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

Gold. Index, gold company or physical gold? If you have a really good gold company that is well-managed, under levered and methodically finding gold ounces, it is better to own a good gold company than the bullion. You are talking about 5 companies out of a universe of hundreds of companies. Very difficult to do.

Zinc? This should fall into a category of something like copper, in that it can be used in more of a consumer process. He likes the idea of zinc, and in 2 year’s time we are just going to fall off a cliff of a supply of zinc. It could still be coming in a couple of year’s time. Nevsun (NSU-T) seems to be the purest play. It is a copper mine, that in 2 year’s time becomes a zinc mine.

Markets. The US economy is okay. The US $ has pulled back and there were fears of recession, so now we are due for a bit of a rally. It appears the US economy is growing and is healthy. She does not think the Canadian economy is going into recession. January’s trade numbers were encouraging. We are starting to see the benefits of a weak Canadian dollar. We are seeing strength in Ontario and BC. She is focusing on domestic, non-exporting blue chips.

S&P 500.We have had a pretty volatile start with a 14% drawdown in January and the 1^st 2 weeks of February. That was followed by the same on the upside. Looking at the S&P 500 chart for the last 3 years, it shows an upward trend that we had been in since 2009. That uptrend was broken about the middle of 2015. The market hit a new high in May of last year, and has not taken that high out. His definition of an uptrend is 1) higher highs and higher lows, and 2) the market has to be above the 200 day moving average. We have not made higher highs since May 2015, and the 200 day moving average was kind of supporting the market, but then was definitively broken back in January. Now we have a lower low, no new highs, and a break of the 200 day moving average. So for all intents and purposes, we are in an intermediate term bear market., that really began last summer. You can still trade in an intermediate term bear market. The market put in a double bottom in the summer. That broke out and then recently put in another bottom. We are just hitting a point of what he would call technical resistance at the 200 day moving average and at the old support levels of last year of around $2000-$2020. This is going to be a kind of make or break moment on the S&P 500. Historically, the 200 day moving average causes some resistance, so we may see the market correct a bit in the next week or so. Recently oil has been driving the market. It had entered into a downtrend in late 2014. Has had lower highs and lower lows. Since there are no new highs, we are officially in a downtrend. It hasn’t taken out the trend line or the 200 day moving average. Oil is getting into the zone where there is going to be some trouble in breaking the down trend line. The rally in the last number of weeks may or may not be the real thing, so you have to be careful.

Technical analysis?There are no magic elixirs or formulas for technical analysis. He wrote a book called Sideways which might help you. It is really a matter of higher highs and higher lows. Markets are either trending or consolidating. Different indicators work better in trending markets, and other indicators work better in consolidating markets. In a trending market, you want to use things like moving averages. When the market stops making higher highs and higher lows, then you get focused a little more on momentum things such as MACD, RSI, Stochastic, etc.

Canadian Banks? Banks got hit with the oil. Had been in a pretty strong uptrend, but then rolled right over. He ended up selling in early 2015 as they rolled over and started making lower highs. He tried to trade recently, but it is effectively still in a downtrend.

US$. The US$ is in a big secular bull market that is probably going to continue for 7-8 years. When you look out globally, the US is out of sync. They have growth, where the rest of the world is basically slowing down.

Venture Exchange. This exchange is obviously polluted with a lot of questionable companies, but there are the odd gems. He is seeing some very small companies that are profitable, have cash in the bank and are trading, in some cases, at a discount to BV, and some junior mining companies that have a pile of cash that will do very well. Thinks we are starting to see a bit of a bottom. Look for companies that have promise, and have the financial wherewithal to struggle through this epic downturn in small-cap stocks. They will do well if they can survive, if they have good business plans. The biggest mistake the average retail investor can make, is putting too much money in a very risky name. Everything that is small is risky. Even companies on the Venture that have revenues and profits, things can happen quickly without you suspecting it, and they can blow up. If you have the temperament and the capital to take these substantial risks, just put a small amount in each name, maybe to a maximum of 1% of your portfolio.

Gold. Gold has a particular promise for a couple of reasons. Primarily people are starting to question Central bankers and their ability to turn things around. They are conducting weird scientific experiments with monetary policy and negative interest rates. Feels gold is going to start to draw attention as people begin to question the invincibility of Central bankers. (See Top Picks.)

Juniors. This year he thinks we are finally in the turn. Things are starting to look up for the juniors. There has been a PDAC curse, i.e. a tendency through the years for the resource sector, juniors in particular, to trend up during the 1^st quarter, and for everybody to get excited. However, a couple of weeks after, it fails and for the rest of the year it is a long downward trend and misery. There have been 3 violations of the curse, 2003, 2006 and then 2009. This year started off horrible for all levels of equities. He was down in the 1^st few weeks in his “bottom fishing” edition of 100 companies, but in the 3^rd and 4^th week it has turned around and is up 40%. Gold has finally surprised us on the upside. The big concern is if the gold rally is sustainable.

Metals & Mining. Has been pretty negative for the last 4+ years, but in November he thinks he saw a fundamental change in currency and gold prices. He has been buying more into the precious metals sector. Feels this rally in the gold price is long term bullish. It may have a pullback in the near term. Serious investors are recognizing that gold is an asset to have right now. He also feels it is fortunate that we have not seen the silver price rise yet along with gold. Globally we are looking at the major equity markets turning over, currencies are being devalued across the board, and in many countries we are looking at zero to negative interest rates. At that point, gold actually makes sense. This time we are actually seeing gold going up in US$, which is very different.

Base Metals. These are in their bottoming process. It could take a while. It depends on global demand, and he doesn’t see it picking up this year, maybe into next year.

Silver. Much more volatile than gold, and we haven’t seen it jump yet. The reason is that we haven’t seen the wing nuts and tin hat guys jump in yet.

Metals & Mining. For the past few years, we have had a push up in gold during the 1^st quarter. This year we have seen the same push up on gold prices, but thinks it is more sustainable because on the underlying fundamentals on the supply side, production levels are flattening to going down. People are curtailing production and there are not very many development projects being put on line. Also, there is very little expiration, either from the majors to the juniors. Long-term, 5-10 years down the road, it looks very good.

Markets. Gold is being pushed up because it was so oversold. The move to lower interest rates is also pushing the price up. We saw a 35 year bull market in government bonds and he feels the bond market is running long in the tooth. So the market in gold is closer to the beginning than the end. He would not be surprised to see the rally in physical commodities coming in a couple of years. Equity financing will be difficult for small companies. The big banks are not as involved in their financing.