the pack, up 80% in 2017 followed by Dollarama, Inc. (Toronto-DOL), up more than 50% in USDs.

Apple, Inc. (Nasdaq-AAPL) is also strong, rallying 44% this year.

Global stocks start November harbouring a 16% return for the 2017 year-to-date period – the best annual return since

2014 and the third best calendar year since the 2008 financial crisis. Whether major markets or emerging markets, indices

have hit all-time highs this year or in most cases, approaching near-record levels. The markets’ technical breadth has been

excellent with the advance-decline line strong, new highs versus new lows rising, and bullish signals confirmed by the Dow

Jones Transportation Average and small-caps. The bull market is still alive and kicking.

But as many of you already know, this is occurring amid record bullishness, as NYSE margin debt continues to hit records,

investment advisor bullishness sits at record highs (exceeding the summer of 1987 peak) and valuation levels trading at

their second most expensive since 1929. Stock market values in the United States were only more expensive in late 1999.

Also, credit spreads between the riskiest bonds and the safest sit near all-time lows last seen in October 2007. Let’s not

even discuss how the CBOE Volatility Index or VIX is a lost cause at this point as the investment community dumps hedges

and runs into stocks. The VIX continues to languish below 10, a 24-year low.



In early October, the cost of protecting against default by the highest-rated American companies dropped to a ten-year

low as demand remains voracious for fixed-income. The CDX investment-grade index – reflecting the cost of default

protection on a basket of 125 companies – fell to 54.44 on October 3rd, its lowest since 2007.

In the United States, stock market declines have grown shallower over the past two years and are snapping back sooner.

The S&P 500 Index has gone 246 trading days without trading more than 3% below its record high – the longest streak

ever for the benchmark. The broader market hasn’t declined 10% or more since February 2016. The MSCI World Index of

major bourses, hasn’t declined more than 6.6% since the summer of 2016, and like the S&P 500 Index, hasn’t posted a

meaningful decline since February 2016 when it sank 20%. It’s the same story for the emerging markets, on a wild tear

since the first quarter of last year.

The U.S. market needs tax cuts at this point. Just what sort of cut lies ahead is still difficult to predict. But unless the GOP

wants to disappear altogether as a viable party ahead of mid-term elections, it needs to work with the President to get

tax reform legislated. The party is in disarray, plagued by infighting and defections. The Corker-Trump spat was a total

embarrassment for the party. If tax reform fails, the odds are very high that the market will decline sharply. The chart

below depicts the S&P 500 Index’s price-to-earnings ratio, currently at 26 times historical earnings. The CAPE Shiller S&P

500 Index P/E ratio now stands at 32 times historical earnings. A high-priced market is historically a harbinger to poor

future returns. If tax reform fails, stocks will lose altitude.

In a world selling at all-time high valuations for many stocks, most fixed-income securities and major city properties,

investors should be braced for a sell-off at some point. The lack of a correction, rampant bullishness and complacency

among investors is a dangerous signal. The markets, however, shortly commence seasonal strength around American

Thanksgiving and lasts through May. Historically, stocks generate the bulk of their annual gains from November to May.

But considering how far we’ve come over the past 12-18 months, market history isn’t a guarantee this fall. Plus, let’s not

forget the Fed is still hiking interest rates.



The margin of safety for investors in a late-stage bull market is to purchase high quality companies with value attributes.

Contrarian investments, if you will. Our favorites this month include Global X MSCI Greece ETF (NYSE-GREK), Kraft-Heinz

Corp. (Nasdaq-KHC), Daimler AG (Frankfurt-DAI) and the PowerShares KBW Regional Banking Portfolio (Nasdaq-KBR).

We’re downgrading Edgewell Personal Care to HOLD.

Market Outlook Stock Portfolio:

Security Listed Symbol Entry Price

Date Current Yield

Current Price

Gain/ Loss

Advice

Global X MSCI Greece ETF

NYSE GREK $9.41 Nov 2/17 1.63% $9.41 NEW BUY

The Kraft Heinz Company⁹

NYSE KHC $77.17 Oct 3/17 3.12% $76.59 -0.75% BUY

PowerShares KBW Regional Banking ETF

NASDAQ KBWR $53.35 Jun 28/17 1.57% $54.62 2.77% BUY

SPDR EURO Stoxx 50

NYSE FEZ $39.07 May 8/17 2.33% $41.76 8.93% BUY

Daimler AG Frankfurt DAI € 64.94 Sep 11/17 4.45% € 72.91 9.40% HOLD

Huntington Ingalls Industries⁷

NYSE HII $193.55 May 30/17 1.03% $233.63 21.02% HOLD

Edgewell Personal Care Co.

NYSE EPC $71.61 Apr 7/17 0.00% $62.45 -12.79% HOLD

BCE, Inc.⁸ TSE BCE CAD 57.97 Mar 8/17 4.77% CAD 60.54 13.75% HOLD

Mitsubishi Heavy Industries

Tokyo 7011 ¥4,510.0 Feb 9/17 0.00% ¥4,308.0 0.87% HOLD

PayPal Holdings NASDAQ PYPL $40.10 Jan 3/17 0.00% $72.26 80.20% HOLD

Nestlé SA⁵ VTX NESN CHF 65.15 Dec 7/16 2.75% CHF 83.40 32.04% HOLD

Pfizer Inc.⁶ NYSE PFE $32.92 Jan 3/17 3.57% $35.21 9.87% HOLD

iShares Global Infrastructure Index ETF

NYSE IGF $39.57 Nov 7/16 2.79% $45.55 18.32% HOLD

Diageo ADR NYSE DEO $113.71 Jul 4/16 2.40% $134.48 22.79% HOLD

Apple Inc¹ NASDAQ AAPL $92.79 May 9/16 1.44% $166.30 82.42% HOLD

General Dynamics NYSE GD $131.37 Mar 31/16 1.63% $202.22 58.16% HOLD

Dollarama Inc² TSE DOL CAD 71.60 Feb 12/16 0.30% CAD 143.99 118.12% HOLD

Procter & Gamble³

NYSE PG $77.38 Jul 6/15 3.15% $86.39 20.35% HOLD

Disclaimer: The ENR Global Contrarian Portfolio owns Kraft-Heinz Corp., Power Shares KBW Regional Banking ETF, Huntington Ingalls Industries, Nestlé, Apple Inc., General Dynamics, Dollarama and Procter & Gamble Corp. ENR Low Risk Portfolio owns the Kraft-Heinz Corp., SPDR EURO Stoxx 50 ETF, Pfizer, Nestlé and Procter & Gamble Corp. ENR Medium Risk Portfolio owns the Kraft-Heinz Corp., Huntington Ingalls Industries, SPDR EURO Stoxx 50 ETF, Apple Inc., General Dynamics, Procter & Gamble Corp and Pfizer. ENR Global Aggressive Growth Portfolio owns Power Shares KBW Regional Banking ETF, Huntington Ingalls Industries, Apple Inc., General Dynamics, Nestlé, PayPal Holdings and Dollarama.



Fixed-Income

BBB-rated Bonds now 47% of Investment-Grade

Market as Investors Chase Yield

The odds of a 2013 ‘taper tantrum’ occurring again over the next 12 months are rising as central banks slowly remove

stimulus. There’s no doubting that central bank bond-buying since 2009 has vastly distorted corporate credit markets,

driving down yields to unchartered and overvalued territory. According to Bank of America, by March 2018, the collective

bond buying from the Federal Reserve, the ECB, the Bank of Japan and the Bank of England will peak at about $15.3 trillion

dollars.

Our discussion this month turns to investment-grade debt and the stunning rise of BBB-rated paper.

For the last several years, most investment-grade bonds have barely provided the coupon rate to cover inflation while

some bond markets still trade at a negative rate of interest, meaning the investors must pay the issuer for the right of

bond ownership. This is still the case across most of the government yield-curve in Switzerland, Germany and Japan. We’ve

long argued these are classic signs of a ‘bubble’ and investors should avoid most debt securities. In the event inflation

rates ever percolate again, a massacre of spectacular proportions would engulf fixed-income portfolios.

The IMF released an important warning to fixed-income investors last month. According to the IMF, ‘Low yields,

compressed spreads, abundant financing, and the relatively high cost of equity capital have encouraged a buildup of

financial balance sheet leverage.’ According to a report from The Wall Street Journal, the market in investment-grade

bonds is increasingly dominated by the lowest tier of credit quality in late 2017 – a bearish sign.



The portion of bonds rated BBB or the last tier of investment-grade status before hitting junk bond classification at BB or

lower, has almost doubled over the last ten years and now makes up nearly half of all investment-grade credit. We can’t

emphasize how potentially dangerous this development might be, if default rates start to rise.

The share of U.S. BBB-rated bonds has recently surpassed its 2002 peak, climbing above 47% of all investment-grade

credit. Approximately 48% of bonds in the euro-zone are rated BBB while less than 20% were when Lehman Brothers

went bankrupt in September 2008. The yield on Bank of America Merrill Lynch’s Global Corporate BBB Index is just 2.89%

compared with a 20-year average of about 5.1%. The ultra-low spread offered between BBB debt and Treasury securities

is very tight, offering little protection if inflation rates rise or default rates accelerate. The spread or difference between

the highest and lowest-rated investment grade bonds has collapsed: In 2008, BBB-rated bonds yielded over 8% or more

than 4 percentage points (400 basis points) more than AAA-rated debt. In October, that spread was just 0.25%.

Another major Red Flag this fall is the record sum of inflows heading into fixed-income products, despite the poor values

available across most of the universe. Approximately $241 billion dollars have already flowed into U.S. high-grade bond

funds and ETFs in the first nine months of the year, according to Bank of America Merrill Lynch. That’s 34% higher than

2012’s full-year record of $180 billion dollars. And companies continue to turn to low-cost bond markets to borrow record

sums. That pace is already more than $1.4 trillion dollars in 2017.

A recent Economist magazine story caught my eye. It’s titled The Bull Market in Everything and worth reading. Jeremy

Stein, a researcher who contributed to the article, claims ‘that when the mood in credit markets is bullish, the economy

will soon suffer, with an abrupt tightening of credit and slower growth.’

Finally, as more central banks start to tighten among the major economies in 2018, the odds are rising that some sort of

bond market dislocation lies ahead. The danger is any major correction in bonds might trigger a recession. Leverage in the

financial system might be far less than it was back in 2008; but several parts of the credit system are overheating. These

include overvalued fixed-income markets and in some cases, extreme overheating in leveraged loans (see above chart of



SRLN), corporate borrowing and the rising percentage of border-line investment-grade paper comprising investment-

grade benchmarks.

The only real values now are TIPS or Treasury-Inflation-Protected Securities. Though certainly vulnerable to a bond market

sell-off, TIPS at least provide a measure of inflation protection and remain inexpensive compared to nominal fixed-income

securities.

Market Outlook Bond Portfolio:


Date Current Yield

Current Price

Gain/ Loss

Advice

iShares TIPS NYSE TIP $113.53 Dec 7/16 1.53% $113.89 1.63% BUY

iShares Floating Rate

NYSE FLOT $50.69 Oct 5/16 1.39% $50.90 1.81% HOLD

Vanguard Intermediate-Term Corporate Bond ETF

NYSE VCIT $85.66 Jan 3/17 3.19% $87.84 4.69% HOLD

Disclaimer: The ENR Low Risk Portfolio holds the iShares TIPS Bond Fund, the iShares Floating Rate Bond ETF and the Vanguard Intermediate-Term Corporate Bond ETF. The ENR Medium Risk Portfolio holds the iShares TIPS Bond Fund, the iShares Floating Rate Bond Fund and the Vanguard Intermediate-Term Corporate Bond ETF. The ENR Global Contrarian Portfolio holds the iShares Floating Rate Bond ETF.

Foreign Exchange

USD Index Gains 4.5% off Lows; Resource Currencies Tumble Despite Commodity Rally The U.S. Dollar Index has now rallied 4.5% off its three-year low earlier in September. The dollar entered September

heavily oversold after suffering six consecutive losing months. Latest economic data has improved and along with the

hopeful passage of corporate and individual tax reform in 2018, consumer spending and business investment is rising.

Consumer confidence remains near historic highs, too. The Fed, glued to wages and employment trends, will hike interest

rates again in December and that’s enough to keep the bid for USD strong across most FX markets. We continue to

recommend avoid selling dollars at these levels, awaiting a better exit point.

Natural resource currencies have declined sharply. Despite generally stronger commodity prices over the past several

weeks, including oil now at two-year highs, resource currencies have been weak. The worst performer among the

commodity units is the South African rand, down 13% since last summer. Other losers include the New Zealand dollar,

down 8% followed by a 5.7% decline for the Canadian dollar, 5.4% loss for the Norwegian krone and 5% for the Aussie. In

our view, these currencies are oversold. Oil prices have rallied almost 30% off their mid-summer low and this should



eventually support those units with oil surpluses: the NOK and CAD should reverse losses and are rated ‘strong buys’ even

for USD-based investors.

Mark Carney at the Bank of England became the third Anglo-Saxon central bank governor to raise rates this week. This

follows the Bank of Canada’s second interest rate hike in September and the U.S. Fed’s expected fifth rate hike next month.

The Fed has hiked rates four times since December 2015.

In November, the Bank of England raised rates for the first time since 2007 from 0.25% to 0.50%. The GBP declined after

the BOE’s decision after several weeks of gains on expectations of a rate increase. In 2017, the GBP has gained 5.5% versus

the dollar but is down 4.3% versus the EUR. UK inflation sits at a multi-year high (in fact, the highest in the G10) and the

economy remains soft. Brexit negotiations are in limbo with no clear policy direction. Business investment has stalled. We

see no reason to be long the pound.

USD Index Extends Rally

Global Currency Sandwich Continues Correction

The ENR Global Currency Sandwich, including gold, continued pulling back in October and it’s still softening the first few

days of November amid renewed USD strength. The sandwich has gained 4.64% in 2017. The weakest constituents this

fall are the Canadian dollar, Norwegian krone and the Swedish krona. Gold prices have also declined, down more than 5%

from their 52-week high of $1,346/ounce.

If you’re over-weighted U.S. dollars in your portfolio (think ERISA’s, your home, investment portfolio, life insurance etc.),

the Global Currency Sandwich is a great long-term vehicle to hedge your dollar risk. We suggest clients dollar-cost-average

their way into foreign currencies and gold at these levels on expectations of further USD strength for the time being.



In December, we’ll announce the 2018 Global Currency Sandwich. Stay tuned!

2017 ENR Global Currency Sandwich (Equally-Weighted):

Gold Bullion

EUR: Added on June 30, 2017.

Canadian dollar: Added on June 30, 2017

Swedish krona: Guggenheim Currency Shares Swedish Krona Trust (NYSE-FXS)

Swiss franc: Guggenheim Currency Shares Swiss Franc Trust (NYSE-FXF)

Norwegian krone

Brazilian real: Sold on June 30, 2017

Commodities

As Palladium Surges, Platinum Looking Attractive

The best-performing precious metal this year isn’t gold or silver. At $994 an ounce, spot palladium prices are red-hot and

rank as the top-performing commodity, up 39%. A key input in emission filters for gas engines, the white metal has traded

above the platinum price for most of 2017 – as rare occurrence in its trading history and the first time in 16 years it’s

higher than platinum. As the global economy continues to gain momentum and is the most synchronized since before the

2008 financial crisis, expectations are rising that auto sales will rise heading into 2018. Car sales in China, the world’s

largest auto market, gained 4.3% the first eight months of the year. According to broker Johnson Matthey, palladium

demand will exceed supply by roughly 163,000 ounces this year.



And it’s not just rising demand for gas-powered cars driving the palladium price. The big buzz around Tesla (Nasdaq-TSLA)

and other electric cars over the last few years is also expected to boost demand for palladium. Most hybrid cars use

gasoline-powered engines, not diesel. Unfortunately for platinum, used mainly in diesel cars, demand has dropped

considerably amid the Volkswagen (Frankfurt-VOW) emissions scandal. Herein lies the opportunity.

As palladium has raced higher this year, platinum has been left in the dust, up just 2.4%. The platinum price has strong

support over the last year around $890 an ounce and should be poised to rally at some point because palladium is

becoming too expensive for manufacturers as it tops $1,000. In the longer term, there’s a strong possibility the auto

industry may consider switching to platinum in gasoline engines if the price of palladium continues to climb.

The ETFS Physical Platinum Shares (NYSE-PPLT) is an easy way to ride a recovery in platinum and much less expensive

than paying commissions to buy the white metal. The Fund stores the physical metal in vaults in Zurich and London (no

physical delivery offered) and levies a 0.60% annual fee. The fund isn’t liquid, which may be a good sign at this stage

because there’s a lack of interest in the metal. Place your bids carefully. From its all-time high in 2008 at $2,286 an ounce,

platinum is down 59%. PPLT, which has only been available since 2010, is down a cumulative 54% from its high in 2011.

BUY the ETFS Physical Platinum Shares (NYSE-PPLT).

If you’d rather purchase platinum (coins, wafers), then most reputable coin dealers will be happy to take your business.

I’ve dealt with KITCO here in Montreal (www.kitco.com) for years and they ship throughout North America.

http://www.kitco.com/



Market Outlook Commodity Portfolio:


Date Current Yield

Current Price

Gain/ Loss

Advice

ETFS Physical Platinum

NYSE PPLT $88.54 Nov 2/17 0.00% $88.54 NEW BUY

Newmont Mining NYSE NEM $17.99 Dec 31/15

0.63% $36.28 103.34% BUY

Randgold Resources

NASDAQ GOLD $61.93 Dec 31/15

1.02% $91.39 50.25% BUY

Inter Pipeline Ltd TSE IPL CAD

25.67 Jun 28/17

6.13% CAD

26.37 6.17% HOLD

Gran Tierra Energy

TSE GTE CAD 3.18 May 30/17

0.00% CAD 2.89 -4.18% HOLD

Exxon-Mobil⁴ NYSE XOM $77.95 Dec 31/15

3.62% $83.22 13.52% HOLD

Schlumberger NYSE SLB $69.75 Dec 31/15

3.11% $63.56 -4.57% HOLD

Shareholder Disclaimer:

1. ENR or its employees or its access persons own shares of Apple Inc. 2. ENR or its employees or its access persons own shares of Dollarama Inc. 3. ENR or its employees or its access persons own shares of Procter & Gamble. 4. ENR or its employees or its access persons own shares of Exxon-Mobil. 5. ENR or its employees or its access persons own shares of Nestlé

6. ENR or its employees or its access persons own shares of Pfizer Inc.

7. ENR or its employees or its access persons own shares of BCE Inc.

8. ENR or its employees or its access persons own shares of Huntington Ingalls Industries.

9. ENR or its employees or its access persons own shares of Kraft-Heinz Corp.

Eric N Roseman November 3, 2017 Montréal, Canada

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