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

US ETFs. BMO has equal weight bank ETFs. ZWB-T and ZBK-T. ZWB-T is hedged. IAT-N is a US ETF that excludes money centre banks.

Hedged ETF still? When to stop? The S&P 500, ZSP-T (unhedged), ZUE-T hedges. Some people think the currency will dip into the 60s. In 5 years the CAD$ will be closer to $.90-$.95. I terms of Europe there is XIN-T, currency hedged. When the Euro is below parity, he would lift hedges (Trade to unhedged ETFs).

Education Segment. Promise yourself to be diversified. There are 11 economic sectors. REITs are split out from financials now. 8 of the 11 sectors are much more volatile than the whole thing put together. The more concentrated the portfolio, the more volatility you could get. This year will see more volatility in equities than the last number of years. Tech, healthcare, financials and energy are the most volatile and Canada will be more volatile this year because it concentrates in these sectors.

Market. This is not energy related, for once. It is China. The market is recovering a little bit from the worst. Energy is still the big thing for the TSX and the Canadian economy. We could beat the US market for the first time in 6 years this year. It is probably a little early for Gold or metals. It brings you back to Tech, healthcare, consumer staples and some consumer discretionary. If the US grows you would get financials as well. He switched from RY-T to a US bank previously. He was looking to get to the US and the currency didn’t hurt.

Preferreds. You don’t want to own anything that is coming up for a reset in the next year or two. You want new ones that have 4 years to go. He suggests ATA-T Preferred that rolls over in 5 years at 5.5%

REITS are trying to make money on the spread between mortgage rates and the cap rate on the rent they get. They are still holding up at good highs. The stocks look relatively attractive. Rate increases in Canada will probably not happen until 2017. There is a worry about rates in the US, but you can make money in Canada, but watch out for mortgages coming up for renewal in REITs.

Markets. He has been fairly negative for the last year. Certainly with the news out of China and the conflicts in the Gulf plus the last couple of trading days of the year, it is not surprising that people dumped a lot of them. Most of the buyers of stocks over the last couple of years have been the corporations themselves, buying back their own stock. He is negative on the growth outlook. Coming out of the financial crisis, you never really unwound the big debt binge. It is going to take a long time to get to serious levels of spending. He feels now just the way he felt in 2000 and again in 2007 when he didn’t like anything. If there is no money to be made, perhaps stay on the sidelines for a while.

DRIPs. They are a good idea. It takes your holdings higher. It is a logical thing to do.

We are having technical problems, so will be processing today's shows posted on Jan 1st New Year's Day.

Our Apologies

Bill

Energy. Not expecting oil to get much above $60 for the next 2-3 years because there is adequate supply in the major 3 type basins in the US. Any time you approach the $55-$60 level, you will see a very significant ramp up in activity. It’s a long way from $35-$36 to somewhere in the $60s, where he thinks we will be this time next year. Today’s price is at a level where most companies are bankrupt. At $35 oil, companies have almost no margin and the cash flow they are generating is not enough to offset the decline. All companies have decline issues, because wells decline due to natural loss of reservoir pressure. A company’s decline rate is about 30%-32% in Canada. If they stop drilling totally, production will fall by 32%. As the price has fallen, availability of cash flows to spend on drilling has gone down hugely, and yet they are still fighting these decline issues. This is true in Canada, US and globally. That is why the US, the rig count is down about 67% from the highs in late 2014. With drilling down 67%, production is falling. US production down about 400,000 barrels per day. That trend is going to continue until we get an oil price recovery. In order for companies to generate enough cash flow to offset declines and maintain flat, they need at least $50 oil. The market will be undersupplied this time next year unless we get a response in the oil price. Because of Iranian oil coming on and a weak period for refineries, Q1 is probably going to be crummy.

Small Caps. Hoping for a better year in 2016. The index is down about 13% year to date and his fund is down about 1%. The challenge is twofold. 1.) There have been a lot of US Shorts, i.e. hedge funds attacking Canadian names by issuing Short reports and stocks falling 40%. This has been happening repeatedly. Consistently those reports are found to have no merit yet the stocks still fall. 2.) A lot of names have acted like oil stocks, even though they are not. Some have limited exposure to oil, but have been annihilated. If he is correct in his oil call for next year, there are many small-cap names that should benefit as a 2^nd derivative trade on oil. A rising tide lifts all boats.

Markets.In this kind of market, his philosophy is that the hole you dig should be shallow. He is down about 3.3% relative to the index and on a total return basis about 8%. 2015 was a difficult year globally. As an asset manager, volatility can help in some ways. If you see companies you really like, that is the time to go and buy them. There are a lot of clouds on the horizon that makes you question what Canada is going to look like in 2016 as well as the US and Europe. Oil continues to perform poorly and thinks it is probably going lower. The weak Cdn$ helps the oil business. Expects there will be more volatility in 2016 and not sure that you are going to see interest rates increase or high growth in the US as much as people think. Thinks the 1^st half of 2016 is going to be tougher in Canada, but that the US can chug along at 2%. Europe is probably going to continue seeing quantitative easing.

US banks?Likes these. On average they are trading at close to Book or below, and thinks the dividends are going to go up over the next little while, simply because they are over capitalized. They have to do something with their money such as buying back shares or giving you back dividends, and he thinks they are going to do both.

Markets. 2016 is going to be interesting. 2015, and for Canada 2013 and 2014 have been really bad years. It’s all about oil. The good news is that everybody thinks oil is never going to go up again. This is all wonderful because you can’t really bottom until nobody believes. He sees blood in the streets. It is now just a matter of waiting, and he has cash to wait with. Has about 25% investable cash. Had anticipated this last year. Stocks that are up 20% tend to be concentrated in the consumer area. These stocks have been strong because they are safe, but are now too expensive to own.

Pipelines. These are unique to Canada. They represent a very large chunk of our investment market, unlike any other place in the world. They have been built around a utility like model that looks pretty good. We have shipped more oil to the US last year than we ever have, and will probably ship more this year. These companies benefit from that. The dividends are in really good shape. Why have they got whacked? It is the oil price and fear. (See Top Picks.)