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March 2018 ENR Market Outlook

Executive Summary:

• The threat of widespread protectionist trade measures by the United States threatens the global macro economy

and might trigger a Black Swan event in 2018. The bullish backdrop driven by big U.S. corporate tax cuts and less

financial regulation might be offset by an all-out global trade war, possibly tipping the global economy into

recession, if NAFTA is dissolved and trade tariffs legislated against America’s largest trading partners;

• President Trump has targeted steel (25%) and aluminum (10%) tariffs, hoping to protect American jobs and deflect

foreign dumping. Driven by his ‘America First’ agenda, the President doesn’t have the right facts. Despite

pandering to the steel electorate, U.S. consumers, including the auto sector, command significantly more

registered votes and will be adversely impacted by rising prices as companies offset rising inputs;

• Canada, America’s oldest and most trusted ally, will suffer the brunt of steel (16% of imports) and aluminum (46%

of imports) tariffs, resulting in widespread Canadian layoffs and retaliation across other industries;

• Despite his tough talk on China’s unfair trade activity and dumping below market prices, including her massive

$375 billion-dollar trade surplus with the United States, the President’s trade tariffs will barely hurt China,

responsible for just 2% of U.S. steel imports and a bit more for aluminum;

• President Trump Tweeted on March 2 that ‘trade wars are easy to win,’ but history suggests this is not the case.

Tariffs are a significant negative for the U.S. dollar as evidenced from 2002 to 2004 when President George W.

Bush imposed steel tariffs. Over that 24 months period, the USD Index crashed 31%;

• After suffering their first losing month in February since October 2016, global equities have mostly bounced back,

recapturing about 75% of their losses. Stocks posted their worst weekly decline in percentage terms since August

2011. In February, the MSCI World Index fell 4.3%, the S&P 500 Index declined 3.9% and the MSCI Emerging

Markets Index fell 4.7%;

• The February global market swoon, triggered by computer trading models, record-high NYSE margin debt and

rising interest rates, saw a positive correlation among most asset classes, offering few safe-havens. Though rare,

bonds, stocks, commodities, most foreign currencies and gold all declined the week of February 5. The Japanese

yen ranked among the top-performing currencies against the dollar in February, rising 2.3%;

• In our view, the Japanese yen is the most under-owned major currency in the world. Though the yen has rallied

6% in 2018, it has not discounted the growing likelihood of QE tapering at the Bank of Japan. On March 2, the

Bank of Japan suggested it could start moving away from ultra-loose monetary policy as early as next year;

• A victim of the February panic, Credit Suisse and Nomura Holdings-sponsored volatility products were crushed,

losing more than 80% of their value the week of February 5. The Velocity Shares Daily Inverse VIX Short Term ETNs

were subsequently closed. The ETNs were bets that volatility in the stock market would remain low; when

amplified by leverage, it’s a one-way street to the poorhouse when volatility erupts;

• China will launch a crude futures oil contract on March 26 as Beijing seeks to extend its influence over the pricing

of oil barrels sold in Asia. In 2017, China became the world’s largest consumer of crude oil, surpassing the United

States for the first time at 8.4 million barrels per day. It’s no surprise China is creating her own benchmark for oil.

The long-term threat to the dollar is now real as more settlement contracts are settled in yuan at the expense of

the American dollar;

ENR Asset Management Inc. • 1 Westmount Square, Suite 1400 • Westmount, Quebec • H3Z 2P9 Canada Phone 1-514-989-8027 • Fax 1-514-989-7060 • Toll free 1-877-989-8027 • www.enrassetmanagement.com

2 ENR Market Outlook

• The German Bundesbank announced it would include the Chinese renminbi (RMB) in its reserves, marking the first

time the German central bank will include the Chinese currency in its vast foreign-exchange mix. The move comes

after the RMB became the fifth currency in 2016 to join the International Monetary Fund’s Special Drawing Rights

(SDR) basket – a collection of reserve currencies that serve as an alternative to the USD;

• Germany’s largest union, IG Metall, representing a wide swath of members across the country, won a 4.3% wage

increase in February – one of the largest in years. Inflation remains very low in the euro-zone but rising wages in

Germany might portend to escalating labor costs elsewhere in the region as the recovery continues;

• We remain constructive on high quality equities in 2018 but have aggressively raised cash balances across all

managed-accounts since late in the fourth quarter. The stock-market cycle is mature and soaring consumer

confidence coupled by record-high margin debt portend to growing risks for investors. Interest rates might

continue to rise as the Fed tightens accompanied by higher wage inflation. The United States has introduced ‘Tail

Risk’ this month vis-à-vis rising trade tensions and the possibility of import tariffs. Also, the resignation of globalist,

Gary Cohn, from the White House, is a negative development for markets;

• The global macroeconomic picture, however, remains bullish provided trade tensions don’t escalate, and interest

rates don’t spike much higher from current levels. A weak USD is also positive for risk assets. The inflation scare,

if it truly materializes, might be a 2019 event. Nevertheless, investors should embrace a regular market cycle of

volatility as a combination of new domestic and international events test the bull markets’ resolve;

• The S&P 500 Index has roughly quadrupled off the March 2009 market low and the yield on the benchmark ten-

year Treasury bond has tumbled from over 4% in late 2008 to a low of 1.33% in mid-2016. Both asset classes

appear to be stretched based on valuations and vulnerable to a significant correction;

• We continue to 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

and offer poor risk-adjusted values. Spreads for most credit products trade at their narrowest gap since late 2007.

We prefer floating rate investment-grade bonds, Treasury-Inflation-Protected Securities (TIPS) and short-term

Treasury bonds. Treasury bills are also increasingly attractive compared to bonds because short-term money-

market rates keep rising. LIBOR or 90-day London Interbank Offered Rates now yield 2.03% -- the highest in almost

a decade;

• For clients seeking a portfolio strategy with a negative correlation to stocks and bonds, we’re pleased to offer the

recently launched ENR Crisis Investing Portfolio. The portfolio includes a mixture of surplus currencies with strong

balance sheets; gold; gold stocks; high frequency trading firms; publicly-trade options and futures exchanges;

diversified managed futures, and a short-selling stock fund. This is an ideal late-cycle market product for investors

looking to diversify away from the market and possibly, earn profits in the next recession or bear market. Please

call our office for more information.



Global Equities

Cashing in on Tax Cuts and Stock Buybacks in 2018

One of the biggest secular trends in the stock-market since the end of the financial crisis nine years ago remains firmly

entrenched: the bull market in stock buybacks. Though an ageing bull market threatens investors in 2018, the secular

advance in share buybacks received a big boost in late December following the passage of the Trump tax cuts. More than

ever, U.S. corporations are buying back stock and raising share prices – again.

A stock buyback, also known as a "share repurchase", is a company's buying back its shares from the marketplace. The

idea is simple: because a company can't act as its own shareholder, repurchased shares are absorbed by the company,

and the number of outstanding shares on the market is reduced. When this happens, the relative ownership stake of each

investor increases because there are fewer shares, or claims, on the earnings of the company.

Some pundits call this exercise accounting ‘trickery’ because it only serves the purpose of manipulating the share price

and enriching shareholders. And Forbes calls it ‘The Greatest Deception.’ As Senator Elizabeth Warren argued last year,

“stock buybacks create a sugar high for the corporations. It boosts prices in the short run, but the real way to boost the

value of a corporation is to invest in the future, and they are not doing that.” The UK Government is launching an inquiry

into buybacks, due to concerns that they “may be crowding out the allocation of surplus capital to productive

investment.”

Though there’s some merit in the above assertions, they’re not entirely accurate, either. I turned to the Harvard Business

Review (Sept 15, 2017) for some hard evidence on buybacks, if any:

“The claim that the need to buy back stock forces firms to cut investment puts the cart before the horse. A more plausible view goes like this: First, firms allocate funds to investment based on the opportunities that are available. If they have spare cash left over after taking all value-creating investment opportunities, then they may use it for buybacks. This highlights a logical error in the UK Government’s quote above: “surplus capital” is, by definition, capital left over after all productive investments have been made.

The evidence suggests this view is more accurate. A comprehensive survey of financial executives concluded that “share repurchases are made out of the residual cash flow after investment spending.” Other studies find that CEOs repurchase more stock when growth opportunities are poor and when they have excess capital. It is the exhaustion of a firm’s investment opportunities that lead to buybacks, rather than buybacks causing investment cuts.

Moreover, the claim that buybacks weaken companies long-term isn’t borne out by the data. Firms that buy back stock subsequently beat their peers by 12.1% over the next four years. Rather than eroding long-term firm value, buybacks create value by ensuring that surplus capital is not wasted. For several years, Yahoo was valued at below the sum of its parts, partially due to concerns that it would waste its cash on poor acquisitions; more broadly, a large-scale study found that, in poorly governed firms, $1 of cash is valued at only $0.42 to $0.88. This highlights the value that can be unlocked simply by not frittering away corporate resources.”



The way I see it, any time an investor gets a gift from the market, it’s worth taking. Making money in stocks isn’t easy. I’ve

been tracking the trend in stock buybacks for years and looking for a correction in the primary trend before making a

recommendation. The latest market sell-off in February provides such an entry point. And big corporate tax cuts provide

even more fuel to this already long rally in buyback shares.

Buybacks are once again on a roll after a brief respite last year.

President Trump’s corporate tax cuts are very bullish for U.S. economic growth, domestic consumption and stock prices.

According to Goldman Sachs, U.S. companies are on track this year to return a record $1 trillion-dollars to shareholders as

Trump’s tax cuts prompt boards to boost stock buybacks and dividends at a faster rate than their capital expenditures,

R&D budgets or wage bills. Goldman estimates that share buybacks would grow 23% in 2018 to $650 billion-dollars while

J.P. Morgan is predicting an $800 billion-dollar shopping spree on stock buybacks in 2018 – exceeding last year’s total of

$530 billion-dollars. So far this year, through March 2, U.S. corporations have unveiled a record $187 billion-dollars in new

buybacks, according to Birinyi.

Stocks with higher buyback yields and new announcements tend to outperform their peers, especially during corrections

and recessions. Since 2000, those stocks have outperformed peers by 150 basis points during corrections and 200 basis

points during recessions, claims J.P. Morgan. They’re also less volatile than their peers in all market conditions, as buybacks

tend to stabilize price weakness.

Stock buyback exchange-traded-funds (ETFs) are still relatively new to index investors. Currently, only three are trading

and only one really has any liquidity at all. The oldest buyback ETF – also home to the best long-term track record – is the

PowerShares Buyback Achievers Portfolio (NASDAQ-PKW). Launched in December 2006, it’s produced great returns for

investors following a disciplined strategy of purchasing select share buybacks (see chart below).



The PowerShares BuyBack Achievers Portfolio is based on the NASDAQ U.S. BuyBack Achievers Index. The Fund will

normally invest at least 90% of its total assets in common stocks that comprise the Index. The Index is designed to track

the performance of companies that meet the requirements to be classified as BuyBack Achievers. The NASDAQ U.S.

BuyBack Achievers Index is comprised of US securities issued by corporations that have affected a net reduction in shares

outstanding of 5% or more in the trailing 12 months. The Fund and the Index are reconstituted annually in January and

rebalanced quarterly in January, April, July and October.

Based on relative valuations, the Fund trades at 17.2 times trailing earnings compared to 25.2 times trailing earnings for

the S&P 500 Index or a big 32% discount. The U.S. broader market trades at an even higher multiple of 32.56x using the

Shiller P/E Ratio, which is inflation-adjusted over ten years. Yes, buyback stocks are less expensive than the broader market

but make no mistake, the best time to purchase shares was back in 2009, not in 2018 after a 300%+ bull market advance.

But for investors, there’s a ‘margin of safety’ here because the share count is being reduced and the flow of money

repurchasing stock is extremely bullish and about to get even more powerful as tax repatriation continues this year.

Since 2006, the PowerShares BuyBack Achievers Portfolio has returned 9.61% per annum compared to 8.65% for the S&P

500 Index. Over the past ten years, PKW has gained 11.72% compared to 9.78% for the S&P 500 Index. However, the Fund

has slightly trailed the broader market over the past five years but still generated a respectable return of 15.84% per

annum compared to 15.94% for the S&P 500 Index. PKW also trailed the benchmark over the past three years by a wider

margin of three hundred basis points.

Annual expenses are 0.63% for PKW. The Fund has ample liquidity on most days. Top five holdings now include Goldman

Sachs Group, Citigroup, Charter Communications, Walt Disney and American Express.

BUY the PowerShares BuyBack Achievers Portfolio (NASDAQ-PKW) up to $61.50. Apply a 20% stop-loss on your entry

price.



Rising Rates and Stock Sector Performance

I find it interesting that S&P 500 Index sectors or groups issuing the largest dividend increases after just two months in

the calendar year are also the worst performing in 2018. More than 20% of the companies in the S&P 500 Index have

boosted their dividends to shareholders this year, partly due to last year’s $1.5 trillion-dollar tax cut. The biggest boosters

are real estate, telecommunications, utilities, energy and consumer staples – also at the bottom of the performance

tables. Overseas, it’s basic materials and energy leading the way with big payouts.

According to Jim Paulsen at the Leuthold Group, stocks that trade like bonds would probably be at a disadvantage as

interest rate rise; better known as ‘bond proxies’ since 2009, stocks that pay above-average market dividends have been

under severe pressure since the fourth quarter and especially since January. Paulsen tracked the performance of the S&P

500 Index sectors since 2010 and discovered that relative returns for bond-like equities trailed the overall market

considerably during weeks when the ten-year Treasury bond yield rose. The groups that trailed the most were utilities,

telecommunications and consumer staples.

As for market winners, inflation-based assets have historically led the pack. These include commodities and basic

materials, according to Paulsen.

In a similar report produced by Goldman Sachs, the bank surveyed which sectors are the most correlated with bond

yields, and vice versa. Goldman Sachs revealed that in addition to basic materials and oil and gas, banks were the top

gainers under a period of tightening monetary policy since 2005. Autos, insurance and industrials also posted strong

gains as interest rates climbed. The worst sectors were food and beverage, healthcare, telecoms, media, retail, REITs and

utilities.



Surge in Volatility Threatens Bull Market

ENR Market Outlook Portfolio The ENR Market Outlook Portfolio consolidated in February and remains largely under pressure this month as a

combination of negative events relating to trade dampen bullish sentiment. The equity markets are waking up to the idea

that interest rates are higher amid rising inflation and Fed tightening. Coupled with the bearish implications of a possible

global trade war and the growing dissolution of NAFTA this spring, the backdrop has rapidly deteriorated for investors as

we conclude the first quarter shortly. Bonds are also under pressure, and for the first time in years, have possibly de-

coupled from stocks in the first bout of volatility in more than two years. Many of the companies we own that pay

dividends of 3% or more have come under selling pressure since January as the yield-curve steepens.

For investors, the good news is that more than 20% of the companies in the S&P 500 Index have boosted their payouts to

shareholders so far in 2018 while no firms have cut dividends – the first time this has occurred since 2011, according to

S&P Dow Jones Indices. We’d argue that bond yields are still historically low and would have to rise significantly higher

from current levels to deepen the carnage already inflicting dividend stocks. In February, the yield on the two-year

Treasury bond (2.25% now) surpassed the dividend yield on the S&P 500 Index (1.90%) for the first time since 2008.

Consumer staples are bearing the brunt of the selling since late 2017. The sector, home to big brands in the food and

beverage space, has largely been slow to adapt to changing consumer tastes and fresher foods. Global revenues are

declining, competition is rising from smaller rivals and for some companies, cost-cutting can only go so far. Long viewed

as bond surrogates over the past several years, consumer staples correlate strongly to bond yields.



We own some of these companies, including Kraft-Heinz (NASDAQ-KHC), Procter & Gamble Corp. (NYSE-PG) and Nestlé

(Zurich-NESN). Each of these blue-chips now trades at a 52-week low with dividends looking increasingly attractive. With

the exception of KHC, now rated a HOLD, we’re upgrading P&G and Nestlé to BUY this month. Both companies have activist

investors pressuring management to improve results – a big plus for investors. KHC is much cheaper compared to 12

months ago but will have to make a huge acquisition to boost margins, and that won’t necessarily help the stock price

over the near term. HOLD KHC.

In addition to the PowerShares BuyBack Achievers Portfolio (NASDAQ-PKW), we continue to recommend high-value U.S.

companies with international sales. These include Procter & Gamble Corp. (NYSE-PG) and Newell Brands (NYSE-NWL).

Both companies are near their lows.

In the United Kingdom, the worst-performing major market in Europe this year, Diageo (NYSE-DEO) has also softened

since the start of the year. DEO is the world’s largest liquor company with tremendous brands like Smirnoff Vodka,

Tanqueray Gin, Bailey’s Irish Cream, Johnny Walker, Guinness, Captain Morgan Rum and others. It’s generating strong

revenue growth and unlike traditional consumer staple stocks, provides an almost ‘essential’ group of brands to the public

through conventional and digital marketing. By ‘essential,’ I mean core spirits that are priced for the masses and almost

always served at every function or celebratory event in the world.

In Canada, another high dividend-paying stock, BCE Inc. (Toronto-BCE), remains under pressure as interest rates rise. BCE

trades just above its low over the past 52 weeks and yields a fat 5.3% dividend. The company is Canada’s largest

telecommunications company, and in my opinion, also home to the best home entertainment vis-à-vis Bell Fibe. I

personally own BCE in my retirement plan and recently bought more.

This month, we’re selling the SPDR EURO Stoxx 50 ETF (NYSE-FEZ) and the iShares Global Infrastructure Index ETF (NYSE-

IGF).



Market Outlook Stock Portfolio:

Security Listed Symbol Entry Price

Date Current Yield

Current Price

Gain/ Loss

Advice

PowerShares Buyback Achievers

NASDAQ PKW $59.30 Mar 6/18

0.64% $59.30 New BUY

Newell Brands Inc. ⁸ NYSE NWL $27.60 Feb 5/18 3.47% $26.74 -2.28% BUY

Diageo ADR NYSE DEO $113.71 Jul 4/16 2.58% $131.89 21.77% BUY

Europcar Groupe Paris EUCAR € 10.25 Jan 2/18 1.46% € 10.26 2.28% BUY

iShares Russell Top 200 Value Index

NYSE IWX $52.46 Jan 2/18 2.13% $50.98 -2.82% BUY

Nestlé SA⁴ VTX NESN CHF

65.15 Dec 7/16

3.18% CHF

73.50 10.10% BUY

BCE, Inc.⁶ TSE BCE CAD

57.97 Mar 8/17

5.14% CAD

56.30 6.74% BUY

Procter & Gamble³ NYSE PG $77.38 Jul 6/15 3.50% $79.11 11.84% BUY

iShares Global Infrastructure Index ETF

NYSE IGF $39.57 Nov 7/16

3.13% $42.45 10.49% SELL

SPDR EURO Stoxx 50

NYSE FEZ $39.07 May 8/17

2.47% $40.05 4.55% SELL

The Kraft Heinz Company

NYSE KHC $77.17 Oct 3/17 3.74% $66.83 -12.59% HOLD

BAE Systems plc OTC BAESY $30.25 Dec 4/17

3.31% $32.14 6.25% HOLD

Global X MSCI Greece ETF

NYSE GREK $9.41 Nov 2/17

2.10% $10.29 9.35% HOLD

Daimler AG Frankfurt DAI € 64.94 Sep 11/17

4.71% € 67.35 6.51% HOLD

PowerShares KBW Regional Banking ETF

NASDAQ KBWR $53.35 Jun 28/17

1.57% $58.01 9.13% HOLD

Huntington Ingalls Industries⁷

NYSE HII $193.55 May 30/17

1.01% $258.34 34.16% HOLD

PayPal Holdings NASDAQ PYPL $40.10 Jan 3/17 0.00% $78.32 95.31% HOLD

Pfizer Inc.⁵ NYSE PFE $32.92 Jan 3/17 3.65% $35.96 14.16% HOLD

Apple Inc¹ NASDAQ AAPL $92.79 May 9/16

1.44% $174.94 93.09% HOLD

General Dynamics NYSE GD $131.37 Mar 31/16

1.53% $221.12 73.19% HOLD

Dollarama Inc² TSE DOL CAD

71.60 Feb 12/16

0.30% CAD

148.96 124.44% HOLD

Disclaimer: The ENR Global Contrarian Portfolio owns Newell Brands, Inc., Power Shares KBW Regional Banking ETF, Huntington Ingalls Industries, Nestlé, Apple Inc., General Dynamics, Dollarama and Procter & Gamble Corp. ENR Low Risk Portfolio owns Pfizer, Nestlé and Procter & Gamble Corp. ENR Medium Risk Portfolio owns Newell Brands Inc., Huntington Ingalls Industries, Apple Inc., General Dynamics, Procter & Gamble Corp and Pfizer. ENR Aggressive Growth Portfolio owns Power Shares KBW Regional Banking ETF, Huntington Ingalls Industries, Apple Inc., General Dynamics, Nestlé, PayPal Holdings and Dollarama.

Fixed-Income



Credit Stress Remains Contained – for Now

The above heading might be construed as ‘famous last words’ nine months from now. I suppose time will tell if the current

acceleration of overdue credit card debt stings the market later this year or in 2019. Over the past five years there’s been

a massive issuance of corporate debt, auto loans and student loans – numbers that run well into the trillions of dollars.

Despite the return of volatility since early February across world markets, credit markets are operating efficiently and

spreads between the riskiest bonds and Treasury securities haven’t widened very much. But a growing concern is the

trend in LIBOR. The 3-month LIBOR rate (London Interbank Offered Rate) is home to more than $350 trillion dollars of

debt and derivatives contracts; for the first time since 2008, this important money-market rate has broken above 2% to

close at 2.05% yesterday.

Companies holding excessive leverage are vulnerable to a financing shock, if refinancing rates continue to rise. This

includes not only American entities but also those abroad. The lowest interest rates in a generation since 2009 have

compelled global borrowers to issue tremendous levels of debt. That might not be a problem now but as market stress

accelerates and the Fed continues to tighten, the odds favor some sort of bond market dislocation.

A few months ago, I pointed out the alarming composition of the investment-grade bond market in the United States;

more than half of all investment-grade debt included in popular bond indexes are rated BBB – just one notch above junk

or high-yield debt. That’s not good. And it’s not any better in Europe, either. European corporate debt has been dominated

the last few years by covenant lite loans or debt securities with weak to no investor protection in the event of a default.



Then there’s the debt issuance bonanza still underway in the emerging markets and even the frontier markets. Countries

like Kenya, Senegal, the Dominican Republic – all issuing bonds at near record low interest rates. The most exotic segment

of the emerging markets sector has raised about $140 billion dollars’ worth of debt compared to almost zero a decade

ago. I don’t have to tell you what happens when rates cross a certain threshold.

According to Gillian Tett (Financial Times) and the Bank for International Settlements, global debt-to-gross domestic

product is now 40% higher today compared to ten years ago. That is partly due to rising government borrowing in the

west and a Chinese debt binge. But leverage has crept higher into the corporate world.

In the fourth quarter, U.S. consumer debt (ex. mortgage debt) rose 5.5% from a year earlier to $3.82 trillion dollars. That’s

the highest amount since 1999 when the Federal Reserve Bank of New York started tracking data. Also, consumers’ non-

housing debts accounted for just over 29% of their overall debt burden – also the highest amount on record. Overall,

households in the United States are paying about 5.8% of their disposable income to stay current on non-mortgage debts,

according to the Fed. That’s the highest figure since the ends of 2008. Debt installment servicing gets worse as rates rise.

Despite a stronger economy, segments of middle America are struggling to repay loans.

Bonds, however, have been oversold for weeks and should muster a rally, even if only temporary. Sentiment is very

bearish. Futures markets show the most bearish positioning on record in data going back to 2003. Treasury market

volatility, as measured by the Bank of America Merrill Lynch MOVE Index, recently hit its highest level since last April.

We continue to recommend Treasury-Inflation-Protected Securities (TIPS) and floating rate investment-grade corporate

debt with very short duration. As LIBOR rates rise, we also continue to like Treasury bills much more than a money-market

fund. Latest three-month T-bills yield 1.68%.

This month, sell the Vanguard Intermediate-Term Corporate Bond Fund ETF (NYSE-VCIT).



Market Outlook Bond Portfolio:


Date Current Yield

Current Price

Gain/ Loss

Advice

iShares TIPS NYSE TIP $113.53 Dec 7/16 2.13% $112.09 0.70% BUY

iShares Floating Rate

NYSE FLOT $50.69 Oct 5/16 1.45% $50.92 2.54% BUY

Vanguard Intermediate-Term Corporate Bond ETF

NYSE VCIT $85.66 Jan 3/17 3.34% $84.44 2.09% SELL

Disclaimer: The ENR Low Risk Portfolio holds the iShares TIPS Bond Fund and the iShares Floating Rate Bond ETF. The ENR Medium Risk Portfolio holds the iShares TIPS Bond Fund and the iShares Floating Rate Bond Fund.

Foreign Exchange

USD Vulnerable to Protectionist Rancor The U.S. dollar started 2018 deeply oversold and trading at a three-year low. The number of bears committed to shorting

the currency hit multi-year highs as February commenced, according to the CFTC. The dollar was long overdue for a big

counter-trend rally, especially under the support of a new Fed chairman committed to additional interest rate hikes. And

we advised against dumping dollars. Now we’re not so sure.

The Trump administration has extended its tough trade talk this month by planning to introduce a 25% tariff on imported

steel and 10% on aluminum. Though the President has regularly chastised China for unfair pricing and dumping, the real

burden of planned tariffs will be consumed by Canada – by far the largest exporter to the United States. Canada sends



16% of steel exports to the United States and more than 40% of her aluminum production. It’s no surprise the Canadian

dollar has been hit especially hard, wiping out its gains versus the USD since 2016 (see chart below). The United States has

extended its protectionist threats in March by threatening to slap duties on European Union car imports. China sends just

2% of her official steel exports to the United States and is basically unaffected by potential tariffs.

The war of words is beginning to hurt investor sentiment, driving stock and bond prices down, including most

commodities. Investors, rightly worry that a global trade war will result in higher prices and possibly, an economic

slowdown, have started cutting risk exposure.

On March 7, White House senior economic advisor, Gary Cohn (former Goldman Sachs president) and the lone globalist

and free-trader at the White House, resigned. We fear NAFTA will fail to survive amid the ongoing negative sentiment in

Washington, further threatening financial markets. Canada and Mexico would suffer significant economic losses if NAFTA

fails. And so would wide swaths of the American economy, deeply engrained in the production chain.

Prior to this new phase in tough American trade rhetoric, the U.S. dollar was soft because of a combination of factors,

mainly soaring deficits tied to tax reform, rising wages and a ballooning budget deficit. While the U.S. economy is poised

to grow this year, its fiscal policy has undercut confidence in the dollar – despite rising interest rates. Now, a seemingly

strong anti-trade policy at the White House is further dampening the dollar.

Trade wars are also dollar-bearish. President Trump Tweeted a few days ago that trade wars are ‘easy to win,’ but history

strongly suggests otherwise. The U.S. dollar might continue declining. Between 2002 and 2004, President Bush imposed

steel tariffs, resulting in a weak dollar performance. The USD Index has already declined more than 13% since peaking a

year ago.



Sandwich Up 2.5% in 2018

Swiss Franc and Zloty Lead the Charge vs. U.S. Dollar

The ENR Global Currency Sandwich, including gold, declined 0.4% over the last four weeks, mainly on weaker gold prices

and a strong dollar. The USD’s rally, however, appears to have been temporary, currently overshadowed by rising trade

tensions worldwide. The dollar remains oversold but from a fundamental perspective, harbors a growing list of bearish

laundry, including deficits, rising inflation, record-high consumer confidence (usually preceding an economic peak) and

possible trade-tariff retaliation.

The Canadian dollar is the only member of our six-unit basket in the red this year, down 2.4%. The CAD is hostage to NAFTA

and fresh trade tariffs on steel and aluminum, if legislated by Washington this month. However, we’ve seen strong returns

so far in the Japanese yen (+6%), the Swiss franc (+3.5%), EURO (+3.2%), Polish zloty (+2.9%) and gold (+2%).

If you have no foreign exchange exposure, then consider placing half of your trade now and the remaining half following

a U.S. dollar rally, if it occurs. The dollar has been oversold for months and is poised for a rebound. Use any intermittent

dollar strength as an opportunity to build your portfolio of foreign currencies.

2018 ENR Global Currency Sandwich (Equally-Weighted):

• Gold Bullion

• EUR

• Canadian dollar

• Polish zloty

• Swiss franc

• Japanese yen

Commodities

King of the Permian Basin ‘On Sale’ in 2018

It’s impossible to predict oil prices. Oil majors, shale producers, natural gas and LNG companies all have varying price

forecasts every year and almost none of these predictions are accurate. I gave up predicting oil years ago when I stopped

publishing my commodity service after nine years with The Sovereign Society. Though we did very well with oil companies

amid a secular bull market for hard assets from 2000 to 2010, I could never get the oil price right. And don’t look to the

financial press for guidance, either; they don’t know. From one day to the next, oil prices are expected to rise and a few

days later, they fall. It’s truly a mug’s game.



Instead, let’s try to focus on the big picture over the long-term. What we do know is that the oil industry has dramatically

cut production since 2014’s oil price crash and net supply has declined on the back of OPEC production cuts and less

production of American shale. Though U.S. shale production has recovered sharply since 2017, demand for oil should

remain strong, despite the secular forces of renewable energy.

According to the International Energy Agency, the United States is projected to become the world’s number one oil

producer by 2023 – outproducing Russia. Amazingly, the United States has gone from being one of the largest net

importers of crude oil only 10 years ago to number two spot in 2017, behind China. From 2005 to 2015, the United States’

reliance on petroleum imports fell from 60% to 25% of total consumption while exports increased by over 300%. Since

2015, imports and exports have both increased slightly, although imports began to decrease in mid-2017. The Energy

Information Administration projects that U.S. import reliance for oil will continue to fall over the coming decade.

Energy stocks have underperformed over the past decade because oil prices declined from a high of $125 a barrel to $61

now. A decade ago, oil traded above $100 a barrel. The decline has been a serious headwind. But there have been

significant divergences across companies. The leaders in shale have done well. Exploration and production companies

(E&P) are trading at some of the lowest multiples relative to the integrated oil companies in a decade. The U.S. oil industry

has become the lowest-cost producer globally. Investors can still find great companies to buy that will grow their

production, earnings, and cash flow by 20% a year for the next five or 10 years in a flat $50-to-$60 oil-price environment.

Pioneer Natural Resources Co. (NYSE-PXD) is one of the largest and most profitable shale producers in the United States

with primary operations in the Texas Permian Basin and Eagle Ford Shale. Unlike most E&P producers, it’s growing its

annual production by 20% -- a leader in the sector. It’s also a top performer. Over the last ten years, PXD has gained 13.74%

per annum compared to a loss of 2.66% per year for the E&P sector, according to Morningstar. The company sports a $29

billion-dollar market capitalization and has seen its stock price fall 12% over the past year. We think this is a great entry

point. From its all-time high in 2014, Pioneer’s share price is down 27%.



BUY Pioneer Natural Resources Co. at market up to $195. Place a 20% stop-loss on your entry price.

This month, we’re selling Inter-Pipeline Ltd. In Toronto.

Market Outlook Commodity Portfolio:


Date Current Yield

Current Price

Gain/ Loss

Advice

Pioneer Natural Resources Co.

NYSE PXD $170.17 Mar 8/18 0.19% $170.17 New BUY

iShares S&P GSCI Commodity Trust

NYSE GSG $16.34 Jan 2/18 0.00% $16.22 -0.73% BUY

Randgold Resources

NASDAQ GOLD $61.93 Dec 31/15

1.23% $82.00 35.09% BUY

ETFS Physical Platinum

NYSE PPLT $88.54 Nov 2/17 0.00% $91.93 3.83% BUY

Inter Pipeline Ltd TSE IPL CAD

25.67 Jun 28/17

7.35% CAD

22.14 -81.74% SELL

Newmont Mining NYSE NEM $17.99 Dec 31/15

0.66% $38.17 114.26% HOLD

Gran Tierra Energy

TSE GTE CAD 3.18 May 30/17

0.00% CAD 3.28 8.10% HOLD

Schlumberger NYSE SLB $69.75 Dec 31/15

3.07% $64.95 -0.43% 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 Nestlé

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

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

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

8. ENR or its employees or its access persons own shares of Newell Brands Inc.

Eric N Roseman March 8, 2018 Montréal, Canada

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