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

Markets. Canada is going to be hurt by the lack of participation in the energy sector, but he still thinks we are going to see more growth. The US economy seems to be firing on all cylinders, and for the moment they seem to be carrying the weight of the world on their shoulders. He believes Canada will benefit from that. Our lower Cdn$ will help to some extent. Ontario and Québec will be carrying most of the weight. Going forward, he believes we will see growth beginning to pick up again. Just not sure how long this process might take. China is still growing at 7%, and could well be bottoming out in terms of how low that will go. They are already becoming a much more major factor in global GDP.

Oil versus natural gas. Natural gas did not participate with oil when it was going up and has been a little bit stickier as oil declined. There has been an oversupply of inventory in natural gas. At current prices, the marginal cost of production of putting new production in place for natural gas is somewhat higher than what current prices would justify. Longer-term he expects we will see natural gas prices recover. We will not see the volatility in natural gas that we are seeing in oil. You have to watch the companies you are investing in, because a lot of companies are involved in both areas. Look for companies with the best balance sheet and best management that will take advantage of any opportunities.

Markets. Tax loss selling is where investors, who have losing stocks, will sell them in December. The sector is supposed to rebound in January-February. He did a scan on December 12 and picked stocks that had the highest deviation from the 200 day moving average. He widened the filters to 40%, so that anything below 40% would show. Ended up with about 55 names and everyone was an energy stock. Last Friday the group was up about 20%, but they all got murdered yesterday and are getting killed today. This is unusual. It is kind of alarming when you have tax loss selling in the sector, and it should rebound, but it gets killed again in the new year. Very worrisome.

Energy. A chart running from 2001 to 2014 inclusive showed a broad climb running up from 2000 with a manic peak in 2008 where the trend was broken. This was followed by a swing failure in 2011, where it failed to make a new high. It also failed to make a new high in 2014. Swing failures are very negative. If you are trying to bottom fish now, you should postpone it. It needs time to work itself out. The bottom in 2008 took almost 6 months to resolve. We are now only 3-4 weeks into this, so there are several more weeks to go. Let the crude build a base. Long-term support lines in crude show the first one as at $51, which is where the drop should stop. The ultimate low in crude is $38.

Energy versus TSX Composite. Basically looking at relative performance for 2014. Energy was a relative outperformer through the 1^st part of the year, and then in July-August, it began to decline when it started losing relative strength, followed by the absolute limit in November-January. We are still down in energy.

Gold versus TSX composite. Comparison chart was for 2014. Gold was underperforming from August to September, but things were starting to change in September, followed by a dramatic change in November-January. The gold sector is now starting to get relative outperformance. It is very early. There are certain levels that have to be broken through, but he would say that we are in the very early stages of a positive trend change in the gold sector.

Bond fund or bond ETF? When it comes to fixed income, there are several things to consider. You have to decide what percentage of your portfolio is going to be fixed. Depending on the size of your portfolio, sometimes there is an advantage to using a professional advisor that can buy bonds for you, instead of buying an ETF. Keep the duration down to 2-3 years in a bond portfolio.

Gold-Silver Bullion. Ratio is around 73%, versus the last 5-10 years where it has been around 60%. What would you buy and why? He has a comparison chart of the 2, which shows that the action was similar until around August when Silver started to underperform. Recently they have both started to turn up, so if silver is going to catch gold, it might be the better play, even though they both look favourable. He would probably play silver through one or 2 silver stocks and enjoy the ride.

Investors. Don’t sell out your entire portfolio. If you think the market is overpriced or toppy and you sell out, and if you are wrong, you never get back in. If you’re on margins reduce them. If fully invested, you might want to raise a little bit of cash. You also have to look for assets that are inverse or under-owned. Move away from crowded spaces. The REIT sector, not the individual ones but something like the iShares S&P/TSX Capped REIT (XRE-T). The Canadian utility sector looks safe. Japan has always been countercyclical, so get a Japan ETF such as the iShares MSCI JAPAN (EWJ-T).

Markets. Was surprised that OPEC decided not to cut production, like they have done over the past 20 years. In hindsight, perhaps he shouldn’t have been overly surprised because every 20-30 years or so they seem to do this to readjust the environment. He has definitely cut back, but at this stage this lower oil price environment will probably stabilize, but will stay low for the next 6 to 9 months. Meanwhile he will retrench to his best present ideas and best defensive names. The opportunity will come to pick away at these names over the next few months. All the geopolitical issues and risks are still here and still have the potential to get oil prices back up, but overall on oil per se, the supply/distribution needs a little while to catch up. The overall market will be uncertain for the 1^st half. He thinks it will be a mirror image of last year which started strong and ended weak, and this year might be just the opposite. He is constructive on the markets overall, and especially with the collapse of oil prices, expects to see great opportunities in the spring to buy these stocks.

US banks? From a relative valuation point of view, there is no question that the US money centred banks are a lot cheaper than the Canadian ones, probably because the business mix is quite different. Canadian banks are more of a super regional bank. Coming out of 2009, there has been a lot of regulatory change in the US and they are still up in the air as to how much ROE they can earn. They are cheap, and as long as the US economy can grow, there should be decent upside from them.

Markets. Looks like the year is going to start out on the negative side. He is tactical and moves his asset allocation. He was moving out of Canada and into fixed income earlier. So he is excited because he is looking forward to buying back into the market cheaper. He was saying to take energy money off the table during the summer but he never realized the pullback would be this deep. Gold priced in Euros is breaking the 1000 level. This is what 2015 will be all about.

US Dollar. A big component of the US$ is the Euro. He thinks the Euro will break up. The countries can’t stick in and fix the debt problems they have. The US dollar will stay strong for a while.

Auto Industry – Credit situation. Thinks we are in a liquidity trap. Interest rates need to stay where they are, near zero, for years to fix structural problems we have. He thinks Fed will raise rates a little this year and the economic growth will slow and the Fed will back off. We will be in the ‘QE trap’ for years to come.

Leveraged ETFs. Bad for long term holds. 2-3 weeks at a time max. Use them when they make sense.