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

Markets. Chinese market bubble. The government stepped in to prop up the stock market. It was a rapid expansion over an extended period of time. You have huge margin expansion. Uniformed investors piled in. This is not a sustainable situation. China is a big, big problem for the market place. Let’s see how it plays out, but be advised to stay away. Wait for the dust to settle. PEK-N is a US ETF to allow you to play it. Will it come back to support? Yes, possibly. There is possibly more downside. Avoid it. The Chinese economy is not expanding, despite the numbers they release.

Banks are exposed to a lot of the Canadian economy but you are not diversified if that is all you own. He likes REITs right now. Preferreds also.

Education Segment. The price of Gold – Is it a trading opportunity? He just started adding to gold positions as we got close to the low from last year. Gold has not done anything particularly bullish so he can’t actually call the bottom. There was 5 tons of gold sold in China that looks like a massive capitulation out of a long position. So look at the dollar: When QE ended, the dollar index took off and gold started to trend lower again. Seasonally the price of gold should be starting now to trend up. This should be a great trading position. He has a 2/3rds position at present and will probably go higher.

Markets. You can use the fundamentals’ excuse to explain gold’s decline, but technically gold is breaking down and the Fed is going to raise rates. So all those things together create a very bearish environment for gold companies. It’s about the gold companies’ balance sheets and who they owe debt to. When gold companies are stable they can survive and then go buy a distressed company. In the last week or two it has been a complete capitulation on resources. He is half weighted to gold. He owns FNV-T and Ross Gold. He does not need to worry about what the index is doing. It may not be time yet, but we are getting closer. Gold cracking $1000 would get you scratching your head and wondering who would do better. You are at an inflection point where US and global markets have outperformed over the last few years and the dollar only has so far to depreciate. Earnings are based on access to the US economy, so soon you will want to move out of a US exposure into Canada.

Banks have been amazing investment returners over the last couple of decades. He does not believe in shorting Canadian Banks. Most banks have diversified out of the Canadian market. A core amount of earnings are going to come from US and global sources. He thinks they will get your 8-10% returns over the next year or two.

Markets. After the decline of today, the mandate of not investing in resources is feeling pretty good. When his portfolio was started about 8 years ago, resources had really had their best time and he felt okay on missing out on a couple of good years. Gold is a pretty good barometer of inflation, and given how much it fell today, he’ll be looking for the hard value guys to come in and support the price. It had felt like capitulation. People are selling because the price is down, as opposed to having a view that there is something fundamentally that has changed. Gold companies right now are trading somewhere pre-2001 levels. It is phenomenal that they have not made a return for 20 years. He would be surprised if gold did not have better days in front of it. Believes in the strong US$ and that the US have their act together. They are building sort of a new economic platform, based mostly off the consumer at this point. Feels Canada is not very far behind. Expects the dollar to continue getting strength, but where it is going to get this from is not going to be the same as where it got it from over the past couple of years, primarily the euro and other developed markets. Thinks its strength will come from pockets of emerging markets. The stronger US$ means you have to be a little bit more selective. You want to be in stocks that have high barriers to entry, so they can offset some of the dollar pressure with price increases. You want to be in domestic consumer oriented stocks. Technology and banking stocks fit into this category.

ETF’s or stocks in a TFS account for a 10 year hold? His core belief is that we have been in a 35 year bond bull market, where interest rates have come from 15% down to negative yields. Believes we have crossed the point and yields are going to be higher, and remain higher, for the next 10 years at least. In that environment, you want things that are anti-yield. You want to be out of all the dividend stocks that have done really well. The stuff that you want is the stuff with pricing power. He wouldn’t try to stock pick, but would be in ETF’s. In Canada he would look at industrials and technology. Canadian financial ETF’s probably some time in the fall when he expects to see loan loss provisions come up in the banks. Also, diversify into the US. QQQs are a good place to be as well as the US financials. Healthcare, although still overvalued, is a pretty good place to be. Keep about 60% in Canada and diversify the rest of the 40% into international markets with 20% in the US.

Markets. We have been so dependent for so long on commodity prices being driven by growth in Asia. Asia is really slowing, not just because of the population rolling over and peaking out particularly in China, but because they have grown so fast for so long that eventually they have to take a pause. Growth is coming on in the US and it has taken over 5 years for them to get over the 2008 financial crisis, but is now really firing on all cylinders. That leaves Canada in the middle. We have been bolstered by high commodity prices, particularly in energy, and have become very reliant on that. We are probably the largest petrocurrency globally. On the one hand both energy and the Cdn$ are coming down and banks are cutting rates. However, our industrial sectors that are not commodity related are beginning to have a bit of a resurgence. This is where he has tended to be focused.

Natural gas?This is not a global commodity to the same extent that it had been. Even at $3, this is very, very cheap relative to Europe, and especially relative to Asia. He thinks this is going to drive the recovery in the US and Canada. We have a systematic advantage on this continent because of our cheap energy.

Economy. Thinks that the Bank of Canada cutting its key lending rate is a mistake and could hurt the economy. It won’t help businesses all that much and is a very weak tool. Our interest rates are low enough. The government has to focus on the manufacturing sector, and they really have to work on certain areas and say this is where we are going to do more specialization and this is what Canadians can produce. The Japanese have done that and had taken over whole sections of the economy. Also, the Chinese have done that. The cut in interest rates is going to inflate the real estate market more, which is a major danger.

How would you play a Greek recovery? You could play the National Bank of Greece (NBG-N), but this is one he would not play right now. Another way is to play the ETF Global X Greece (GREK-N) which has 20 stocks in Greece.

Market Timing. He likes to sell on a Friday as markets generally do better on a Friday. They don’t do as well on a Monday, so he likes to buy on a Monday. He likes to sell off in the first 3 days of a month. There is also the Santa Claus rally at the end of the year and the 1^st few days of the new year, so he likes to let his winners run at that point, which also allows him to defer taxes. There are a lot of different aspects in the market timing equation. He generally doesn’t do much buying until the end of the year.

Bond funds? These typically do not do well when interest rates go up. He would not go close to an ETF or a mutual fund in bonds.

Uranium? There are nuclear plants coming on in different parts of the world, China is a big area. Ultimately uranium will come back, but every time there is a disaster, the price of uranium comes off with it. He has played uranium through GSE Systems (GVP-N) which does training. A lot of it is for employees in nuclear plants as well as the oil/gas sector. At the time of the disaster in Japan, this company got killed, which was when he stepped in.

Markets. The end of Q2 got a little ugly and a little scary because of the month long plunge in the Shanghai market and the feeling that maybe this was something much larger in China. Thinks people missed that the Chinese market is, to some degree, an alternative to going to Macau and gambling. Very speculative. It gave up 5 months of a run up, but the Chinese government did a very good job of preventing it from turning into something that would affect the economy. It now looks like the China and Greece situations have cleared up. US numbers are still very strong. Thinks we are in for a long period of low interest rates. People are going to have to own more equities longer in their lifetime.