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

Utilities. He would be cautious. They had a great January and pulled back in February and March, essentially taking all of that back. Still thinks valuations are somewhat risky going into a rising rate environment and would look for specific utilities that are going to give you above average growth, M&A optionality and which have multiple leverage for value creation, either through asset monetization or through dividend growth and buybacks.

What is the correlation between oil prices and share prices of pipeline companies? There is a fairly high correlation. Today’s oil price does not directly impact today’s cash flow stream, but what does impact is the price of oil over the long term. If oil stays at $30 for 3 years, then the growth and volume going through the pipelines will slow down and start to impair the valuation. The actual commodity spot price should not have a direct valuation.

Markets. The leader of the people’s bank of China is suggesting more easing is on the way. Real Estate has finally started to turn negative. Markets that go up because of stimulus do not inspire confidence. He would not put any new money there. Surveys show C-suite execs are gloomy about the economy. Retail sales in the US have been weak for the last couple of months. Canada is an energy market and so only outperforms the world when energy is strong. Corporate Canada is looking at it and saying that perhaps this is not a great thing for us. Our job picture is not good. He thinks business sentiment being negative it is not priced into the market. Amazon is rolling out their home services business. They are wildly bullish about bring down the costs, but these products and services Amazon is bringing are deflationary. ETF costs are another example – they are deflationary also.

Move out of GICSs now? The time to place new money is not 6 years into a bull market. When you have had a 20% correction, you can then start averaging into the equity market.

Uranium. He thinks nuclear going forward over 20-30 years is going to be the cleanest source of energy in the world for mass scale. He is bullish on Uranium, but since the Japan disaster, the world vision has changed on this. Regardless he is a big believer. We are in a bottoming phase and it makes sense to have some. He likes URA-N as a diversified way to play it.

Gold is a separate asset class. He suggests HGY-T to get a yield from the covered call overlay while you wait. He loves the invention of these covered call strategies.

Educational Segment. Canadian vs. the world market since Mar 9/09. Canadians need to be global investors. The only incentive is tax considerations. In non-taxable accounts you must be global. Consumer discretionary has lead since ’09. Less than 10% of the top three sectors make up the Canadian index. Canada has a lot in its index that underperforms the world.

Markets. The spread between WTI and Brent is crucial. The WTI price is what we have on this continent and what reflects the storage numbers we have here. The near month crude prices are lower than those of the future months (co tango). We have a large pool of extra crude that is sitting in the north US and Canada. Refiners use this as a cheap source of their input. Some companies can spend through this trough and others have high debt and high decline properties and so have to cut back on CapX. There is a wide difference between the haves and the have nots. The former could be the survivors while the later may not make it.

His favourite pipelines are Keystone, Energy East and Gateway. He prefers the mid stream companies, however.

Markets. There are a lot of moving parts, and some of them are counter to each other, such as the strength of the US$ which is probably giving fits to the US Federal Reserve. For somebody in the market who wants to be distinguished for good choices, it is a good time. We have had a long time where there has been a period of very, very low dispersion, where most stocks have tracked each other. He has tweaked his portfolio to take advantage of the stronger US$ going for more domestic type companies and scaling out of those that are more international. Had started to see this trend and started to pare back his international industrial exposure some time ago. He is constructive on the market.

Economy. The US is definitely on a recovery path. However, their currency is getting a little high which is probably hurting earnings of some of the big international companies. He expects small and some medium-size companies with a US focus to do well. There is also obviously going to be a rising interest cost there, so there will be some challenges in funding those businesses. Europe. This is a tale of 2 parts. The Germanic north and the UK are really doing quite well and recovering nicely. Spain is also doing quite nicely. However, the south is still mired in some challenges. Thinks the Quantitative Easing is going to work for them. In Asia, China is slowing, but it still presents opportunities. Southern Asia is where he sees some really decent opportunities. For the 1^st time in a long time, he is starting to think about Latin America. It has definitely been in a decline for 4.5-5 years. Next year would be the 6th year and there is starting to be some restructuring going on.

Markets. The market looks expensive. Western Canada had been the driver in Canada. The manufacturing base in Ontario is not robust enough to make up for it. Things that are low risk in earnings are just too expensive and the cheap ones are tied to Western Canada. In the last couple of years we had weak Q1s and then it got better throughout the year – maybe this year. He looks at anything that pays a dividend. Some are more bond-like. Others pay little but have much more ability to grow the dividend over time.

Food Stocks. He does not have any exposure. It is overvalued relative to its growth prospects. It is a very competitive environment. Maple Leaf (MFI-T) looks the most interesting, however.

Banks. If you have a sell target you might want to stick with it. They are generous in their dividends. There is potential upsides if they look at splits. When the banks are looking at deals like the Ivory Coast like National is, it often means they are going to start getting into trouble. When they look at having higher returns it is also an indicator of difficulties. They don’t interest him. Prefers American Banks.

How to Pick AGMs to attend. He goes to ones he is interested in so he can evaluate management. He usually goes to ones that are not doing well and then he keeps going if he buys. An excellent art of due diligence. There is also free food sometimes. He also talks to CEOs before or after AGMs.