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

Markets. We are getting into a later market cycle. Valuations are getting stretched and sectors doing well are more speculative. He tries to stick with blue chip dividend payers and they are underperforming. There is some value in energy and materials producers. Banks and utilities are a pretty good place to be also. He is going to watch the US Fed June announcements. The late 90s were the last time the NASDAQ hit an all time high. It is looking a lot like the 2000 and 2008 corrections just before they began. He likes high quality defensive blue chips. He gets about 4% in his portfolios.

Wait for a correction or a call on increasing interest rates before buying? Timing markets is unsustainable. His business is not about timing the market. If he gets a client with lots of cash he averages it into the market over 6 months or a year.

Banks. He has 4 of the 5. They should be core in everyone’s portfolio. They pay solid dividends and are pretty well run. He likes BNS-T the best right now. RY-T is second.

Markets. We are getting into the summer doldrums now, and it is only May, which doesn’t resound well. Thinks it is going to be quite boring for quite a few months. You can’t take too many risks. Management teams are always very important. When you have a lot of other things not working/not moving you can sometimes get some very one-off situations where there are particularly strong skills on the management side.

Markets. There are 2 kinds of stocks. Those that have been left behind and haven’t really done very much, and then there are the market leaders who have been leading all the way along. They have been marching along and performing extremely well, but the problem he sees in a lot of these companies is that they are getting beyond what he calculates as their Fair Market Value. The good news for value managers who have been left in the wake, is that if the market is to continue there has to be some catch-up in this area.

Gold. He thinks that an interest rate hike is probably not priced into the US$. If it was, it would probably hurt gold for a short while, but fundamentally what the Fed is doing is highly damaging to the value of the US$. He wouldn’t sell his gold if we had a bit of weakness in the short term. He believes that most investors should have about 10% of their portfolio in gold.

Canadian airlines? Off the top, Air Canada (AC-T) is very expensive on a Price to Book basis at around 10 or 12 times. Westjet (WJA-T) comes right down the middle. It has lots and lots of upside potential. On a Price to Book basis it is fairly reasonably priced. Transat (TRZ.B-T) is really cheap, but it hates the high US$. If the US$ ever comes back, this might give quite a bounce to the stock.

Markets. In terms of exports and trade deficits as we saw earlier this week, the market was pushed down and then today we had a terrific rally on the jobs report. He is a little bit on the sidelines with new money, but otherwise pretty well fully invested with existing clients. It is really a judgment call as to when you go into the market. He never plunges in, but always goes in gradually. Most of the blame for the 1^st and 2^nd quarter was the strike at the ports and a really difficult winter. Also, the market has probably lost some momentum. However, he welcomes any pullback and he will be a happy buyer.

Markets. The 5 year Canada bond dropped from 1.3% to .7% during this year and this affected rate reset bonds. Perhaps we get back the rate cut by the end of this year. German bonds going from -.1% to plus .1% - people buy them as a trade, not for yield. He will be negative on equities when the 10 year bond goes back to 5%. He is very confident about owning stocks. He looks for companies with a turnaround or are delivering better than average growth.

If interest rates go up that is good for banking and insurance and it is a good time to buy banks. It will be a long time before interest rates complete with the banks’ dividend.

He owns no oil stocks, selling in March. Now they are lower than when he sold. He sold because he has no confidence in his ability to predict the price of oil. Some companies are not covering their dividends. Over the long term he can buy companies elsewhere that have pricing power and in which he can predict the price. He has little commodity exposure.

Banks. Every few months you get a wonderful buying opportunity on the banks. He would keep buying banks. They are his biggest holdings. NA-T is his biggest holding personally. Don’t try to time banks. There has never been a ten year period where the banks have not doubled.

Water-related Companies. He does not own any. It is the most precious commodity, but it is almost free. There has not been an interesting water play in some time.

Economy. A lower energy price is a tremendous advantage globally, putting a lot of money back into people’s pockets, so that they can buy other things and pay down debts. Doesn’t think enough credit was given as to how much this helped the global economy overall. Thinks there is going to be inflation. 1% or 2% is not a problem, but if it gets up to 10%, it is a problem. Interest rates are going to go up. At some point there is going to be inflation. These are things that governments are not considering, they are just worried about now and the not too distant future, and not looking further out. At some point, if interest rates go up, it is really going to hurt certain parts of the economy. It is going to hurt a lot of the debt that is at low rates.

Markets. Rising bond yields globally are telling us that a rate increase is here, and is also signalling that growth is a little bit stronger than what we had been led to believe. He is expecting a very strong 2^nd quarter. Expects a token move in interest rates, and that is the start of a bond rally that has been going on for more than 30 years. It is also the start of another move higher in equities, because on a relative basis, stocks look cheap compared to bonds. Thinks we are seeing growth even though it may be masked with the short term numbers we have seen economically.