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

Energy. Lower energy is like a tax break for consumers, and puts more money in their pockets. Lower input costs will help corporate profit margins, which is positive for earnings growth next year. This will also help the countries globally, particularly emerging markets that have to import crude, which should be an overall boost to their economy. She has not been adding anything to her energy portfolios. You have to see some stabilization first.

Markets. The energy sector is getting stupid cheap and could stay there for 6 months. People are panicking. There is tax loss selling. This represents an opportunity. You have to be able to handle the increased volatility, however. If oil goes much below current levels, companies won’t make much money. Make sure you are diversified and don’t double down on your positions.

Diversification. The mining and energy sectors are those with relative value. But having too much concentration in any area is not a good thing. As banks pull back over the next couple of weeks that might be the sector to diversify into.

Educational Segment. The Science of Making Decisions. When there is Euphoria, you want to be careful. When there is depression, you want to consider buying. Sell into strength and buy into weakness. Partial buys and sells are known as ‘rebalancing’. Evaluate the volatility of what you are investing. Avoid influences that promote emotions.

Markets. He is not buying energy stocks today, but watching them with great interest. The pressure has to let up eventually. The drop in oil price is supply driven, not demand driven. The supply increase can’t continue for long. A call from the US to sell Canada came out and he feels the US are probably shorting oil stocks. The lower Canadian dollar benefits some oil companies in terms of costs. Two tech stocks with US exposure hit 52 week highs today. As we come to the end of the year you should see some covering on the shorts.

Technology has done well. ‘Old tech’ has sustainability of the dividend. He does not play in the ‘New tech’ stocks because they don’t normally have dividends.

REITs becoming their own sector on TSX. If the weighting went up, then index funds would have to buy more of them. If rates went up REITs would fall. REITs are fairly fully valued here.

Markets. She has had a theme of Sell Canada and Buy the US for the last few years for her clients. Even up to the last few months, she has been pretty consistent in her messaging, especially talking about the Canadian market and energy. She has talked about home country bias, where people in their own country tend to invest in their own country. For Canadians, that has been pretty hurtful. The energy Index alone was about 25% at its peak of the index. But there is also all the related industries that feed on that. Up until today, US energy has fallen off just as much as the Canadian energy. However, as of today there is a very big difference. Also, Book Value is also trading at a pretty sizable discount on US companies.

Markets. The numbers are actually looking pretty good. If you go back in history when the market got really rapped, there were some basic problems in the system. There aren’t any at the moment. We are doing very well in North America. Even though he loves his oil stocks, he knows that low oil prices are good for both the Canadian and US economies. Thinks there is a good deal of Canadian money going into the US. Their market looks a lot healthier than ours. In the consumer areas of discretionary and staples and looking at some of the multiples, it is a terrible place to do business. Margins are razor thin and there is a lot of competition. Also the yields aren’t anything to write home about.

India. The big winners in energy are the large importing countries. The US is still the largest importer, even though it is producing a lot of oil, followed by China, Japan and now India. India has been an emerging market thesis of his for some time. Emerging-Market Currencies are always a bit of a risk factor, because things can go wrong. However, as far as economies go, they are huge beneficiaries of a lower energy price. Ever since the Indian election in the spring, things have really changed. There is a lot of anticipation that things are going to get better. Everyone is giving Modi the benefit of the doubt. We haven’t seen a lot yet, but these things take time to put into place. India has the best demographics in the world, with the youngest population and is where China was 2 decades ago. It is ready to go, but hasn’t really gotten started yet. The problem was the huge bureaucracy. You couldn’t get things to market because of a lot of transportation problems. The new president is saying he is going to fix all that and the markets are giving him the benefit of the doubt.

REITs. Has exited the REITs, maybe a bit too early, but it is better to be too soon rather than too late. If the bond market starts to move against him, these dividend plays will have some pressure on them if they don’t have enough growth in them. There was some pressure a couple of weeks ago, when the market sort of had that little hiccup.

Pipelines. Reduced his holdings, but hasn’t moved out of all of his pipes. He thinks this is a good strategy. Take profits when you can.

Commodities. The commodity cycles in Canada are always a shock. They are brutal at the beginning and have a life to them. Often they take 3-5 months to start to show a bottom. We are already 3-4 months into this thing, so it could be in the next quarter or so before we start to see where a bottom is.

Markets. The numbers are actually looking pretty good. If you go back in history when the market got really rapped, there were some basic problems in the system. There aren’t any at the moment. We are doing very well in North America. Even though he loves his oil stocks, he knows that low oil prices are good for both the Canadian and US economies. Thinks there is a good deal of Canadian money going into the US. Their market looks a lot healthier than ours. In the consumer areas of discretionary and staples and looking at some of the multiples, it is a terrible place to do business. Margins are razor thin and there is a lot of competition. Also the yields aren’t anything to write home about.

Energy. We have to look at the oil price, not so much as an economic situation, but that the price didn’t really collapse until the Saudis came in and cut. There is a big political content here. When that happens, the market reacts. Drilling permits in the US have dropped 40% in November.

Shale oil has huge decline rates, with 75% in the 1^st year. You get in there, get a lot of oil, and then basically have to go next door and drill some more wells. At these kind of prices, that economic doesn’t fly anymore.

He suspects we will be in for several months of low oil prices, but then he sees them back into the $75-$80 range.

Even the gas side doesn’t look that exciting. Expectations of a repeat of last year’s weather are sort of fading into the background.