1) Is the Canadian Government Trade Policy when it comes to USA and Europe Canada has separate trade policies with both the US and European Union.

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1 1) Is the Canadian Government Trade Policy when it comes to USA and Europe Canada has separate trade policies with both the US and European Union. NAFTA (North American Free Trade Agreement) is Canada s longstanding trade deal with the United States, and it has been in place since January 1 st NAFTA also pertains to Mexico, and essentially amounts to free trade between all three member states. However, the continued longevity of this deal has largely come back into question under Trump s campaign promises to renegotiate the underlying trade policies. While Trump s reasons for doing so largely pertain to Mexico, Canada would likely be impacted by any changes made to this trade deal. Having said that, the only Canadian industries likely to be targeted by Trump involve softwood lumber and automotive manufacturing whereas Trump would likely want to enforce some sort of tariff or border tax on a much broader range of Mexican goods coming into the US. It s also worth noting that while Trump can in fact tear up NAFTA, the resulting structure will not be overtly damaging to any of the three states involved. In the absence of the existing trade deal, tariffs would default to the pre-1994 World Trade Organization rates of 4%. And while Trump can technically raise tariffs as high as 15%, this would be limited to a maximum of 150 days, and anything above and beyond this measure would require approval from congress (not something he would likely be able to get). Furthermore, Trump needs to tread delicately here, as any impediment to trade with Canada or Mexico will likely result in higher consumer prices in the US, ultimately hurting the average American consumer. Canada s free trade agreement with Europe is a far more recent development. The Comprehensive Economic and Trade Agreement (CETA) is several weeks away from being implemented, but will eliminate over 99% of tariffs between Canada and EU member states once up and running. Nevertheless, a number of the participating states are yet to ratify this deal through their respective governments but this last feat should not represent much of a challenge. As Canada s largest trading partner is by far the US, CETA is unlikely to be a game changer for Canada. Nevertheless, it could be a boon for some of Canada s agricultural sectors, and could mean cheaper European imports for Canadian consumers (e.g. cars, clothing, etc.). 2) If NAFTA is renegotiated would their be an affect on the financial sector? At this point in time, it is far too early to tell. The recent meeting between Trump and Trudeau seemed to go well, and it is important to remember that Trump s push to renegotiate NAFTA is largely being motivated by what he believes to be an unfair trade deal with Mexico not Canada.

2 Should Canada maintain or even gain some ground in a revised trade deal with the US, it could eventually translate into a further strengthening of Canada s financial sector via stronger economic growth and an eventual hike(s) in interest rates. Should Canada be on the losing end of a new trade deal with the US, it would likely mean further pressure on the Canadian economy, which would likely have an adverse impact on Canadian housing. That being said, Canada s banking sector is largely considered to be by far the best capitalized in the world, and is more than capable of withstanding a sizable shock or correction in Canadian housing. This is especially the case for many of the largest Canadian banks that have been diversifying into the US for many years now. 3) When there are interest rate increases in the US. What impact does that have on US Fixed Income? What is the impact in the Canadian Market? When it comes to interest rate sensitivity, different types of bonds and fixed income are impacted in different ways. The bond sectors that are the most adversely impacted by hikes in interest rates are government bonds. However, certain bond sectors can be positively impacted by such hikes, and these typically include sectors like corporates, high yields, floating rates, asset backed securities, mortgage backed securities and bank loans as rising interest rates indicate that the economy is doing better and the borrowers are therefore more capable of repaying their debt and the credit quality of these securities improve accordingly. While Canadian & US interest rates have historically moved in a very similar fashion, this has not been the case in the last couple years as Canadian economic growth has at times lagged US growth significantly, and Canadian interest rates have been cut accordingly. In such scenarios, lower credit quality debt securities typically underperform, while various types of government bonds can outperform. 4) In the globalized world BREXIT happened and now Trump has an America First mandate. What do you think will happen to the world economy if other developed nations start taking the same stance. It s still too early to tell, as much of the recent rise in populism has been fueled by immigration concerns and general fear mongering. Economic concerns, or the belief that large parts of a given population have not been net-benefactors in an increasingly globalizing world is part of the equation but a number of the facts do not align with these arguments. As it stands, BREXIT remains the only true reversal from a major developed country with respect to globalization and open trade, as too many of Trump s trade policies remain unknown. At this time, it is still not clear where his campaign rhetoric ends and where actual policy begins. 5) What is the future of Over the Counter exchange and the Canadian Economy?

3 Can you please ask your client to elaborate on this question? Are they asking about the OTC exchange for securities? If so, what is the link between its continued existence and the Canadian economy? I m not sure I follow where they are going with this. 6) What do you think of oil and gold for 2017 I believe we already covered this one during the Q&A session, please confirm whether you still need a response. 7) What is the outlook for the technology sector in 2017 Same as above. 8) Do you consider bonds as low risk investment in a rate rising environment? Yes & No. It is important to remember that not all fixed income should be viewed as equal. Some bond sectors are more sensitive to rising interest rate environments than others. Government bonds typically do poorly in periods of rising interest rates, as their market value will drop when a higher yielding government bond is being issued. However, when interest rates are being cut, these bonds will typically outperform, as their yield becomes more attractive relative to those being newly issued. These types of bonds will also typically have an inverse relationship to equities meaning that they will typically outperform when stocks are doing poorly as they represent a flight to quality/safety. Multi-sector fixed income (asset backed securities, mortgage backed securities, corporate bonds, high yield bonds, bank loans, car loans, etc.) typically does better when rates are rising. That s because these types of bonds are considered more likely to be repaid in full and on time amidst a backdrop of a strengthening economy. If rates are rising, then the economy is probably doing better, and therefore the borrowers are more likely to have the money required to pay down their debts. The opposite is true when rates are falling as this would indicate economic uncertainty or negative growth, which would decrease the likelihood of borrowers being able to make good on their debts. On a go-forward basis, it s important not to put all of your eggs into one basket. Even if rates are continuing to rise, it still makes sense to have some exposure to government bonds as a natural hedge or airbag that can soften the blow of any future economic shocks or uncertainty. 9) With the Islamic country ban potential ban in the US. Canada seems to be accepting immigrants. How would that effect Canadian jobs. How long can we sustain this increase in immigration?

4 At this point in time, I do not believe that Canada has made any changes to its immigration policy in order to counter future bans of Islamic countries in the US. Trudeau s tweet in the aftermath of Trump s initial travel ban was largely misunderstood as some sort of policy change. 10) I heard the government will be offering free tuition in coming year. Does it make sense to do RESP contributions? This will largely depend on household income levels as I believe the free tuition is only to be granted to lower income families that can otherwise not afford to pay for some form of postsecondary education. For those earning too much to qualify for such assistance, it still makes sense to continue making RESP contributions. 11) What is the safest investment? Housing? Gold? Mutual Funds? The answer to this question would largely depend on someone s individual definition of a safe investment. Housing: Canada s real estate market is at/near all-time highs in most cities and regions. Growth in this space has been fueled by a number of different reasons, despite lackluster economic growth and all-time high household debt levels. Traditionally, real estate pricing should only be growing at a rate of roughly GDP growth + inflation. This has not been the case for multiple years now and may or may not continue on a go forward basis. If your client is a believer in a reversion to the mean, I would not recommend investing in this space. Other issues such as realtor costs, liquidity, taxes, and increasing government regulation should also be considered. Gold: Depending on your sources, only ~70% or so of gold is actually used for manufacturing, jewelry, or industrial purposes with the remainder simply being used as a theoretical storage of wealth. By any conventional measure, gold has historically been a major laggard in growth as an investment, but typically performs well amidst a backdrop of runaway inflation. Gold can provide something of a sleep at night factor for investors concerned about the future purchasing power of their respective local currencies, but otherwise isn t considered by most to be a very good growth investment. Mutual Fund: As mutual funds come in all shapes and sizes, individual investors are more likely to find one better suited to their individual risk tolerance and needs than by simply relying on gold or housing. Mutual funds can be selected on a basis of risk and return potential, income needs, tax-efficiency, and many other attributes not necessarily attributed to the alternatives. 12) Do you expect the US Currency to rise. Should we buy US dollars? This is difficult to answer with any degree of certainty. There are a number of things that would need to happen for one currency to outperform the other. In Canada, a further strengthening in oil and/or materials prices would have a positive impact on the strength of our dollar relative to the USD. However, should the US continue to raise interest rates, and should commodity prices remain static or trend negatively, then the USD would likely outperform the CAD. At this point in

5 time, we believe these two currencies will likely remain range bound. The 26% gain of the USD relative to the CAD in 2014 through 2015 is not likely to be repeated anytime soon. It s also worth noting that the CAD strengthened relative to the USD in 2016 and 2017 YTD. Comment [HG1]: Comment [HG2]: Comment [HG3]: Comment [HG4]: