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

Canadian Tech ETF not too conservative and not too aggressive. Caller is moving from XLK-N. He recommends the First Asset Covered call Strategy ETF (TXF-T).

REIT Stocks Overvalued? He does not think there is any value whatsoever in the REIT sector. There will be trading rallies. He would not put new money into the REIT sector.

Educational Segment. Head and Shoulders Pattern. This is THE best pattern and the most reliable pattern. You get higher highs and high lows over a period of time and then you make a lower high and a lower low. The neck line is the trend from shoulder to shoulder. We had the S&P in an uptrend since Feb lows and then in April it had a head and in May it is having a second shoulder. You have a lot of support in the 1970 area and if you are going to buy in the next while, it will be a good time. However, he is worried about the market in September/October.

Markets. He has gone short in some of his hedge funds on energy. They seemed so oversold. A bottom is being formed. You are paying for $50 to $65 oil today. He worries about the banking system in China. It is an oversold bounce off the US$. He thinks money will come back to the US$. He has gone short on names like TCK.B-T and FCX-N again.

Big US Banks. They have been out of favour and under pressure recently. This is an area in the US where he feels comfortable holding stocks. Interest rates are probably going higher in the US and will benefit banks.

Oil. Goldman Sachs is calling for $50 oil on the back half of 2016. That gave a lift to oil, and it is about time. The combination of good demand and supply outages sets us up to the end of the year. It is going to take an awful long time for Nigeria to sort out its issues. Saudi Arabia and what they are going to do is an issue she has been struggling with. They want decent oil prices for their own country, but at the same time the Saudis and the Iranians are really not friends, and the easing of restrictions on Iran is making the Saudis feel threatened, which could have the Saudis increasing production. She is very cautious and still has a lot of cash, but a lot less than she did a month ago. Expecting some volatility in the market and wants to trade around it.

Natural Gas? Natural gas in the US looks quite encouraging. Production has destabilized a little. The contracting rig count has really helped the price at lot. Also, natural gas in the US has been improving quite nicely. They have started LNG shipments, slowly but surely, and there is going to be a lot more exports to Mexico, which is looking pretty good. Canada is a few quarters behind although Canadian production is still very robust. The Montney is one of the best resource areas in North America right now. Storage levels are at levels which would typically be in October. With the oil sands production coming off-line, natural gas demands weakened considerably. It would be prudent to wait on the Canadian natural gas producers.

Market. Earnings season has just wrapped up and the earnings recession continues. There was a 7% blended earnings decline, for the 4^th consecutive quarter. This hasn’t been seen since Q4 of 2008, so he feels growth continues to be anaemic. 2016 started off pretty rough. Now that there is some stability in China and in oil prices, the market is reflecting that. Expects we will continue seeing volatility over the summer. He went to 25% cash in the 1^st week of January, and started to put some of that back to work over the last few months. Currently has 15% in cash and is looking for some attractive entry points.

Energy. There might be a pullback before there is a firm price on oil. Markets and commodities do not go in one direction. Given that we have had quite a bit of good news with oil in the last 4-6 weeks, it is just a matter of time before some bad news starts to creep back in. The good news is that we have consensus that we have reached a bottom in oil prices, but he wouldn’t translate that as stability in the share prices of oil companies.

Portfolio construction for a small investor? The biggest consideration is the amount of capital you have. With larger amounts of capital, you can properly diversify. Buying good quality stocks makes sense, however with that customization ability, comes risk that you are not diversified enough or that you start to become really excited about 1 or 2 companies putting more of your capital in that. A more conservative way is to have the broad market. This will not give you the customization ability, but if you are someone not managing on a daily basis, then a passive strategy like an ETF or a mutual fund would be a better way. You want exposure to the US and Canada, but don’t be too heavy in Canada because it is a small percentage of overall GDP growth.

Strategy for mitigating risks because of market fluctuations? This is something investors wrestle with on a daily basis. He generally never goes to more than 25% cash and doesn’t do it because he is making a big call on the market. If you are wrong, it is hard to recover. The idea of using cash is to add some insulation and reduce volatility. Anything more than 25% means you are making a call on the market. Over the summer we are going to have volatility, but is not expecting a major pullback.

Markets. A lot of companies in the resource sector have had to cut costs and now you are seeing more in the small cap resource sector. The small caps have underperformed for so long you could expect to see, from history, performances of 100-200 percent. If you see outperformance in the small caps for the remainder of the year then you will see more money move to small caps. You may see some IPOs in the small cap sector later this year.

Gold. Stocks and material stocks were oversold. The gold Resource Index was off 88% on a nominal basis, and more than that on a real basis. If you think gold is going up, you should own gold, as opposed to gold stocks. Gold should outrun gold stocks over time, because people take more risks to be involved in the gold stocks than they do in gold. The increase in the gold price itself increases margins of producers faster than the increase in the gold price. If you believe gold is going up, own the gold first. Gold is going higher for 3 reasons. 1.) The most important catalyst has been the zero interest rate policy. 2.) For 35 years, gold has traded inversely to the US$. US 10-year treasury has been in a 35-year bull market. If you believe it is closer to the end than to the beginning, then the gold bull market is closer to the beginning then to the end. 3.) Gold is treated as a safe haven, and has been for a millennium. The US Treasury no longer acts as a safe haven because of its current yield.

Market. Sometimes you have to listen to what the market is trying to tell you. Since early February, the US market has been moving up, despite 1^st quarter earnings of about -6%, and the 1^st quarter GDP also being pretty lousy. Thinks the market is looking forward to some earnings advance. We need earnings to grow in order for stocks to grow. For earnings to grow we need the economy to move forward. Consumers are in pretty good shape. They don’t have too much debt. Also, feels the US$ is going to go down which will help consumers outside of the US. Also, many emerging markets finance their dollar denominated debt, so when the dollar goes up, they have higher payments to make which is tough for emerging-market governments. Also, many commodities such as oil and natural gas are priced in US$s, and when the dollar goes up it makes those commodities more expensive than what they are in the US.

Pipelines. These are going down because of the fear that their customers are going to go bankrupt, and some of them are. If they go bankrupt, the contracts are potentially not going to be valid. Even if they have fixed-price contracts, they won’t be any good if the customer is bankrupt.