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

Economy. He sees a multispeed global economy. The obvious speed is the US, which pushed into the 2^nd half of last year and into the new year at a pretty good clip. Some of the weak areas of the world are China, India and the Euro zone. Falling commodity prices and falling bond yields are going to get the Euro zone economies starting to accelerate, probably somewhere mid-this year. Since the beginning of the year, these are some of the better global performing markets, in anticipation of that happening. For 2015, you are going to have some commodity producing companies (oil particularly) struggle a little. On a global basis, you have OPEC and Russia which are far more exposed to oil export as opposed to a percentage of their GDP. He is looking for a better 2016. Lots of stimulus from lots of sources to really help things.

Markets. Thinks it is going to be a bit of a struggle for equities in the next little while. There are too many odds and sods out there, including the Greek situation, the Ukrainian situation, the Iraq situation. Also, expecting some political upheaval in places that are big oil producers. There are a lot of things causing uncertainty in the world, a little more than usual. However, the economic outlook is as good as it has looked for a few years. US is finally really gaining some traction and if it does well, Canada will do okay as well. Our forest product industry, mining industry, lower energy costs, the lower loonie, and Ontario, even though the industry side isn’t as big as it used to be, will all benefit. Banks were the worst performing sector in January, but they are back into a Buy now. He would advise people not to sit on huge cash amounts, but to get invested. The market will make progress, but it will be tough progress. He has been increasing his US exposure, and it is up about 10%-15%.

Economy. He is fairly constructive on the US economy, but a little more cautious on the Canadian outlook because of the recent drop in oil prices. In the US, unemployment is coming down, housing market is improving and the federal reserve is continuing to keep a very accommodative policy. Generally speaking the US is the bright light globally from an economic standpoint. It is questionable if some of that is already built into the US equity market, but overall he likes US equities, and thinks the US economy will improve this year. In Canadian equities, he favours companies that are exporting into the US market and benefiting from the strong demand of the US and a weaker Cdn$. Other than the forest product sector, he has relatively muted exposure to commodity markets. Housing demand in the US has not caught up yet to where it needs to. 2015-2016 should be very good years for US housing.

TSX. He is very uncomfortable with the Canadian market. The markets are doing quite well, but he is just not sure why. You have the gutting of the manufacturing sector in Ontario, the depressed oil prices and there is no sense of anything really happening in our favour. He is thinking that he might take a little bit off the table on the TSX, where he has some good long term gains. The lower loonie is terrific for the export markets, but that is going to take a while to filter down into profitability.

Markets. That oil prices have come down and bounced up, and done what they have done, is going to be a net positive for the world, North America, and even Canada. All of our other Canadian industries have been crowded out by high energy prices and the high loonie. With the loonie coming back down to something like normal levels, you are going to see a resurgence of all the other things that Canada does well, besides producing grease. Low energy prices, combined with a fairly low wage demand, and very low cost of capital, make a wonderful, wonderful environment for companies to make lots and lots of money. He is incredibly bullish over the next 2 years. Most of our Index is financial services, energy and materials, but we do industrial as well, including consumer discretionary, consumer staples and technology. He tends to invest in Canada in a more balanced approach.

Banks. You should fairly weight the financial services, banks included. The banks in Canada always win, even when things are going horribly the banks seem to always win. Banks are loaning money to houses in Calgary and energy businesses, and the logic has been if energy is weak the banks are going to be weak, but “that ain’t necessarily so”. Many banks have diversified into the US, which is going gang busters. After the initial pullback, you are seeing a little bit of resurgence and strength there.

Grocery Stocks. His biggest holding in this sector is Alimenation Couche-Tard (ATD.B-T). He doesn’t own any of the others, but thinks there is a very good story in that this is a very low volatility sector and there is real estate which he thinks is going to continue to do well. The demand for food is going to continue.

Gold. Feels gold is going to be a very exciting place to be over the next couple of years. US$ has been stronger than most major world currencies. Even so, gold has been testing and testing to try and break out higher. If gold is able to break the $1300-$1320 mark barrier, he thinks you can see gold prices go an awful lot higher. The US has a $20 trillion deficit, and he doesn’t think paper currencies are going to hold up over the long period of time. Currently he is not overweight in gold, but if you like gold, over the next 2-3 years it is going to break out into new highs.

Energy Services. Owns 2. Strad Energy Services (SDY-T) and Canelson Drilling (CDI-T). Both have been hit really, really hard. His feeling is that you are going to have to wait for energy to do something really, really good. You shouldn’t be in the position of catching a falling knife. If you still want to be in this area, these would be 2 good ways to play it.

Markets. Since the US employment report, he has started to see a more cyclical stance amongst investors. Coming into the year we saw a very cautious stance where they were climbing into utilities, bonds, staples, healthcare, and outperforming the market in the month of January. There was a lot of volatility even up until recently. But as of that employment report, there has been a significant change. All of a sudden the yield spiked, pushing investors out of utilities, and all of a sudden investors were liquidating their staples holdings, healthcare and rotating into cyclicals, consumer discretionaries, energy, materials. This cyclical stance is a very positive thing for the market. You tend to see a rise in the cyclical sectors at this time of year all the way through to the beginning of May. January and February is your earnings season, which tends to be a bit volatile. March tends to be a very strong month for the equity market. If we are seeing the equity market break out now and break the overhead resistance, it just clears the path to higher highs ahead. Given that we have a seasonally strong period coming up, it is very favourable. From the start of March to the beginning of May the S&P 500 tends to rise about 75% of the time for an average gain of about 4.2%. We are close to an all-time high on the NASDAQ Composite, and once we clear that, it is going to be free sailing ahead.

Energy. At this time of year you tend to see supply outpacing demand, and this goes through until the end of March. Refineries are shutting down and starting to shift production from winter blend gasoline to summer blend gasoline. However, he is expecting that this is going to peak within the next few months. Come the end of March, once we get the refiners back on and they are producing the summer blend gasoline, you’ll tend to see that supply come down and the market will be in more equilibrium than it is right now, and you won’t see the volatility in oil that we have seen in the past few weeks. Where oil has bottomed, between $45 and $50, is a reasonable level. We are in a period of strength for the energy sector.

Markets. Looking to buy companies trading at a discount to their breakup value. He looks for strong companies trading at a discount that are generating free cash flow. He also requires financially sound companies. The US has been on an amazing run. He sees better value elsewhere. European governments are poised to start a little spending.

ADRs. Vs. Global stocks on the Local Exchange. You can buy on the New York exchange so it is cheaper and easier to trade. On proper liquid stocks you get proper execution, but on illiquid stocks you have to go to the local market.

Energy. She is seeing some green sheets that are looking quite favourable. Whenever the rig counts come out, there is a little bit of buying in the sector. The rig counts are coming off a little bit faster than she anticipated, and this is definitely a good sign. It means producers are heeding the warnings. We are getting close to the point where we have just enough rigs to keep production flat which is very encouraging. The inventory issues we have seen are because we have had excess supply in the US. Saudi Arabia has indicated that they are not willing to pull back on production. If this becomes a demand issue where we start to lose demand growth, it could really become a much bigger problem than it is today. It is very possible that we will see a retest of the $43 lows.

Drillers or oil sand producers? Producers that drill are better to own then oil sand companies in a downturn. You get higher margins for light oil in this environment. Also, drillers can recycle your dollars a lot quicker. Also, oil sands are a little bit more marginal in terms of returns than conventional oil production.