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

Markets. Look at UUP-N and it is lower highs and lower lows. The US $ has probably reached its zenith in anticipation of rates being raised. There is more evidence now that rates won’t be rising, other than a token amount. We are probably going to see some more weak data. The dollar fell through the 200 day moving average. Gold is not as much a hedge on inflation but against currencies. IEF-N for bonds 7-10 years: June & July were the lowest point after which there was an uptrend. He is looking at the seasonal strong part of the year. The industrials index is showing a good start to the seasonality for the sector. US rates will just act as a tail wind. FXI-N shows Chinese large caps. It is starting into an uptrend.

Markets. We could be looking at a 15 inning game. The recovery of the financial crisis was not anywhere near what you would see in a normal business cycle. It has been a slow recovery and he thinks it is dragging out the length of this business cycle. We are also going through what is typically seen as a contraction in 2015, which is quite healthy for the market. You get a correction and then you move higher. You can get a correction through price discovery, where prices go down, or you can get a time correction, where you actually get stagnant markets for longer periods of time. He thinks we are in a time correction. This will likely go on for the rest of 2015. The price of oil declined so rapidly and so quickly, and was such a dramatic decline, he doesn’t think a lot of people believed it, so the dividends received that you got from lower prices at the gas pump actually went into savings as opposed to spending. We are now starting to see an uptick in consumer spending, and this is going to lead in to a stealth economic growth period. There is so much nervousness that next year could actually be a pretty decent year. We are going to have higher interest rates and that is underpinning everything. The 1^st rise in interest rates will not do much, but it will benefit banks by having a psychological impact on them. They will be able to charge more for loaning money out and are not paying any more to get it because they are sitting with $2.7 trillion in excess reserves. Investors should be thinking about their portfolios in terms of that.

Which factors affect ETF’s the most, the price of the stocks or the popularity of the ETF? The price of the stocks would affect the ETF the most. The whole approach to trading ETF’s from a market makers perspective is to keep the value of the ETF very close to the Net Asset Value. However, some ETF’s will trade slightly above or slightly below the NAV because of large trading volumes.

Gold based or gold companies income producing ETF? This is Covered Call ETF’s that are on gold stocks. He is not a big fan. Not sure that a weaker US$ is going to push up the value of gold significantly. To get a significant rise in gold, you would have to get significant inflation. That is when gold performs the best. However, a gold ETF that has Covered Calls tends to bring in all of the premium, and then they pay it all out.

Markets. Wal-Mart (WMT-N) just rolled over the market. He would never expect it to be down 8-9% on news that is not that big. They are having trouble against Amazon and he thought that was in the stock price. Retail is tough. Uber is a threat to Fed Ex if they do home delivery services. If retailers move into Canada and can offer the same prices, then watch out. You can’t do stupid things in a correction. People should just hold on and sit tight. You never know if you are catching a falling knife so he does average down.

Preferred shares. They have been obliterated this year. You take a lot of risk with perpetuals. He would spread his money around and perhaps buy some resets.

Banks. There is no point owning all the banks and he does not recommend an ETF, so you have to kick a couple out. He likes TD-T, BNS-T, and NA-T. NA-T was beaten up the worst. The valuations are very attractive.

Markets. Markets go through cycles and what we are seeing now is the downside of a cycle. The naysayers are getting more publicity than anyone. We are seeing a lot of volatility. Margin is at very high levels and there are a lot of margin calls when markets go down. Good stocks go down with all the rest, but this is the opportunity to reposition your portfolio for the next cycle. He thinks we are closer to the bottom than we were before. You have to look at companies that can be opportunistic in these conditions. If a takeover means your company is now with a stronger company, then it is worth more, even if you are not back to breakeven. Wal-Mart is an example of an overreaction. Often these are opportunities more than anything else. As a value investor, he sits back and looks at his watch list and gets ready to nibble. People have become so attuned to quarter to quarter thinking, but it is necessary to look out over an entire business cycle. He looks at this from a 3-5 year time horizon. People are forced to buy equities with interest rates where they are. There is no absolutely safe haven. It is becoming more and more difficult for the Fed to raise rates this year.

Market. What else are you going to buy? You have the situation with bonds and low interest rates. Interest rates are going higher eventually in the US at some time, and that is going to hurt bond prices. Equities are at a relatively OK price. Dividends are going up. There are big takeovers today. Thinks the psychology is far worse than the reality. Canada is in a bit of a slowdown, but the US is doing very, very well and is carrying the rest of the world. It needs the rest of the world to catch up with it. Healthcare is volatile, but we had a healthcare sector that really got cut in half in less then a month. Company fortunes don’t change that much in 30 days. Two months ago everything was great and they were growing very, very fast. Now you have companies that are 8X earnings. Nothing has changed in the companies. Apple (AAPL-Q) is trading at 13 or 14 times earnings and sitting on $230 billion in cash. Huge cash and no risk on the balance sheet with lots of growth potential and is going to benefit from international expansion. In the 80s and 90s, you had a growing tech company growing at 25 to 30 times earnings. Now they have all been taken down to 14-16 times earnings, which is ridiculous for a company that has no debt that is growing at 30%-40% with a great market share. You want to own all sectors. You don’t want to have to decide the next one that is going to win. The problem in Canada is that more than 50% is financial and energy. If you have 35% financial, which is what the TSX is, you are taking a bet on the banks. He doesn’t like to bet, he likes to invest.

Energy. Canadian oil sands has been a big move for the sector, because now suddenly people are looking at it and saying where are these prices for a long-term player. You have Suncor (SU-T) as a 50 year player and they are buying Canadian Oil Sands (COS-T). They came in with a very good premium, but it is still less then half of where it was a year ago. Thinks the sector has bounce potential. The supply reaction is starting, and will probably take another year. Probably the worst is over, but he is not predicting $100 oil. A lot of these companies are trading as if they are going bankrupt, but if you look at the balance sheet on some of these names, some companies with no debt are trading like they were going to go out of business, which is ridiculous.

Silver. Thinks the silver market is OK, but if silver and gold can’t move up when there is a China crisis and currency crisis, he really doubts it is going to do a whole lot until inflation kicks in. In terms of the next 5 or 6 months, or maybe a year, he doesn’t see too much exciting happening in precious metals.

Markets. The 3^rd quarter was downright ugly, but the markets have rallied since the mid-August lows. They have come up quite a bit. There has been a rally going on for 7 days or so, and it is being driven by all the junk that is mostly beaten up. You have industrials, energy and materials companies leading that charge. There is still weakness in healthcare stocks. It is a very unnerving market because you have to be cautious as an investor, as it is not high quality stuff that is moving. He is not of the view that the China story is resolved and you might have another leg to go on. Even though it seems like a temporary bottom has been put in for oil and many other commodities, this could reverse very easily. All eyes are on earnings, and expectations are for negative earnings growth, especially south of the border, of roughly 4%. This is mostly due to energy which is going to be dramatically lower.

Energy. He doesn’t think that the rallies will be sustained. There was a 5% pullback in crude yesterday. Chinese data was really weak today, which led the market lower.

Markets. We got what we were expecting since his last appearance. He squared some positions and covered some short positions. Now the global economic data has started to roll over. The US is standing alone now. The European data has been terrible, China has slowed, as has Brazil, and so on. We are heading back down to terribly slow global growth. Mining stocks have exploded recently and it is mostly due to short covering. This has been an overdue bounce. He is 10-15% cash and was at 25%. He is building cash up again.

Healthcare Sector. GILD-Q is a very cheap stock, but the problem is the growth ahead for them. They are cutting the price of one drug over 90%. He prefers playing the sector through IBB-N. There is a lot of money moving from healthcare over to oil. He wants to stand clear for a while until the air clears.