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

Market. Feels the US bull market is getting mature, and you have to be a little more selective, but there are spots that are working. Something interesting that is playing out right now is that there are currently significant potential negative outcomes that people are fussing and worrying about. Donald Trump has been sabre rattling like crazy in a horrible and corrosive campaign. That is very destabilizing for markets. If he becomes US president, he has no experience, no political pedigree, and doesn’t know how to make Washington work, which is a bit nerve-racking. Markets feed off certainty better than uncertainty, predictability better than the opposite. He doesn’t think it will ultimately happen.

Markets. The uncertainty in the market is going to be with us right through to the end of the year. The biggest unknown is the Central Banks and how much of a mess have they really created. He has been on the negative side, not believing that the experiment would work. Because of that, there are a lot of really smart people on Wall Street preparing themselves by buying insurance against a negative outcome of their actions. The best protection for that is gold. The demand for gold is continuing to increase, and on top of that the price is being kept down by what he thinks is a little bit of counterfeit on the futures market. Right now we have 500 contracts that are paper versus one actual insurance policy. That is not going to last. The real demand will continue to pick up going forward. If the central banks have lost control, as he thinks, they won’t be able to raise rates and are going to have to play the negative rate environment. For Canadian investors it is important to understand that our government has sold all of its gold. The Cdn$ is going to be in a negative unwinding of this. He particularly recommends that Canadian clients hedge themselves by allocating some of their investment assets into gold.

Energy. Has been out of this since October 2014, but now thinks we have hit bottom and it is a good time to start adding some really cheap stocks in this area.

Markets. The question is if the Fed will raise interest rates more than once this year. The Fed increase is given. The outcome is that there is a lot of risk out there. The emerging markets have sold off and the US$ has had an impact in Brazil, Argentina and Mexico. It is hard to find bright spots. Should you be putting all your eggs into the TSX or the S&P? The best way to move forward is to focus on value and not be over weighted in any commodity sector. He is a bottom up investor and will hold cash if he doesn’t find anything to buy. Residential real estate can be a lousy investment. You have to pay the right price for it.

Market. Markets are showing a sign of fatigue after bouncing off the lows of January and February. There was a very sharp rally from January and February bouncing off the 2,100 level on the S&P 500. $14,000 seems to be an overhead resistance for the TSX. The S&P and TSX are trading at around 17-18 times forward earnings. That is a premium to a 10-year average of 14-15 times. We are going to slow down a bit and be range bound, being a little bit bumpy going forward. The earnings picture on the corporate side hasn’t been very good. There are concerns about global economic growth and geopolitical tensions, whether about the UK or things happening in Venezuela. We have a very uneasy US political backdrop as well. There is also the timing of the US Federal Reserve interest rate. He is about 12% in cash. When investing now, you want to be in the high quality, more defensive areas, lower beta type of stock, and that can include consumer staples, utilities, healthcare or telecom. Those types of names tend to be a little more predictable and reliable.

US banks. Rising interest rates will represent improved profits through higher net interest margins for US banks. The banks haven’t really participated in the rally we have seen since January/February, which is troublesome for the overall market. They represent some decent values, but there is some concern about where the economy interest rates are going. The sector has moved above the 200 day moving average, which is positive.

Market. He is looking at a stock market environment where uncertainty remains elevated. The Canadian and US markets have rebounded quite a bit from the lows of February. The US earning season for Q1 was a little lacklustre, and guidance was a little disappointing. At the same time, you have the market back to its valuation peak at 17X for the S&P 500. Even if you adjust for currency, the results were a little lacklustre. Looking at the current EPS consensus for 2016, it is back at the same level as 2015. He is looking for companies that are offering the best of both worlds, a decent dividend and the prospect of decent growth, but where the company’s business prospect and growth is not influenced by the macro environment. That gives him more visibility and more comfort.

Canadian Banks. Exposure to energy is at about 2%. Expects that in the next quarter when they report, you are going to see a lot of noise and potentially larger losses that many people expect. Has been reducing his exposure, especially after the large rebound from their lows in February.

Market. The Fed has June on the table for a rate hike, and the market is not anticipating that. They came off sounding quite hawkish that things were improving and a hike would happen if the economic conditions warranted it. Once again they are focusing on employment and inflation. Employment growth remains healthy in the US. Inflation is still within their targeted range. Because it is data dependent, there is a heightened sensitivity to any economic data that is released between now and next month. Her longer-term thesis is that the US economy continues to grow at a 2%-2.5% pace. She always thought the pace of the US Fed was going to be quite moderate and well telecast, and she doesn’t see a sharp spike in inflation, so expects it will be a slow, gradual entry. Canadian banks have underperformed and are very attractively priced right now. The energy play is still on the table and you still want exposure there, preferably through some of the infrastructure and pipeline stocks as a more defensive way to play it. If the US$ strengthens, it will be negative for gold. Gold stocks are up significantly more than the commodity, and if an investor wanted some exposure, she would go with the actual commodity.

Car companies? She doesn’t own any of the OEMs. They are very cyclical, and as a group tend to trade at single digit multiples. Through the cycles they can lose a lot of money. For the group as a whole, the overhang is that US auto production may have peaked out. If rates start to move up, that is going to hurt auto demand in the US. Her preference would be to buy a high-quality auto parts supplier, who supplies into all of the companies.

Markets. If we get a recession in the US and Canada, we are pretty well guaranteed to get a Bear market. The two go hand-in-hand. When looking at economic data, it is most important to look at the US because they have such a bearing on global markets and global economies. He watches indicators out of the US fairly carefully, and when they start to turn down that usually precedes a bear market for a 6-9 months’ timeframe, and precedes a recession for the same amount of time. February through until April was a great time for the market, a broad-based advance with lots of stocks taking part. A number of stocks had a breadth that was very strong, and it reached extremes he hadn’t seen in a number of years. When that happens, it is typically a strong precursor to returns going forward. However, it takes a lot of energy to get that kind of breadth number, and typically after he sees it, there is a minor correction (consolidation) for a few weeks. Looking out 12-18 months, that is where you really see the strong returns.

Markets. The Canadian market hit a 6 month high for a nanosecond this morning, but the US market is following the typical track of what happens during a US presidential election year. In the early part of a presidential cycle, the markets do not like it for a couple of months. By the end of May, it hits a fairly important low. After that the markets go higher right through until around September. This is followed by a drop, through until election Day, and then the markets move nicely higher. The Canadian market is still in a period of seasonal strength, which is until June 5 on average. Following that it technically goes into a flat line until around August/September and then down until the middle of October. Typically, as you get to US election Day, November 9, both Canadian and US markets move significantly higher right through until the end of the year.

Gold. Historically gold does not do very well at around this point in time, and usually goes flat to slightly lower. It does click in when you get around into the middle of July, and then goes higher from there. Technically the chart on gold looks great and has recently developed an upward trend. Has recently broken into new highs. You’ve got to stick with it, at least for now.

3 indicator setups for short-term intra-day trades? The whole idea on day trading is to use short term momentum indicators to indicate when markets are going in and out of their trends. He uses stochastics, RSI and MACD. These can be used in conjunction with each other. Stochastics is the fastest, where you get the most signals, but also the most false signals. RSI which tends to be a medium time momentum indicator. Usually it is very, very good but not as fast as stochastics or as low as MACD. MACD is the slowest. He likes to use stochastics when going into a seasonal trade, to get him into the trade. He will stick to it as long as stochastics, MACD and RSI are moving in the same direction. He normally would not get out of the trade until the MACD kicks him out. Stochastics and RSI tend to get stuck at a high or low range for a period of time, and can whipsaw you. The MACD has a tendency to move slower and keep you in the trade for a longer period of time.

Markets. Buffet bought into AAPL-O for about a $billion. He also added to IBM in the past. Larry would not chase what Warren buys. The massive boom in China is pretty much over. Let’s look to India over the next 2 to 3 decades. India is going to have the massive boom that China had. India is outperforming China. There is a transition to a consumer society in China so he has not exited China completely.