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

Market. To bring valuations down, we are going to need more earnings growth for the back half of the year and into next year. The markets are elevated in terms of valuations. The S&P 500 is trading at about 18.5X forward earnings, and the TSX is trading at about 19.5X forward earnings. The historical 10-year average for forward PE multiples is about 14X. He is pretty constructive and selective of NA equities. Low interest rates are still there acting as a safety net for equity prices. We are getting some hints of more fiscal stimulus from the fiscal side, which might help equity markets and the economies. From a technical perspective, we just broke out of an 18-month range bound market and broke above very key levels in the S&P 500. Historically this is a softer part of the year, so we may see some volatility going into September after the Labour Day weekend. That will provide investors with an opportunity to selectively Buy on dips.

Gold? His portfolio actually held silver as a precious metal, and he just sold it. The prospect of rising interest rates now is a bit closer, so things like gold and silver may start to come off a little. If next week’s jobs numbers are not so great, then interest rates moving higher will be pushed even further, and maybe gold will start moving higher.

Markets. You have several factors that the markets are ignoring. The markets are not sensitive to values in them. Oil has decoupled from the markets. With XRE-T and other ETFs the share price appreciation does not justify the price.

Market. Believes interest rates have been at an ultra low rate for too long, and that the central banks globally have painted themselves into a corner. They would love to have interest rates at around 5% in order to have wiggle room to go either way. The latest craze is that all the Hedge funds want to Short the volatility and go Long the junk bonds. They are making 5%-6% yield on the “less than investment grade” bonds and trying to pick up points all the drop in volatility. We’ll probably see volatility start to rise in September. This has happened before with hedge funds. You can’t have non-volatility for an extended period of time without something happening. Investors should be making sure that they have a fully diversified portfolio and assets not correlated with each other. If 1 goes down, 2 in the same industry, the other is going down with it. The way you can offset your downside is to have non-correlation in the portfolio, make sure your percentage weightings are in line and diversified by industry, country and asset size.

Deflationary threats? Central bank policy is monetary policy where they really control the short end of the yield curve. The QE that the US brought into play, which everybody else decided to jump on board, is only part of the equation. The bigger issue is that the governments are not initiating fiscal policy with a “want to spend”. Central banks are using tools that are 20-30 years out of date. Without a monetary policy in place to get people working again and retirees looking for yield, we get negative interest rates. At some point, the string has to break.

Gold? This is going to be pretty much based on where interest rates are and where the US$ moves. He would prefer gold wafers as opposed to gold stocks. (See Top Picks.)

Market. He uses a multifaceted indicator that looks at about 13 factors. It tries to measure risk versus return. A number of factors are still positive. The markets are above their 200 day moving averages, but there are a few things such as the VIX indicator, sentiment indicator, some momentum indicators. He got a Sell signal this week.

US$ to the Brazilian real? The long-term chart shows it has broken the downtrend early this year. He looks for levels of resistance, and you want to make sure that markets get through those levels. It looks like there might the something coming in at around $17.50 or so, and then from there just under $20. There are higher lows and higher highs, so he would stick with this.

Timeframe on Short Term and Intermediate Term indicators? Short-term is typically around a month or less, but could even be 1 or 2 weeks. An intermediate term is over a month, and up to 3-6 months.

Are different indicators more important based on whether a stock price is trending or if it is range bound? You look for trendlines and formations on the weekly chart for at least 3-5 years, and then you start working down. From there, you are looking at the Moving Averages, then at Volume, then at the smaller stuff to refine your entry. EG. If you see an uptrend in a seasonal period, you start looking at things like momentum indicators, stochastics, MACD, RSI, etc. Those are the refining tools. You really have to understand the phase of the market, if it is in an uptrend, topping, downtrend, or making a base. If you don’t understand what the stock is doing, which phase it is in, then there is no sense in looking at some sort of short-term momentum indicators to see if it is overbought or oversold.

Natural gas? Likes natural gas a lot. Seasonally this can come into its own very soon, within the next few weeks. That would be its Buy point. It looks to be forming a head and shoulders bottom like it did in 2012, right at the same time of year. It broke out in the latter part of August, and tested the neck line. If it can successfully test the neck line at $2.60-$2.70 and move up, he thinks it has lots of upside.

Market. When valuations are being stretched, it can’t go on forever. As a value investor, it is getting harder and harder to identify securities that he thinks are really good, long term value to Buy, as a result, he is almost in the mode now where he is taking more profits than he is reinvesting money. You never know what will make the market crack. It could be the US election, North Korea launching a missile, etc.

Uranium? This has always been a difficult element for him to get his head around. It never seems to follow supply/demand mathematics. After Fukushima in Japan, everything stalled out. Politics always seemed to get in the way, with the possible exception of China.

REITs? Investors have concerns about the interest rate environment, and REITs would be affected if rates went up. Canada has had a run on real estate to the point where multiples in Vancouver and Toronto are fairly high. You have very low cap rates and very high values, which is a very formidable position for REITs to be in. He would stick with the high quality REITs.

Market. The S&P 500 and Dow are now trying to make another all-time high. From a monetary point of view and bond point of view this is warranted, but he is cautious from an earnings perspective. US earnings have gone down over past quarters, so the market going up is a bit of a countertrend, but the offer of what else is available is warranted, just because of interest rates being so low. December for an interest rate increase might be a more realistic option. The Fed seems quite concerned about global issues so they keep rescinding back their talk of interest rate hikes. Even if they raise rates, they are still going to be at very low levels, which is why we are seeing markets going to new highs. He is fairly constructive on the economy. The US and emerging markets are really driving the growth that we are seeing now. Japan and China seem to be bottoming. That is offset by the euro area and the UK which could see growth coming down.