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

Markets. The macro picture is that we went through a terrible period in 2008-2009, and it was so bad he thinks it is going to take more than the normal recovery time to see a full recovery in the economy. That takes us out to maybe 3 or 4 years. There has been growth, but it has been spotty. He is looking out 3 years, but admits there are a host of things that could go wrong, any one of which would hurt the market. He is optimistic and is taking a three-year view. It is a very different picture than what we saw in 2008-2009. China is largely self-contained. 85%-90% of its banking is internal, and the government will take whatever step is necessary for them to recover. It could have a shock value, but it will be a short-term one. There was a period in oil prices in 1973 when they went from about $350 to $39.50 in 1980. That was a major dislocation to equity markets and the economy, and some people never really recovered. Fast forwarding 42 years, we are now looking at a reverse period where energy prices are stable and lower. Thinks that $30 oil is close to the bottom.

S&P 500 by the end of this year? Thinks it will be higher and doesn’t see much in the way of a retest of $1850-$1860. As the economy shows signs of picking up, then the market should pick up. He looks at consensus earnings per share for the S&P, $122 this year and $138 next year, which is quite ambitious. The S&P 500 should get to $2150 maximum this year.

Financials? Everyone expects financials should lead the market higher, but they continue to trade lower. This tells us that there is a great fear of a banking crisis. If “negative interest rates” became a policy of our chartered banks or the US banks, that would hurt earnings. The world doesn’t know what that would do to the banking picture. Right now it is energy prices and the potential risk of losses.

Are bank dividends safe? He cannot perceive, unless the situation is totally dire, that any bank will cut their dividends. The worst case is that they postpone any increases.

US Market. Corporate earnings are not that bad. People are taking in expectations for things to slow down, when we really haven’t seen much evidence of that. A lot of the focus is on Chinese growth and the type of growth they are having, so more to consumer led from infrastructure and a lot of the commodity implications that there has been globally. A lot of money going into places that in hindsight are not economic, and there are questions as to whether they are going to be able to pay debts back. Fear is just exploding through the market and attacking equities as well. There has always been this credibility of the Central Banks that they fix everything, and you don’t fight the Fed. Now people are questioning, and figuring out that they don’t know everything. It really didn’t help raising .25%, and then looking like they were backpedaling. Still believes the US is the strongest place to be, but a lot of that is being muddied by the huge currency movements that we have seen. A very dynamic environment, and when you have a lot of moving parts, that is what leads to the market volatility.

What percent of funds would you put in US versus Canadian stocks? She is about 70% in the US and 30% in Canada. Finds the US to be a structurally sound market at this time. In the Canadian market there is a lot of money locked in Canada that simply can’t leave. Looking at the top 10 performers in 2015 in Canada, 9 out of 10 had less than 20% revenues tied to Canada. She is concerned that because those stocks did well, it seems dislocated from underlying fundamentals of the company, and more of a fund flow question. Feels US companies are trading more on their fundamentals.

Markets. In Canada we have about an 800-point cushion right now, with 12,000 being support, but it will stay under pressure because of obvious reasons. Crude below $30 is not good, and doesn’t see that getting better in the short term. The US is a little bit different. Dow has had a nice bounce with lots of triple digit days, but is now getting closer. It’s around 16,300. 15,800 is where the base is going to be built, and he expects that base to go on for months before we do anything positive. Resistance on the Dow would be 17,200-17,300, the 50 and 100 week moving average, so resistance is big there and is not going to go much further. S&P has 2,000 as resistance and is sitting at around 1,900 now, so there is not a lot more upside. He likes to see the history and where the market has stopped and where it has run with historic issues such as crude, gold, some kind of market movements that happens globally. For whatever reason, indexes stop at certain points and go at certain points. Looking back 10-20 years gives him a little bit of leverage when there is no leverage. It looks like when we are falling it is going to keep on falling, and when it is running, you can’t wait to Buy it. He tries to stop some of the “sucker rallies”, where it has been falling and then rallies very, very quickly, thinking the momentum has changed, but it hasn’t. S&P has been acting quite well and is now toying with upper levels of the index. As opposed to the Dow that is working on support and trying to find a base, the S&P is at a point where he is trying to find a top. It’s a mixed bag. The S&P shows that you want to be Long the market a little bit, while the Dow shows something completely different. The 200 week moving average is a very important line, and it is very important that it holds those markers, otherwise that becomes resistance instead of support.

Crude. Tested the mid-$20 earlier, which is quite scary. Even after the powerful rally we have had, it broke down through $30 again today. He is very concerned with crude and thinks we are going to test the mid-$20 for sure. Even if it does hold, it is going to take time to get back out of here.

Gold? Thinks gold’s range is $1050 to $1340. There is probably $100 upside. Doesn’t see a lot more in gold. Would have no problem in taking profits here.

Canadian Banks. He prefers US banks to Canadian. However, in the near term he is seeing improvement in Canada. You could get a nice total return. Down the road we may have some poorly performing loans from the energy price. He would prefer TD-T of the Canadian ones, but would prefer to focus more on the US banks.

Ranking the 4 US railroads. Transports were performing very poorly last spring and it was said to be because of a slowdown in crude by rail. In the last 4 weeks we saw a turn in the transport sector. He would pick CNR-T because it has a lot of north/south traffic. He would pick NSC-N for a US railroad. He would suggest an ETF, IYT-N also.

It is a very confusing time for people right now. We are completing a correction in a long term bull market. There are all kinds of negative news to worry about in the press. In order to get to the late stages of a correction there has to be a lot of worry about. Only 17% of investors in the US are bullish, and this is a good sign for the market. You have to go back to the second after the 1987 crash to get that few bullish investors in the US. He believes we are headed into a much better environment. The time to invest is when it is scary.

Markets. We really haven’t seen anything to get capitulation in the market, to bring valuations down, to make expected returns high enough that people can feel confident walking in. At the beginning of the year the expected return of the market was roughly 3% growth, hardly exciting. Now we may be looking out 12%-15%, by many people’s numbers, given the fall that we have had from $2056. Doesn’t think that is great enough given that valuations still seem a little stretched, and has been driven largely by oil and the rumour that there is going to be some sort of limit put on, ostensibly by Russia and Saudi Arabia. The track record between these 2 countries is abysmal. Russia always cheats. It is really much to do about nothing. Doesn’t think we are close to a bottom yet. It’s been tough sledding for investors, and there is a fatigue that settles in. Doesn’t know where the catalyst for growth is going to come from.

Lumber for a short-term trade? Most of the companies are linked to US housing. Overall they are attractive. There’s macro weakness, coupled with a sector that looks attractive, and companies that look generally attractive. However, the timing is a bit off. See how sustained this rally is, and if you see another week or so of stability with the S&P breaking above $1950 and heading back to $2000, then you could safely invest in this, for a short period of less than 6 months.

Markets. The US has GDP growth of 2% and unemployment at sectorial lows with pay increases. He wouldn’t be surprised if he saw a short-term 3-9 months’ rally in Canada relative to the US. Feels markets will go up, but will be quite volatile.