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

Markets. We are seeing the longest stretch of underlying strength since 1995. It looks like there is reasonable underlying strength to the US economy. Japan is ramping up their stimulus and Europe is doing the same. The US is going to be a stronger economy relative to other markets, which is why Japan did the surprise stimulus announcement. Europe continues to struggle, and one of their challenges is that they have sanctions going on with Russia, which is a very large trading partner. Because of a combination of slower trade and lower oil prices, Russia is on the brink of recession. Feels the Canadian market is in pretty good shape, with reasonable forward multiples at about 14.7. Sees exciting opportunities within Canadian technology, particularly in the smaller cap companies. Four to five months ago, the Russell 2000 smaller cap index in the US started to underperform a lot, so a lot of Canadian small-cap stocks, separate of the oil and gas area and/or base metals, had a tough time, and as a result, that creates great opportunity as long as you are willing to end up with lower trading volumes and less liquidity in the stock.

Markets. He is expecting growth for the rest of this year and into next. The economy, particularly the US, is doing very well. Job creation numbers this morning were terrific, both in Canada and the US. Thinks it comes as a surprise to many people that there is 56 months of job growth in the US. Has been real growth in housing starts, auto sales and jobs, and this should continue going into 2015. Doesn't see huge risks from an interest rate rise. Rates will go up gradually. There is still not a lot of tightness in labour markets, although Canada is tighter than the US. Despite all the endless rumours about China, they are still growing above the rest of the world, and are now the 2nd largest economy globally. Japan has done huge stimulus and he likes the new prime minister in India. Europe will be pulled by US and China growth, so he is not as worried about Europe. He likes pipelines, consumer discretionary, and financials. Not courageous enough to be back into mining yet. His holdings are about a 3rd US and the rest is Canada.

“Bottom Feed” on oil stocks or wait? Short term timing of when to buy things is the most difficult thing in this business. If you are patient, this is a buying opportunity for high quality producers. That's not to say they couldn't go a little lower. There is talk that oil prices may be getting to $75, or even $70. It is not sustainable at those levels, so it will come back up. He would figure out a couple of high quality oil names, be very patient and bottom feed, maybe using a Buy order of maybe 10% below market, and wait for a really bad day for it to get filled.

Canadian banks. Will an increase in rates in the US affect them? His outlook includes the US increasing interest rates, but not by a huge amount. Thinks markets will absorb it, the same way they absorbed the ending of quantitative easing. Canadian banks are really hard not to like in any kind of circumstance. TD (TD-T) is his favourite.

Markets. He had been raising cash through August and into September. His prognosis was that the markets would likely take a pull back based on the usual seasonal factors, but more importantly some of the sentiment indicators that he watches were just screaming overly optimistic, which is a contrarian indicator. A couple of weeks ago, there was a fear, and the 10 year bond yields shot higher and the major indices were plummeting and finally some money came into the market. That was his Buy signal. V bottoms have been happening a little bit more in the past few years, but they don't happen all that often. A research that he subscribes to show that when V bottoms occur, the markets get quite bullish with the average return, a year out, of around 17%. He is heavily into technology stocks. Within the Canadian market, he is almost entirely avoiding commodities, and have been for quite some time.

Gold. This broke down below $1200 today. There had been some support around $1260. Despite bounces, gold is in serious danger of going down to around $1000 an ounce, and this will drag along any related gold type stocks with it. Often with a break like this, you will get a retest, and you could easily see it come back up to around $1200. However, that does not mean it is a bullish environment. Avoid gold.

Energy. West Texas oil broke out, to the downside, of a large triangle that had been forming for a couple of years. It is now bouncing off its support level of $87. If oil can hold around its current level of just under $80, it could be okay, but you are in the danger zone and he doesn't know if he would be so bold as to say this is the bottom. Wait for a few weeks and see if it can actually hold.

Energy. West Texas oil broke out, to the downside, of a large triangle that had been forming for a couple of years. It is now bouncing off its support level of $87. If oil can hold around its current level of just under $80, it could be okay, but you are in the danger zone and he doesn't know if he would be so bold as to say this is the bottom. Wait for a few weeks and see if it can actually hold.

S&P 500? This is making new highs and it is in an uptrend. The correction in October was just that, a correction. This market is in great shape.

Markets. Lower energy costs generally benefit companies. The Christmas shopping season could be quite strong because consumers are paying less for gasoline. He is looking at players like lumber that can benefit from a weaker dollar. There is an icing on the cake for Canadian exporters with the weaker Canadian dollar.

Long Short pair trades. He focuses on fundamental attributes of individual businesses. He would focus on high quality management, netbacks, solid balance sheets, etc. Then find a similar company in the same industry where they have a lesser management team, slower growth, higher leverage and trade at a higher multiple. Make sure the assets are similar, liquidity is similar, market cap size, etc. This would be the short side of the pairs trade.

Markets. He had expected a bit of a pullback, given the strong performance to the energy stocks in the 1st half of the year, but the magnitude and the speed surprised him. There started to be negative economic data points, a speculation that China was slowing down, speculation that Europe was tipping back into recession and all these things were bad for oil demand. IEA had ratcheted down its forecast from 1.4 million barrels a day of global demand growth, down to 650,000. Things were moving in the wrong direction. On top of this, there were rumours that the Saudis were conspiring to lower prices and undertake a price war for market share, which was a huge departure from the way that Saudi Arabia managed their business. He read recently where Saudi Arabia needs between $95 and $100 a barrel. For them to let oil prices slide down to $80, they are feeling the pain along with other OPEC members. Between mid-June until now there has been an unwind of about 40% in terms of futures contracts. There are 93 billion barrels a day of global demand for oil, but in terms of the daily transactional volume of the 6 main futures contracts, it's about 1.73 billion barrels which gives you a multiplier of almost 19X the actual physical market for oil. This means that when there is a big unwind in the futures market, it far and away overshadows the fundamental and physical market demand for oil.

Natural Gas. Natural gas has been up 8 straight sessions. This is the typical seasonal pattern where things are starting to get cold. We are getting indications that look like November is going to be colder than last year, and this starts the rally for natural gas. This presents opportunities in natural gas stocks if you believe the rally is durable and we are going to have a winter that is cold enough to narrow that supply deficit even more.

Flow-through shares? These are typically issued on a private placement basis or through a prospectus issue. It is no different from a common share, but what you do get is a renouncement of exploration/development expenses. Where it is an exploration expense, you can write off the entire investment against your taxes. In essence, you are arbitraging your top marginal tax rate against your capital gains rate, because when you dispose of the share down the road, the entire amount of the disposition counts as capital gains. It is probably best to have your accountant go over this with you. It is a more suitable investment for somebody who is a very high income earner such as $120,000-$130,000.

Markets. He was fairly cautious in August and reduced some positions and built up some cash. Although it has been painful for the last couple of months, looking back over the last 1, 2, 3 years, the portfolios have done quite well in energy and resources, especially relative to the larger names. He prefers the more intermediate or junior names that provide good growth. Looking for some good opportunities on the gas side right now.