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

Markets. If you sold in May and went away you have missed all this activity in the markets. No one anticipated it. This heightened fear started with the Greek issue but it is not the main issue. It may be China. As we go into earnings season the macro data is pretty decent in the US. If the BOC were to cut rates next week, dividend yield becomes that much more important. Stocks might sell off but focus on that dividend yield. The telcos are most exposed to wireless and should do quite well here. The banking area is seeing the net interest margin shrinking. You have to focus on credit quality and regulations. There are stronger regulations coming down in Canada. He does think investors should bail on Canadian banks.

Car Manufacturers (or parts). Your bigger bang for the buck is the parts manufacturers. It is all about content. MG-T can increase content and give it a much bigger lift. It is all about connectivity on the dash.

Interest Rates. Everyone is looking for that interest rate hike. One has to wonder if that will be delayed. A lot of stocks have been beaten up on expectation and it impacts preferred. Focus on dividends because that is what is going to grow. Dividends should do quite well even if interest rates rise.

Markets. His focus for 18-24 months has been on US equities. If he had to choose any place on earth to be in equity markets, it would be the US. There are some near-term macro factors that are having an impact on psychology, impacting Europe and Greece, but we have to be getting very close to an inflection point there. Given the news flow that has been coming out of Europe and given the news flow that has come out of China, when you look at the leading sectors in the US markets which are very clear, financials, consumer, healthcare and technology, they are hanging in remarkably well. You always have to assess risk in a market by looking at the way the market handles news. We have seen many days where the market has opened down hard and come back through the day. The US consumer driven economy is slowly getting better and lower energy prices are a big help to that. We have just come through the 3-4 weeks of the quiet period before earnings, and when you have a lack of news, the world tends to focus on the macro. The 2^nd thing that happens during that period leading up to earnings is that corporations, who have been huge buyers of their own shares, our out of the market, they can’t be buying. We are about 2 weeks away from corporations coming back to market, and he expects US corporations will buy back as much as $1 trillion worth of their shares over the course of this year.

Canadian Banks? If you are making new investments you want to focus on things that are doing well currently. You don’t want to hope that things are going to get better. When he looks at the Canadian banks versus the US banks, low energy prices are a hindrance to our economy. The Canadian economy is slowing and it is very possible we get a rate cut shortly. Canadian banks are exposed to the Canadian economy. He would focus more on US banks.

Stocks. You have some big shift that takes place in an underlying economy, that causes not only earnings to grow, but as people recognize that it is a good thing, they are willing to pay a higher and higher multiple of earnings for stock. From 1982 to 2000, the multiple for the S&P went from 7X earnings to eventually 30X earnings. From 2000 through 2012, money slowly left equities for real estate, China, emerging markets and commodities. The multiple in the market contracted every year for 12 years. That meant people were becoming more and more pessimistic. In 2013, stocks made its 1^st new high since 2000 and a multiple expanded for the 1^st time in 13 years. When that begins, it tends to go on for many years. Secular bull markets tend to go on for 10-12 years.

Markets. He wasn't immediately affected by the technical glitch in the system at the NYSE. There are about 60 exchanges that are trading the same stock. This was just another thing to make investors nervous. He feels that Greece leaving the euro is a relatively minor issue compared to China's issues.

Equities selling off, is this a buying opportunities? Names that they know well and are trading off unneccesarily could be an opportunity. Names like Enercare which he likes the yield on and the quality of the company, he views it as an opportunity to add to their position. Also, doesn't want to “catch a falling knife” so is happy to sit back and let the market ride it out. He has significant cash positions. Sitting on 80% cash. Had a good start to the year and now happy to sit back and negate risk.

Resources. He is not interested in resources, not interested in losing money. His company are not geologists, mining engineers or foresters. Likes to be able to know a name well and be able to count and see the inventory.

Thinks the Chinese economy is slowing down quite rapidly Commodities that are prevelent in China are slowing down. It's an emerging market and these things are going to happen there all the time. He heard that the average holding period for a stock is a week. From a global perspective, China was able to support the global economy in 2008, but now is not able to, so Europe may come into play.

Should Greece default on it's debt? Greece should leave the EU, many moral hazzards if they stay. A lot of other countries like Portugal and Spain will follow Greece's lead if they stay and get away with it. Greece is not changing their economy which is the problem. Many EU countries may forgive the debt if they were to change their economy, but that isn't happening. It would be a massive disaster for the rest of the EU if they stayed.

If Euro's are being held in a Greek bank what happens if Greece changes currency to Drachmas? He believes that the Euros would be exchanged to Drachmas at a certain rate. After which the the Drachmas would probably fall in value.

Markets. We have lofty valuations on stocks and we now have the Fed that is trying to normalize borrowing costs. That accommodation doesn’t leave you a lot of places to hide when interest rates start to rise. Typically you would use bonds or defensive stocks as a way to play defence. As we saw in June, balanced funds all of a sudden aren’t looking so balanced. Thinks China is a bigger concern than Greece. The Chinese market is still the driver for commodity demand. It is starting to drive a flight to safety in the US$. All you need to do is look at where the US$ is going, and that will tell you where commodities are going, as well as where equities are going. Looking at the price of oil and copper today, it looks like there is more volatility ahead. Playing defence in Canada is definitely important. For an average investor with a long time frame of 15-20 years, the market volatility is just par for the course. Any time the market starts to act technically weak, bad things can happen. Volatility picks up and the likelihood of large drops starts to pick up. A 10% allocation of cash in a portfolio would not be out of line for a long-term investor. He looks at stocks in 3 ways. Good price momentum, good valuation, and reasonably low volatility.

Economy. China, in the past 4 weeks, is down 30% from its peak, mostly because of a bull market that was really driven by government policies that were urging investors to take aggressive bets. He doesn’t think people realize what the risk are out there, or how far they are being pushed out the curve by these continued Central Banks positions of zero interest rate policies. In the end, they are not getting the desired effects of trickle-down economics. There is a flurry of individual investors who have never invested before and are being dragged into the market. He doesn’t know how sophisticated they are or really know what they are doing and are the ones who panicked in and are panicking out. There have been a lot of questions about Chinese accounting and other things. Doesn’t think the average institutional investor is really throwing a lot of money into the Chinese market.

Markets. Over 12 of the last 13 years, something unusual has happened in the summer. Last year it was Ebola and the Ukraine, and this year it is Greece and China. Then the markets go down. China is propping up the stock market by getting institutional investors to buy more. They had a 30% drop in one month. You are going to have more volatility in the markets during the summer. Once you get past the volatility then you are set up for upside.