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

Crude oil. Within the economy, the energy sector is approximately 10% of GDP. Over the next cycle, we are going to see an improvement in the conditions within the energy sector, but he doesn’t know how long it remains in the current malaise. Doesn’t know where the bottom price of oil is going to be, so look for those companies that have fairly strong balance sheets and that could potentially take advantage of their weaker competitors.

Canadian Banks? He owns a basket of these. His primary holdings are Royal Bank (RY-T), Bank of Nova Scotia (BNS-T) and CIBC (CM-T). Thinks the banks are in a fairly good position. Multiples have come off quite a bit. Bank dividends are safe, and he would expect that over the next cycle there will be dividend increases.

Markets. Taking out his cash and short positions, he is sitting at about 75% Long, with some Put options as well. Has seen probability of a negative event occurring in the next few months and is building up a shopping list of names that he would like to buy. Companies that have reasonable valuation and doing a lot of their business outside of Canada is a theme that has been working exceptionally well for him. This separates a lot of Canadian portfolio managers from smaller, nimble funds like his, which is able to dabble in those sorts of names. His Buy list is in stocks that are trading near 52 week highs, but he just wants to buy at more attractive valuations.

Resources. The rout has now gone on for so long and has been so destructive. He has to force himself to actually get positive, because all the news is so bad that the resource sector has the ability to reset and is starting to see levels where they should be starting to reset. Hard to find anybody that is positive in anything. It is still high quality that he looks for. He is trying to be positive on the sector, but it wouldn’t surprise him if the main 10 stocks still went down to a final capitulation. He is trying to model everything out 3 years from now, and is trying to survive to get there. The balance sheet and not having a lot of debt are the most important things.

Markets. We had 6 good years and a lot of stocks were getting expensive, so it was tougher to find names that were still trading reasonably cheap. With the correction, we are going to see a lot more opportunities over the next few months. Energy and materials is more of a trading situation right now and is in the process of finding a bottom. In the medium to long term, 2 or 3 years, he has no doubt that oil and natural gas prices will be higher. Even gold and metal prices will be higher. However, there is a process, because we are still in a transition where supplies need to be checked and the demand needs to be devolved, and that takes a little while. He is opportunistically looking for names that he likes, which he thinks can sustain at even these low prices. This down market is natural and gives a better opportunity to buy. He expects to be fully invested over the next few months and is looking for an upturn into the end of the year.

Markets. China is still a big problem in the markets. China is always in the top three of things going on in the world. PEK-N is an ETF to play China. We saw a wave up. He sees more downside coming from a technical point of view. Obama is trying to get more corporations to be more into green and clean energy. This is going to be a growing area. From the ’08 peaks we have not recovered, however.

RDV on Australian Exchange. It is a basket of higher dividend paying Australian shares. 36% banks, 10% insurance companies. If China continues to slow for the next couple of years, Australian banks may tend to underperform. There is a band of support at $28 so buy it there.

Preferred shares and rate resets. Indiscriminant selling is occurring from retail investors who don’t understand them. They are undervalued right now, but selling could keep going.

Chinese government and central bank interventions. It makes him ill that governments try to support the value of a market. Stay away from China. The dust has not settled there.

Educational Segment. Market Breadth. There are a handfull of stocks that are leading the markets higher, but the average stock is not participating. VT-N is the entire world of global equities. Over the last year we have moved to a flat pattern compared to 2012-2014. How many stocks are above the 200 day moving average? Only 51.8%, quite a drop off. This is classic of the late stage of a bull market. In New York it is below 40% now. Starting Q1 last year, small caps started to outperform dramatically. In ’97-’99, small cap stocks started underperforming. When markets ultimately made their highs in 2000, small caps kicked up. He is looking for a 10-15% correction, not a bear market.

Markets. REITs today are just getting thrown out with everything else. There is fear that REITs will go down when interest rates go up. Pricing for real estate is quite strong. Retail is showing strength, but the apartment sector more so. People gravitate towards them as a safe haven. Target – we have not had a big bankruptcy since Eatons. There will be a transition for the Target properties that could take two years. He is underweight office, retail you should be market weight. He likes industrial and hotels also.

Markets.The market has been down 7 days in a row, which is the 1^st time since 2011 that that has happened, the time of the original Greece blow-up. 8.5% overnight in China got it started, so it was bad right from the get-go. You get a bit of momentum and a bit of negative sentiment, and it’s not very much fun. Thinks things will be better in the 2^nd half of the year, but it may be longer than that for resource. Also, oil looks kind of sloppy. If we get stabilization in oil, that is part of it, but on the non-resource side, there is starting to be value in lots of areas. It has been a very narrow market. There is starting to be decent value, but if you take energy out in both US and Canada, the multiples on the non-energies are lower than they were January 1. If we get the little rate increase of 25 basis points out of the way, we will get some of this back. For his clients, he has a decent percentage of US and has been adding US lately, and is trying to get Canadian companies that have exposure to the US.

Markets. This is a tough market, and in Canada anything even remotely connected to Alberta, is facing a lot of downside. This just relates to the sources of global growth. The US is the real growth driver. There is really no place to hide in the resource space or anything Alberta related, and you can’t count on the dividend being there through all circumstances. When you look at PMI’s (Purchasing Management Index?) globally, things are still positive. They are not accelerating and are not exceptionally positive, but they are generally positive. When you get into this environment, it does create opportunities, but you have to be selective.

Markets. A lot of his Stop Losses have kicked in. Over the last 25 years we have been told by the system that we are developing this global economy and that we are all tied together. The economy has been built on debt and the debt now is creating problems, big problems. Their strategy is “let’s move to the back of the boat”, and shunning the lifeboats (gold). The US is in just as much trouble as Greece. It’s just that it is not hitting it yet. Italy comes next, then Portugal. All they have done is buy time. The consequences of debt is really the key problem. We have to stop perpetuating the idea that we can solve debt problems with more debt. The global economy is shutting down and it will affect the US. As an advisor, it is very hard for him to shun the one asset class that has delivered protection against geopolitical risks, economic risks, financial risks and political risks. Gold. He continues to advise clients to have some concentration in that asset, especially when nobody owns it. He is waiting for the right time for things to settle, and then will patiently do the proper thing, which is to reallocate a percentage to gold. Chinese are not selling, and just today announced they have doubled their purchases in gold. He is still playing the US with high-tech, US real estate plays, healthcare and blue chips. He does think the US$ will continue to move higher.

Oil. A month ago, Russia and Saudi Arabia did 6 really big deals. One deal announced was that Russia will be building nuclear plants for Hydro for Saudi Arabia. China is Saudi Arabia’s biggest client. Chinese are not buying much oil from the Saudi’s because the Russians are getting paid in Yuan, not in dollars. That is very important. Thinks we are getting set up for Saudi Arabia, which is now in full competition in oil production with the US, to start selling oil outside of just the US$. That has massive implications for that puzzle of the currency set up that he keeps talking about.