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

Market. US markets are at near record highs, and it is not a screamingly cheap market. All the metrics are expensive. His concern is that we are in a richly valued market and we are entering the period that happens to be the 2 worst historically performance months of the year, Aug and Sept, back to back. We have to have a bit of a concern here. The Canadian market is not a place to hide. In the fall, the S&P 500 has historically out performed the TSX Composite. You want to be in more of the conservative sectors of the market, such as healthcare, utilities, telecoms.

Energy. We’ve had a $5-$6 rally in the last 2-3 weeks, but we have had 4 or 5 rallies since the beginning of the year. Oil was $54-$55 in January, came down to $48 in March, ran up to $54 and then down to $46. Getting to $50 was based on Saudi Arabia saying they were going to cut back by 600,000 barrels a day. There were 2 military events in the Middle East, an Iranian ship came close to an American warship in Yemen, Iran supporting one side of the insurgents against the Saudi supported insurgents, and they fired a missile towards the energy producing areas of Saudi Arabia. We are near the end of this bounce and are going to come down. Once we get through the summer driving season, ending in the 1^st week of September, we will probably see a bust to a $42 low. We are going to bust $40 because demand starts to fall off in September by about 1 million barrels a day from the summer peak driving season.

Pipelines? You have a good dividend yield with all the companies. For income oriented investors, the big issue for them is the regulatory environment. Is Kinder Morgan (KML-T) going to be able to get the pipeline built, which they want to start by the end of the year. The BC government is an issue. TransCanada (TRP-T), regarding the XL line, is now asking if shippers want to take the space and firm up their commitment. There is also the reversal of the line in the US with Enbridge (ENB-T). The whole service sector related to the infrastructure is now a political football.

Natural gas? Currently the price is $2.95US and $2Cdn, which is a big gap. Once we get past the summer air conditioning season, the price of natural gas falters, and there will be days where it will be under $1. This probably won’t get out of the doghouse until just before winter. If there is a cold winter, we might see $3 again. He would hold off. There will be some great buys at some point.

Economy. Numbers blew past expectations today, which says that the Cdn$ possibly has a little more firepower, which is probably catching a lot of people offside. The economies are recovering in the US, Canada and globally. At the same time, you have a growing forest of very skilled investors who are afraid of where markets are at. Valuation relative to strength index has sort of gone up the board. People are really calling for some protection in Puts or gold, and he thinks they are wrong. The market is still a very good deal relative to most other investments.

Cdn$? Thinks the US$ got too strong against all currencies. If you look at Canada’s growth rate today, versus the US GDP growth, we are still outperforming. People are still not positioned properly for the fact that the currency is going to drive a little bit higher. He feels we are going to be at $.84 in a year’s time.

Markets. He is surprised by how low the volatility is on the VIX. These levels cannot continue going forward. Investors have to be careful going forward. Some caution is warranted. You have to pick your points and not invest in the overall market. There has been a lot of takeout activity and this is a sign of a toppy market. It does not mean we have reached the top, however. The gap between bonds and dividends has narrowed. Now you take on more risk as you deploy capital in the equity market for dividends. His fund has a negative view on commodities and he tries to stay away from them.

Investing in resources is very dangerous and you have to make a call on the underlying commodity. He encourages investors to make investments outside of these sectors. If it seems too good to be true, then it probably is.

Oil: You can bring new supply into the market. Demand/supply is looking okay because there are all these alternative forms of energy. Investing in oil over the long term is not viable.

Market. A cyclical movement index he uses is showing information that hasn’t been seen since the Great Depression and the tech bubble. This is cause for caution. He is looking at markets right now and there is really nothing that he would want to buy because everything is trading at such high multiples. Also, the earnings that are coming out are actually adjusted earnings, so he is not impressed. The “gap earnings” numbers are much lower than anticipated. Wall Street is allowing these numbers to flow through, but they are not generally accepted accounting principles. He is trading at about 20% Canada, 40% US and 40% International.

Market. The economy in Canada and the US is fine, but some shorter-term technical indicators have deteriorated, and are giving him some doubts. He tracks 2 different sets of data on his top-down indicators to indicate whether he is in offense or defence. Economic indicators have been strong and have stayed fairly strong across the board. A few months ago, some technical indicators in the overall market started showing a little bit of weakness, so he moved his portfolios to neutral and raised the cash level. Lately he has started to see a few things improving, but it is probably a little too early to move his cash back into the market.

Market. The Cdn$ has run up way too fast and is going to hurt some of our economic numbers, particularly on the trade side. Canada is the worst in the G7, and the Canadian market is lacking in enthusiasm. Economic numbers are okay. The recent pullback has been orderly, but it is still a pullback. We haven’t seen the last of it until we have at least seen some consolidation. He is hoping we will see some good earnings in the earnings quarter which will help perk things up. As long as the market is going down, people get worried.

Markets. The TSX is the worst performing market in the world, even taking into account the currency. The problem for Canadians is that our own market is down. The strength of the Canadian dollar took away a lot of the gains. The market in Canada is dominated by banks and resources. We are totally undiversified. He as 45% outside of Canada. Half of that outside of Canada is in the US. Most political news is noise to the market.

Europe Recommendation. He likes multinationals that are headquartered in Europe (see his top picks). DEA-N is part of Europe and is the world’s largest liquor company. The Finish elevator and escalator company KONE (KNBV-OMX) does a lot of business in China. Sanofi in France he likes also.

Canadian Rails. He is favourable towards them. Surface transportation companies let you know how economies are doing. He prefers CNR-T over CP-T.