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

Energy. Markets move on crude oil strength. It’s down $70, and then moves up $0.30 and you see people rallying. There are Short positions going on, because it is easy to keep selling something that keeps going down, but the first couple of days up, there is going to be some panic, and that will be our 1^st upside falling for a bit and this is where the trades will start, swing in the TSX. He is not seeing any Buying but is seeing more Selling, which gets him excited. Looking for that one big throw up, and “get out of everything” kind of thing. We are getting close. Percentagewise this is way oversold. Even if you don’t believe that it is going higher, it is going to stop

Markets. The Canadian market has a Santa Clause rally 84% of the time and the Russell 2000 even more often. The Materials Sector comes back 4.7% average and goes up 100% of the time. Industrials are up 90% of the time. Everything is lining up this year. The market is already up since the low of December 14^th. Santa Clause rallies run until January 6^th. The next two months are then rather flat.

Hedge Canadian Dollar? The Canadian dollar is in a downward trend and there is no sign it is trying to bottom. The US$ appears to have peaked about 100. During the last three weeks it looks to be rolling over against a basket of other currencies. This probably means the Canadian dollar does not have a lot further to go down. He is not looking for much upside pressure either.

TSX Venture Exchange. The chart is not good. A distinct downward trend. The stocks are still under tax loss selling until the end of this week. Seasonally metals bottom around the beginning of December. After tax loss selling the stocks should rebound.

Educational Segment. The Electoral Seasonality. During a presidential election year, the US market slightly underperforms the average. There is not much change earlier in the year. But super Tuesday is March 1^st when 14 primaries happen. Around the end of May they have their candidates and from there until the beginning of September, the US market outperforms what it usually does. The market then goes down until just before the election. This year they changed the election laws regarding campaign spending (Super Packs). After the election on November 8^th, the markets go higher until the end of the year.

Markets. Guns Not Butter. A nation has to apply resources to either military or consumer goods. We are setting ourselves up for a modern crusade. Guns may perform better than butter. He is referring to the US going into conflict in the Middle East. Investors should overweight Industrials, Technology, and Energy, but not the consumer names. Tax loss selling will probably last a few more days in energy and then give way to the Santa Clause rally. The consumer sector has marched along without any tax loss selling. Energy stocks have been oversold and should bounce back in January. He has a bullish outlook for 2016 due to the Eliot Wave Structure. We are about to enter wave 5, the advance.

Markets. Tax Loss Selling. This is the 1^st opportunity that most people have had in 4 or 5 years, or even longer. Tax Loss Selling is a way to trigger some capital losses that you can use going back 3 years or going forward indefinitely, to offset capital gains that you might have had. The thing you have to think of more than anything else is the “superficial loss rule”. There are many securities and many ETF’s that you can buy that are a substitute. You can buy one and sell the other on the same day, trigger a capital loss, but still be exposed to that sector you like. The problem is, if you buy back the same security within 30 days or less, the loss will be denied. This only applies to money that is in a taxable account, and it is a great strategy.

Is there any advantage for a Canadian to continue investing in the US now using Canadian dollars? If you are thinking of selling some Canadian equities in order to buy US dollars, he would not. Feels the Cdn$ is close to a bottom, so this is pretty close to a time when you should consider repositioning your US positions back to Cdn$, because the Cdn$ is so cheap relatively speaking.

Real return bonds? He would not recommend these as he doesn’t think there is going to be any kind of meaningful inflation on the horizon. Historically the Bank of Canada and the US Federal Reserve has been managing towards 2% as their target. Nothing has really changed in the past quarter-century and he doesn’t expect it to change.

Principal Protected Notes? These are products that pay little or no income. They are structured products that guarantee you will not lose money. You get a limited upside on the basket. It can be a TSX, S&P 500, dividend paying stocks. He likes these as it is a chance to get a better upside with a guarantee of no downside.

REITs. Interest rates and REITs have been the theme that has been going on since July. The impending interest rate rise has put a damper on REITs. Now that it has finally happened, he thinks we will just see more of the same, which is not much. Real estate trades more off the 10 year than it does the short rate, and very little will change on mortgage rates. Mortgages will cost a little more, but not a lot more. Sees 3 more US rate increases, but none in Canada. Expects the Cdn$ to continue to weaken against the US$. If Canada starts raising rates, that means we finally have economic traction, which will outweigh any of the downside.

Markets. There is going to be a lot of fear and a lot of worries. In the past year, on the S&P 500, there has been a pretty defined lid at around $2,100-$2,130. In November, when we had the little pullback, it came back to about where it is right now, which happens to be around the neck line of the double bottom that we saw from the summer pullback. That was around $1,990. So long as that neckline is not broken by any significant degree or for any significant period of time, anywhere above $1990 is an indication that we are safe. We are probably going to see some sort of a bounce. There is some positive seasonality coming in right now, and we will probably see a bounce back up to the trading range. Like it or not, this market has been in a defined trading range, and we have to assume the trading range is in place until it ends. He expects the S&P 500 to get back in the $2100 trading range, probably by the 1^st or 2^nd week in January. He will be selling into that rally. You can’t ignore a sideways rally, you have to trade it. Sell near the $2100 mark. If it blows through that, it is going to need a new leadership sector to blow it through, and he can’t find one right now.

Markets. Resources are a very risky sector. You can’t avoid them entirely, but it is very capital intensive and you don’t control the price of your resources. The banks have been treading water for a number of years and there are tougher capital requirements now. They are bringing up rates and starting the normalization process. They are going gradually and laying out the road map. There are bargains in smaller and mid-cap stocks. They got decimated this year. We have not seen such attractive valuations since the financial crisis.

Markets. It was pretty well consensus that they would raise rates and it was funny there was a rally right after it, but then it pulled back again today. They feel the US economy can withstand rate increases. The US dollar was a headwind this year for US companies’ earnings. As we go into 2016 she hopes the energy prices will moderate. Earnings should grow about 8% next year. The US market is trading around 16 times forward earnings and it should be 14 or 15 times. Canadian investors should still have US exposure. You still want emerging market exposure also and can get it through multinationals. There are not that many in Canada, however. She is hopeful that the Canadian economy starts to grow next year.

Markets. After the feds raise rates, the markets usually do fine. In the last 4 pivots, in all circumstances the US$ trade weighted was either even or lower after 6 months after the 1^st hike in interest rates. In 1994 the Fed did a surprise hike which had a short-term shock effect, but a year later the markets were up. That is what he expects in this instance. He is personally sanguine about the overall economy in the US. Last month the CPI was up 2% year-over-year. That is encouraging. We are not facing deflation. He wouldn’t want to see inflation at 4%, but also wouldn’t want to see it at 0%. Particularly with energy prices being so weak, a 2% year-over-year CPI increase tells him that the economy is reasonably healthy. Unemployment is coming down. All these things point to an opportunity and a position where the Fed could be a little bit more conservative.