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

Cdn$? This has been a very bad market for the Cdn$. We still need to see stability in the price of oil. Also, the Canadian economy is moving in a different direction than the US economy. While he doesn’t think there will be another big fall in the dollar, he is not sure we are ready for a rally yet. As a result, it is not compelling enough for him to hedge his positions yet.

Interest rate hike on Canadian telcos? The interest rate cycle in Canada is much further behind the US, so he wouldn’t be is that concerned about interest rates in Canada. Also, expects the US rate rises are going to be very, very slow, so long dated assets like utilities and telecoms will be less impacted.

Markets. This has been a very positive day. What the market hates is uncertainty. If the rate increase had been anything but what happened today, it would have been a disappointment. This sets it up for a bit more strength than what you might expect going forward. Clearly the market has some challenges. There are worries and that’s why it is dovish for the economy, but he thinks the market will do very well over the next 6 months. This is why you should focus on US stocks over Canadian stocks. “Growth” is definitely where you want to go and you want to favour the growth sectors. It tends to trade at a premium as it historically does over non-growth sectors. You want to look at health care which has a very strong story with an aging demographic globally. Technology continues to be a growth area. You also want to look at the consumer sector. This should underweight the energy/materials space and some of the infrastructure names that are linked to these slower growth stories. With the rate rise, you have to be more cautious on REITs, pipelines, utilities and telcos.

Cdn$? The impact of the rate increase will be negative on the Cdn$ and most forecasters are expecting it to weaken. The US$ broadly will appreciate slowly against other currencies. He could see a depreciation on the Cdn$ in the next 6 months of about $.02.5-$.03 to bring it to about $.70 and then expects it to flatten out at that point.

Sell US property? This is a good time, but you could wait because the exchange rate is not short term. He thinks we are going to have a weaker Cdn$ for some time. If you don’t need the money right now, hold and enjoy another winter or 2.

Markets. It would be a shock if rates did not rise by a quarter point tomorrow. UUP-N, the ETF for the US$, has been setting 52 week highs. He thinks the rate increase is already in the price and won’t have a huge affect on the dollar, unless there is a huge surprise in the language. Higher interest rates are good for insurance companies and banks. BAC-N predicts that every percent is $4.5 Billion in earnings. It could be a 15-20% bump in valuation. We have been suffering with tax loss selling. People are taking advantage to sell off losers and winners to negate the tax. He thinks there will be some rebound in the XEG-T ETF due to tax loss selling, but does not advocate investing in it for a quick bounce. Don’t be too cute in trying to get into a position in timing the bottom.

Markets. Santa Claus rally typically starts on Dec 15 and lasts until Jan 6. We are seeing a little bit of this so far, and let’s hope it keeps delivering. Santa Claus rally has been a persistent trend for some time and he is looking for the same thing this year. He doesn’t see the market responding on a big negative downside because of any Fed rate hike. We got the tax loss selling out of the way early this year. If the Santa Claus rally does not happen it’s not the end of the world. We are still within the 6 month favourable season for stocks, which lasts from the end of October to the beginning of May.

Junior golds? Whether it’s golds or whether it’s oil, the juniors follow the same pattern as the seniors. Sometimes they will lead the way, which is a very positive dynamic. The chart shows a long-term downtrend for gold. The best time to be focusing on gold has been from July into September. That is the key, core seasonal period for gold. He is not investing in gold in his funds, but is waiting for the seasonal period to come up.

Markets. He thinks it is possible to see a rate increase of less than a quarter point. The market is pricing in two rate hikes next year, but he thinks the Fed should move twice as often, but half as much. He thinks a 15 basis point move would not impact the markets. Slow and measured increases would add certainty, which the market likes. The price bottom in ‘08/’09 had oil at $32.40. There is a technical scope that possibly we test that level. He thinks it would be a major bottom for crude oil.

Educational Segment. A Recap of his 2015 Predictions and a look at 2016. China slowed as he predicted. He expected the anti-EU party to get in in Greece. He thought they would leave the EU and still thinks it will eventually do so and also that the EU will eventually break up. In 2016 the biggest risk is credit risk. The last time credit spreads were this high, the S&P was 20% lower. He sees a 15-20% correction in 2016. There are geopolitical risks, ISIS being one of them. He expects the Fed rate to be 0.75 to 1% by the end of next year. He predicted crude oil would go down and he thinks it will at best get back to $60 by end of 2016.

Investing cash for 8 months. He thinks we will get another dip next year, so "sit in cash".

Fed Rate Rise and Impact on Gold. We should see a floor in Gold somewhere here. If it goes lower, then a lot of production will get shut in around the world.

Markets. The conditions we had over the last ten years were much more fertile. These are not good times. Now you have a market that is overvalued and there is no bounce back like in ’08. He is not looking for global growth or growth in corporate profits. He thinks they will raise rates because the rest of the world is doing the dirty work. A .25% rate increase will not throw the market off.

Why is gas going up when oil goes down? It is a function of refining capacity and not oil prices.

Markets. We are in totally uncharted territory. The REITs have been kept down so long, and real rates have been negative for some time. At some point you need positive real rates before investors really go gung ho into bonds. Also, as he looks out into 2016, he sees inflation picking up, which is quite a surprise. He has noticed, i.e. ex-energy, inflation CIP in the US is running at 1.9%. (There will be a new number tomorrow.) Looking at the remainder of 92%, 8% is medical, 42% is housing, and each of those is going up 3%-3.5% a year. Soon as energy starts to flatten out, excluding any wage increases, you are looking at inflation of 1.5%-2% later on next year. The bigger risk could be European banks. Towards the end of next year there is a good chance that energy prices will be higher, such as $45-$50, or maybe even $55. Apparently shale companies were able to convince the SEC some years ago, based on the anticipated profitability of a well, that they could add the reserves to their balance sheets. A year ago it was $90, but as we get to the end of 2015, it is not anywhere near there. The SEC has now said they have to remove those reserves from their balance sheets. The wells are not profitable, so they have to leave them without doing anything with them. This may mean a cut back in supply from shale.