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

If you have more than $5 million then you don’t want US equities because when you pass away, the US tax man will be right there for his 40%. The problem is the US withholding tax. This is where the advisor plays a roll.

Cash – what to do with it. It is a problem for the world. Interest rates will stay low for a long, long time. Valuations of higher dividend payers are 30% higher than in normal times. At some point that ends badly.

Educational Segment. It is the 25^th anniversary of the first ETF in Canada. We were the first as a US ETF before that did not get off the ground. It is the 8^th anniversary of Berman’s call. Warren Buffet is one of the best investors of the world. His annual compound growth rate from 1958 to 2009 was 21%. The S&P was 9.4%. He does not always make money. He said that when he retires he is just going to buy the S&P. From 1998 to 2002 the average stock went down. The first half of that period money came out of value companies and then went back into it. The best investor in the world underperformed the market for a while by 100%. The buy and hold investor for the next decade can expect less than 1% vs. bonds at 2%.

Markets. The S&P has tripled since 2009. Is the bull market over? It is probably in the latter third. The stock market has caught up to where the earnings are. In 2014 the S&P went up more than earnings. There was a 7^th anniversary of a bull market once in the 1950s and in the 1990s. Lower quality companies are holding the average down, but higher quality companies you really have to pay up for. The iPhone 6 is Apple’s best selling model because they actually gave consumers a larger screen. Now the watch is much smaller and you can’t pinch to zoom. You have to have the watch tethered to the iPhone if you want full functionality of the watch.

Gas Prices vs. Oil. The price of gas is very regional and depends on the supply/demand constraints of that region.

Markets. This is the 4^th largest bull market ever, and he thinks investors are looking a bit overly bullish right now. He is concerned now, as he was in 2007. Eg. Qualcomm (QCOM-Q) just announced a $10 billion share buyback. They are using some of their existing cash, but are going to float a debt issue as well. This is what the QE and “over low” interest rates are doing. They are making companies do risky things. Companies borrow money at low rates and buy back their own stock, which will move up the earnings and put some bid in the market and drive up some financial assets. In the end, where is the economic value? You haven’t added a job. You haven’t added an acquisition. You haven’t added to your suite of products. You haven’t done anything except inflate the value of financial assets. To him, this is depreciating the currency (except for the US$) to keep it going, in the end. This worries him. There is a lot of air underneath this market, and if it ever starts to unwind…. and it could happen in a heartbeat. After 5 years of these low interest rates, where is economic global growth? People want to make money, but more importantly they don’t want to lose money.

Markets. It will be hard for the Fed to raise rates. There is a lot of uncertainty as to where we can go because valuations are quite high, the economy which is a leading indicator is starting to slow down, there are issues in Europe of a greater slowdown, and China is a big concern with their banking system. The labour numbers came out, but labour utilization rates came out about 20 minutes later, which is showing that there is almost 90 million people unemployed in the US. Also, there was no wage growth. It is all the currencies. We are in the midst of a currency war. The reason we are seeing lower leading indicators is because of the US currency. US auto sales are not going well on a foreign basis. He has been diversifying out of North America and looking at sectors that will deliver some cash flow, but not in North America.

US$. The rise in the dollar is kind of indicative of the problem that we are going through, that there are just too many dollars in the system. This can’t continue to be the currency reserve of the world, because it is creating way too much instability. How this system ends is a problem as it will create a lot of volatility. The rise in the dollar is creating deflation and a lot of problems, and creating a lot of problems for the rest of the world. The key to the US$ stop being the currency of the world will be gold, or something backed by gold.

Europe. With the uncertainty, especially with Greece and what is going on in the Ukraine, we are definitely seeing the start of a power shift. Finds it very funny that we have this issue with Ukraine, which is US foreign policy pushing it to the limit, and behind that you have the UK and the EU pushing for whatever they want to do in the Ukraine. On the other side you have governments of France and Germany saying that they don’t want military stationed there and want to try to find some diplomatic arrangement with Putin. This is showing a shift of geopolitical alliances that could be negative for NATO. If Greece leaves the EU, it will create a lot of problems for the euro and the banking sector. This is why he likes gold.

Markets. We are in the midst of a US dollar rally We might see $1.20 or even $1.60 eventually. There is a mammoth amount of shorting of the US dollar and what you are seeing is short covering of it. 2015 will certainly go down as the year of ‘central bank activity’. It is not over. The US dollar exposes the weak spots in the world and including the big daddy of them all; China. All of this is big for US equities. He has shifted a lot of clients’ portfolios to the US. This is only the first or second inning. There will be corrections certainly, but this has a long ways to go.

Markets. From January until now, we have never really had any firm direction. Looking at some of the internals, it says that we are going to roll over here or that we have already started. The roll started in late February. It has been pretty slow and the markets aren’t too concerned. Now we look at whether we actually rotate into those names that should do really well at this time of the year, such as the pro-cyclicals, industrials, materials. Energy should be sort of kicking in here. The Dow transports have started to roll over compared to the Dow Jones itself. The theory is that if goods are being produced, they have to be shipped. The next couple of months, as they have always been, will be pretty volatile.

Oil. This hit $43 and then sort of bounced up. We are hitting a 52 week moving average. If you are looking for a bottom in oil, look at the $56 range to see if it gets above that.

Mining. He has been coming to PDAC for 3 years saying that he just didn’t feel good about the industry. This is probably the 1^st time that he is seeing real projects and market caps at good levels where you can actually make money.

Growth projections for Northern Ontario? What was really going to drive this area was the Ring of Fire development. It seems completely stuck. You have to have a government that just drives this thing, but Ontario just doesn’t have any money. Companies can’t really afford to put in roads and rails without real guarantees.

Oil? You can pick price or timing, but not both, so he won’t pick timing. The marginal cost of producing 93 million barrels a day going to 94 million barrels a day by the end of next year, is somewhere around the high $70-$80 a barrel. There is too much oil coming on now from last year’s activity. Canada is going to produce another 250,000 barrels a day this year, and the Gulf of Mexico and Brazil are coming on with 100,000 barrels, so we have to get through that, but then oil has to go back to that marginal cost of production at some point, and he is taking a 2 year timeframe.