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

Recommendation on a portfolio that has about 15% in energy. This is about portfolio management. What he would usually do for his clients, where they have a lot of losses, is to rebalance. Understand that everything is down, even the good ones. It is a good opportunity to clean up a portfolio and to readjust within the sector depending on the risk spectrum, into the companies that he thinks are going to be the better performers. This is where stock picking is essential. Take a disciplined approach, clean up your portfolio, review each company as to which one has the true potential.

Markets. Expectations are low. But he is excited by second quarter results. He is looking at it in Canadian dollar terms: Canadian dollar pricing for WCS and Light Crude. The prices have done well this summer. Condensate prices are very strong. The balance sheet is the first thing they have to protect. Less than 2 to 1 debt to cash flow is not a problem. He expects more M&A activity with some companies being very distressed. Later this year if things have not improved, we will see more transactions involving sale of assets or whole companies. Be opportunistic. The mid stream and downstream companies are very interesting companies to invest in.

Markets. Don showed a “cold vs. average years” chart put out by Equityclock.com. A colder than average year, which we had, slows the economy down. Both US and Canadian economies in the 1^st quarter had negative GDP growth. Global cooling can have an impact on equity markets until about April normally, but in this colder than average year, the markets tend to go sideways from April until June, the middle of the earnings season. After that they tend to slip off, like we have seen in the last few days, and then finally have a little lift into the latter part of the summer. He is expecting this is going to happen again. A big move in equity markets is probably not going to happen until late October into the end of the year, during the pre-election year. In 12 of the last 13 years, something completely unexpected happened between May and October. Last year was Ebola and the Ukraine. This year is China and Greece. Right around the beginning of May you want to protect yourself, because an “event” virtually happens every year. The markets go through a period of volatility, and bring markets down. This volatility eventually does provide an excellent buying opportunity for what they call the Summer rally. It happens virtually every year. Any kind of weakness over the next few weeks is a buying opportunity for a move on the upside in the equity markets.

Gold? Historically gold bullion bottoms in the 1^st week of July, but gold stocks bottom around the 4^th week in July. Watch for gold stocks to reach extremely oversold levels, which will provide an opportunity to enter, probably by the beginning of August. Be very careful because gold prices are way down. 2^nd quarter results from gold companies are going to be horrendous, so don’t go into the gold sector prior to that time. Gold is extremely oversold right now on a momentum basis. In fact it is so oversold that there is a pretty good chance you could get a rally very shortly. Watch the US$, which is starting to show early momentum signs of rolling over. When it does that, it will give you an opportunity to purchase gold and silver.

(A Top Pick May 29/15.) (All 3 recommendations are cash or cash equivalents. Being in cash has been a very profitable investment during this period of time.) 2 Month Canadian Treasury Bill.

(A Top Pick May 29/15.) (All 3 recommendations are cash or cash equivalents. Being in cash has been a very profitable investment during this period of time.) 5 Month Canadian Treasury Bill.

Europe? Seasonality in European equity markets is stronger than in North American markets, and comes in virtually at the same time. This means European markets normally reach a fairly important low around the end of October, with higher rates through to the beginning of May. The only difference is that the amount of volatility in Europe is much greater than it is in the US, so look for an opportunity to make even more money in Europe than you can in US markets.

Natural gas. Prices normally bottom around the end of August, and they are already starting to move higher, even though the price of crude oil has been going to lower. When looking at energy stocks don’t look at just energy stocks, look at gassy stocks. If the energy sector is going to show signs of recovery, it is going to be because of higher natural gas prices.

Markets. He is less exposed to foreign exchange translations and has moved a little bit away from the industrial base in the US which has a headwind of FX, and into more domestic situations. It is paying off for him.

Markets. Thinks we are going to have a slow environment and the market is going to continue to be slow. We probably are in a recession even though the finance minister says we are not. We are going to have growth this year, but it is going to be pretty anemic. You have to ratchet back your expectations. Fortunately the US is strong and is leading the way. The good news is that as our dollar drops, we get to export more. The trouble is that there is a lag effect, so it will take a little while before we see the full benefit of a lower Cdn.$ responding into more exports into the US market. Asset allocation is your single most important idea. Right now fixed income is off the table.

Markets. There has been some divergences building in the market which has made it harder for the market to go higher. Pushing higher is harder right now. Some parts of the market are working well, so some of the divergences may only be apply to the more procyclical part of the market. You need to look for where ever you can find investment opportunities. 2014 was a good year for defensive stocks, peaked in January, but then had a big sell-off and have come off to trend. He doesn't think the procyclicals are going to come off big time, but the defensive; the utilities, the staples, the healthcare, the biocare will come back to the forefront. The industrials will take a back seat.

Market breadth. We don't want the market to be lead by fewer and fewer stocks or you don't want the market being lead by the index.. Once some of these things change you get some bigger downside market corrections. Had some pretty good market breadth in early May, but ever since then we have had the market led by fewer and fewer stocks or led by the index. In 2007-08, the market breadth was showing narrow leadership, the indexes were rising up, and the XIUF was rising. We aren't seeing all the same indicators at that depth in today's market. “Just because we have run for 6 years doesn't mean we are going to have to be taken out to the wood shed”. It just means that we are right for a correction. This could happen either with price going down or in terms of time with things going sideways or a combination of both.

Markets. Thinks it is just a general malaise that has gone on with IBM and Apple, and he doesn’t know why people are upset. Looking back at the beginning of July, it has been a pretty good month for the stock markets, and hopefully cooler heads will prevail in a few days.

Pipelines. Worries about Alberta, taxation, oil/gas prices and recession has weighed on every single Canadian company. Why are you buying these stocks? You are buying them for the dividend and growth. In this environment, when you are not getting anything from bonds and cash, people are forced to own more stocks. As a retiree, you are going to go to dividend paying companies. The lesson is to just own 1 or 2.

Using 20% margin to purchase stocks? He will never use leverage for his clients unless they ask him to do it. There is no question that interest rates are very low, so it is cheap to borrow. Watch out. You are going to get your head handed to you. Stock markets can do weird and wacky things in a short period of time, and you can lose a lot of money.