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

S&P. Repeat of the ‘07/’08 pattern. It will probably hold the low of Oct/14. This year is going to be marked by some sectors making highs and some not. The biggest risk is anything to do with consumer. 1820 is the new support, in his opinion.

Money center banks such as BAC-N and C-N. We have this rally coming into 2016 and the financials should participate. The lenders to highly qualified clients should do fine. Go with high quality names. He does not like the chart. But these ones will probably be pulled up by the markets.

Market. Central Banks have gone through this big experiment starting in 2008-2009, so there is a huge mispricing of assets globally. It is very hard to see where the seeds of recovery are coming from. Ostensibly the market has been going down because of China worries, and those worries are driving oil down, and oil is driving the market down, etc. Until we see stocks significantly lower or significant confidence that the growth in China is here to stay, or global growth is here to stay, he doesn’t think it is going to be smooth sailing. What we have seen since August of last year is likely going to continue, making it very challenging for investors. Valuations are high versus historical norms along with an absence of growth. Expectations are still too high. We need some sort of capitulation where the market moves down 10% or more.

Gold? Geopolitical risks figures into the price of gold, and if we had a geopolitical crisis, gold would be higher. This has performed reasonably well in the last week or 2, but he doesn’t really see any upside from here.

Markets. The TSX is down about 23% from its high, officially bear market territory, but this is where opportunities surface, so he has been buying aggressively and reducing his cash position. We have seen most of the decline in the Cdn$, but it could decline another 5%-7%, but at some point you will get a recovery. There will be a period when it will trade in a narrower range. Expects that in 4-6 weeks we will see the bottom in oil, but will have to see how much oil Iran actually produces. There are also the floating stores. Most people think it is oil, but it is really mostly condensate. Venezuela is not in the best of shape, so we will see if they can continue to pump 2.4 million barrels a day.

Markets. He is still conservative and would suggest investors should take some money off the table on the rally. Feels the rally has legs, but was extremely surprised at how quickly the market came down this year. There is a lot of weakness and thinks the market is overvalued, and will continue to correct. Because of this he would continue to stay cautious. However, there is a bright side, and that is the decline of the Cdn$ even though it is affected negatively, but it is having a really good outcome on the earnings expansion of Canadian gold producers. Gold crossed $1600 this week and closed today at $1550. These companies are producing at $1000 or less Canadian, so their earnings are expanding. In essence, gold is doing what it has always done, acting as a safe harbour in times of currency crisis. We have so much debt in the world that economic growth isn’t happening, it is being stifled. The same as what happened in the 30s.

Uranium? Likes the uranium industry, but doesn’t know if he would be getting in just yet. Thinks this is being driven down through this inflationary spike we are going through. He would be looking to add some, because a lot of nuclear plants in Japan are getting turned on again. It is a question of timing. For him, he would rather stay in cash right now.

Markets. The fed’s impact on the markets has led to low volatility that has not been normal in the past. We are getting back to normal now. Good companies will attract greater amounts of capital and propel their stock higher. Last year he said he would like to see a quiet, flat year in the market because the market was getting too distant from earnings.

Buy US stocks at today’s currency exchange rate? If you find a good company, you buy it. Over the long term currency doesn’t have a big effect.

Telecom would produce the best dividend as a sector. You want a predictable stream of cash and the stability and growth of dividends is a good thing to look for. Just seeing high dividends is a bit dangerous.

US equities outperform Canadian? He thinks it is likely. US institutional investors have shorted Canadian banks. Commodities are weak. There is opportunity in both places and you should not bet on one place or the other.

Markets. We are probably still in a bull market, and this is a pullback in a bull market. The extent to which this goes down is unclear, and it will probably have to go a bit lower. His big question is, “is this a start of a bear”. When you see the kind of price action that we have seen since January 1st, that is not reflective of a normal correction unless there is something technical going on. Also, it might be a combination of being technical and fundamentalists really trying to figure out whether or not the data is indeed pointing south. You have China growing anywhere between 4% and 7%. Not too bad if you’ve got Europe and the US growing at 2.25% this year. His focus is to be in stuff that pays to wait as to where the ball is ultimately going. This is a year of transition. Energy is done for a while. Resources are done for a long while. The area of growth is going to be US housing, US consumer, Europe ultimately improving and areas that are levered to that in Canada. He screens by looking for companies that are cheap relative to their peers and for companies that have sustainable and growing dividends. Also, for companies that can grow their earnings per share over the next couple of years.

Markets. If you can find value, and there is a lot out there, it could be a good time to buy. Investor psychology is such that the vast majority of people will be running like crazy from the market. There are certainly a lot better sales on now than there have been. If you like a stock, and you are in it for the long-term and not looking to trade, this could be a great time to get in. You will get a higher dividend percentage then you would have a few days ago. We are seeing a lot of dividends being cut in oil/gas and commodity companies which could be a major danger. He has learned that the market really does indicate quite often when that is going to happen. When you see dividends getting up to 10%-12%-14%, virtually every time the dividend does get cut. Even though a lot of people say that a dividend cut is priced in, it almost always happens that the stock price continues to go down.

Banks? A good time to pick them up? If you like the long-term dividends, then he could argue for this. Banks got absolutely hammered in 2008-2009. Doesn’t think banks are as solid as people think. Banks are making a mistake by raising the dividends all the time, and they would be wiser to pay down debt. He would be wary.

REITs? Commercial real estate could get hit because of bankruptcies. A lot of companies pay out quite nicely. There aren’t any that really attract him right now. There could be a lot more bargains in the sector later on. It could be a good time to buy in if you are willing to hold.