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

Markets. Oil has resumed its downward trend. Supplies keep going higher. The market knows where stops are sitting. Equity markets are well above the lows from late last year so stocks in oil are performing better than the commodity. Lots of people in the industry are saying the back half of this year we will come into balance a little better on the current supply. We are not seeing the production tail off in the US so the rigs getting cut are not the productive ones. He has learned there is about a 100 million barrels of oil storage capacity such as within pipelines still available. He thinks the Fed wants the flexibility to tail off QE when they want to and so are changing the language in their speeches. QE in Europe will not fix structural issues in the EU, but it will help the market. The US dollar will probably be stronger for another year or so.

Low volatility Canadian ETF recommendation. Lower volatility stocks have tended to be better performers over the last couple of years. Low volatility plays are not cheap. He does not have exposure to these in these strategies.

Educational Segment. The debt ceiling is back again. The treasury could kick the can down the road to October if they wanted to. We are at 18 Trillion and the forecast is for 7-8 hundred billion per year and won’t change any time soon. They kicked Greece into the second half of the year. 50 percent of all job growth in the US is related in some way to fracking, so this should reduce. Job creation in North Dakota is exactly like production increases through fracking. The quality of labour is certainly a bit of a challenge. 20 percent of families in the US are on food stamps. There is no reason to overweight Canada in your portfolio unless you think oil will outperform.

Markets. Cautious on the markets because they had a very good February and a number of concerns have appeared, the biggest of which is if rates will rise. Oil – we are seeing a pickup in the valuations and then there is strength of the dollar, which is up since January. Look at the Euro, it is up significantly, so there are a number of unknowns. He would not go out and spend RRSP money, but wait for valuations to come back to more reasonable levels. Markets die of excesses and we don’t have excesses in the markets. He looks for companies that can increase their dividends over time and that is where there is value.

Markets. The Fed and short-term interest rates are his main focus right now. He doesn’t think the market has finished going up as you would need an impending recession and some kind of bubble out there. Certain areas of stocks have run, particularly in February, to the point where you need to focus more stock by stock, not just across the whole market. A rate increase of 0.25% is not a big deal, but it is the symbolism of it. Most of the previous times when rates started to go up, the market in the next 6 months was actually double digit higher. If the economy takes it okay, you could see 3 years of it increasing. He is inclined to think that after they raise it the 1^st time, they might not do it on a regular basis. In Canada, energy and materials lag. If you actually look at consumer discretionary and staples in Canada, they are doing well in the US, but also doing very well in Canada.

Midsized pipelines? As a place to go and hide before the energy drop, they were really quite expensive. Now there has been a pullback. If you have a 10 year time horizon, you could probably buy these and put them away in the next few months. He is looking for a little bit of growth as well. His favourite is Enbridge (ENB-T).

Markets. The reason for strength in the US$ is pretty straightforward. They stopped quantitative easing (QE), so the $85 billion a month they used for buying bonds, became zero by the end of 2014. Europe is buying €60 billion of bonds a month in things like Portugal. Japan is adding a 2^nd dose of Abenomics. So essentially all the banks globally, except for the Fed, are trying to weaken their currencies. This is why the Swiss National Bank dropped the link with the euro at 120. This is going to continue until such time as the Fed says “maybe the economy is weaker than we thought”. If they raise rates in June, as suggested, just watch US$ continue to climb. Investors probably want to be reducing their weight in US$’s and look at multinational companies out of Europe, which do a lot of exports.

Markets. Interest rates may go up in the US. That would mean the economy must be doing better. We are finally seeing a self sustaining economy. It will be a slow, steady pace of rate increases. We are seeing earnings revisions downward on the S&P because of the strength of the dollar. You have to look behind the numbers to see why numbers are going down. The collapse in crude prices is a benefit for countries that import oil. She is selective but still prefers the US market. The pullback on the TSX is a healthy pullback. Equities are the asset class of choice still.

Economy. The strength of the US$ has a lot of implications for the Fed. It creates a tightening of monetary policies. He thinks it is going to be very hard for them, in an environment like this, to increase rates. Also, the Chinese Yuan has gone up a lot and there is talk that maybe they are going to let the currency slip a little. The US has to think about where the rest of the world is and how they fit into that picture. He thinks they will put off increasing rates until September, and maybe into 2016. Europe appeals to him. There are a lot of exporting companies in Europe, so he can see a lot of opportunity.

Markets. He was in a neutral position back in the fall with a higher than normal cash weighting, but is now seeing a lot of the short/intermediate indicators that have just improved, and is now back fully invested. His long-term indicators have stayed positive, even throughout the fall. Historically, markets tend to go in the long sideways or long upwards trending cycles. From 1998 to about 2011 the market was going in a sideways pattern. Now, especially in the US and with the global indexes, he is seeing the market break out, and it looks like we have now entered into that new upward market. He is expecting strong returns over the next 10+ years. Always has his eye on what can surprise him and set things off the track. 3 things that he is watching very closely are 1) valuation, 2) margin debt and 3) interest rates. He wants to make sure valuation does not get too high which could indicate a topping indicator for the market. Margin debt can be a negative, especially if equities are coming out of the market. On interest rates, he wants to make sure the yield curve is still normal without too much bullish sentiment from investors.

Markets. Smart Money & Dumb Money. Basically measuring successful versus unsuccessful groups of investors, insofar as their market timing. Smart Money are the people that tend to buy at the right time and sell at the right time. They tend to be institutional managers, insiders, pro traders and commercial hedgers. Dumb Money are retail investors, small traders and mutual fund investors. He tracks and compares these 2, and what we have right now is a very extreme situation, where the Smart Money has literally gone from 60% bullish to about 30%. The others have gone the opposite way and are pretty excited about this market. He has found this to be a very good indicator and usually tells him a month or 2 ahead of time of danger or buying opportunities. He is already about 16% cash in his equity models.

Markets. It is all about finding sectors, themes or something that is changing that could lead to some tailwind that caused revaluation. The US$ has probably been the biggest theme in the market over the last 6 months. It is catching everybody’s attention right now because it seems to be accelerating a little bit. It is a huge win for the US consumer, a win for certain industries and a headwind for certain parts of the world. There has been a very large correlation between a strong US$ and a strong US stock market. They were tightly correlated all the way through the 80s and 90s, and have been tightly correlated for the last year. The risk in it is if the dollar moves too quickly versus emerging-market currencies, which make up about 65% of the Dollar Index. It makes it very expensive for companies to pay their debts in those countries if they’ve raised money in US dollars. The dollar moved very rapidly in 1998, and that created a pretty big hiccup in the market. That is probably the biggest risk in this market, because emerging market debt has been quite weak recently and emerging markets are underperforming because of weak commodity prices. For the US stock market, that poses a risk from a periphery, but ultimately it is a good thing for the consumer, technology companies and midsized companies that are more focused on the US domestic economy. He expects the Canadian market to underperform for some time.

Gold. This fits in with the energy theme in that it is under pressure. A strong dollar, historically, is very bad for gold. There are a lot of forces at play that likely make the US$ continue to rally versus the euro because of QE and versus the Japanese yen. He is Short gold in his ETF portfolios. You want to be very careful with the sector.

Economy. Surprised that the markets have been so calm with all the pressures that have been building up in the global system. Every time the US$ has gone on a tear like this, we have had an emerging market crisis. Investors are not really paying any attention on the impact that is going to have potentially on multinational profits. There is also a pretty strong domestic economy in the US, which is great. There is also the issue of the federal reserve board probably going to raise rates at some point. The raising of the interest rate is not the big issue, but that will likely cause even more increases in the US$ against currencies. When you have negative interest rates in some of the bond markets around the world, that is not a sign of appetite for risk taking; it is a sign of extreme aversion to risk.

Markets. It is the 6 year anniversary of the bull market on the S&P. We have never seen 7 consecutive up years. You have to tilt to the downside that maybe it is a flat year or maybe it is a down year. Last year he overweighed Europe and then he got out in January, but he was wrong. Initially, however, we may see a ‘sell on news’ effect. The news is market noise and is very hard to trade. Anything less than 5% is market noise.