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

Educational Segment. Sleep at Night Factor. You need to take the risk down at times, but if you go to cash and markets go up then you miss out. He wants to take money out of the banking sector and get it into the energy sector and get the same dividend yield.

Markets. He is looking for a good correction. He would be happy with a 10% correction. Valuations were getting out of whack. He could not find anything in North America he wanted to buy. There had been internal corrections going on in small and mid caps. In the US an equal weighted index had been declining before the S&P. Now the whole market is correcting. A correction can take 6 to 10 weeks so it could keep going. This correction is based on valuation, rather than on anything bad.

Markets. He is seeing buying opportunities now in small cap growth. This is where the market has left behind these. Some are 2012 stories and the market doesn’t want anything to do with them. The industrial exporters should be benefiting from a weakening Canadian dollar. Today he noticed the VIX spiking at 16-17. Every time it hits the 200 week average it usually falls and this time it kept going and the markets rallied off it. Thinks there are people that are off side and are willing to plug their nose and get in. Seasonally this is the best time to be in stocks. This is the best time to get in, typically. After the first two weeks in October you usually get the best returns. He sticks to Canada for small caps because he knows management teams better. Investors still need to be careful this time of year. If we do rally from here it will not be a repeat rally of what we saw from the beginning of the year. We saw strong commodity prices and falling interest rates. Interest rates have now bottomed and commodity prices have fallen so this is a different playbook. He recommends non-commodity, industrials, technology and anything that benefits from a strong US dollar revenue base and a weak Canadian dollar expense base. Stay away from consumer, and commodities in Canada.

Markets. Loves the drop yesterday and thinks valuations are fabulous. Investors should use these drops for buying opportunities. Insider selling is at a 15 year high. He mentioned the market is not perfect all the time. A lot of good quality oil companies are down. It brings the risk reward ratio down to a nice area. He finds the interest rate thing absurd. The interest rate concern is a non-event to him as they are already so low. It is unforeseen events that knock the market down, not planned ones.

Markets. The US$ crushed all the commodities except lumber. This includes crude oil, which sold off too. Technical analysis tells him the US$ will stop rising as it has hit resistance. Consumer stocks are very strong and neither did financial stocks sell off. Yesterday was window dressing. It was the last day for settlement in September. So now he does not think there is any problem in the markets. At this point you need to select the dominant theme. Energy has actually been a bad place to be for the last 10 years. The financials almost track the TSX correctly. So the financials are a key driver of the TSX.

Gold. You should regard gold as a trading vehicle. He thinks it is going to go down. He does not see it as a kind of portfolio or disaster insurance. It looks like it is trying to bottom. He hopes it will hold here. Don’t add or be overweight in gold.

Markets. We have seen a sell off in the last couple of weeks. There is a bit of sector rotation also. Everyone is trying to figure out when the Fed is going to start raising rates. There is a perception that when they do they will keep going and possibly more aggressively. She has excess cash and is slowly putting money to work, but she is cautious and doing so slowly. It is about where there are attractive valuations. Energy infrastructure are good examples. She is watching to see how much correction there is. Financials are somewhere she is looking also. Some consumer names have corrected too. REITs will not get hit hard when rates rise because they refinanced at lower rates. There is always a sentiment selloff in REITs when rates rise and it presents a buying opportunity. You need to look for REITS with strong organic growth profiles, strong balance sheets and properties in the right classes.

Insurers vs. Banks. Prefers insurers over the banks because banks had a stronger run this year. The loan market in Canada is slowing down. Insurers are priced more attractively and growth prospects are a little better. Will benefit from rising rates. For banks she prefers banks that are active outside of Canada.

Markets. We had a bumpy ride this week. Since June the energy index is down 14 percent, but the energy infrastructure sector is only down 4%, as is the TSX. She is about 10% cash. She thinks there is a little more downside yet. The indices have broken their major support levels. You have to see if the economy will continue to recovery after liquidity is pulled off before you think of raising rates.

Markets. Over the short-term, we are seeing a bit of a correction, but not something he was surprised by. Longer-term he sees the markets very positive and he is still very constructive. He is using some of this weakness to add to and build some positions going into the Oct-May time frame, where he thinks the markets could do quite well. Before a market top, you typically see some kind of a slow down in the economy, or a forecast of a slowdown. He is not seeing this in the leading indicators right now. He also looks at sentiment for a market top and he is not seeing this. One of the 2 factors that really contributed a lot to recessions and bear markets is a rise in oil prices. If you see oil prices rise by over 80% over a 12 month, this would have to put oil in the $160 range right now. The other factor would be an inverted yield curve. We are not seeing either of those right now. October to May is the strongest period of all of the four-year presidential cycles. If it holds as it has in the past, then we are in for some good times in the next few months.

Markets. Feels comfortable that stocks will continue to well. The recent pull backs were about what was going on in the US and now we are back to where we were before. Investing in debt is not a great return. Equities continue to do well as do the earnings. Companies continue to buy back stock and the economy continues to grow slowly. The US$ will continue to become stronger. He is positive in general. There is some geopolitical noise out there, but it does not have a lot of impact. There will be pullbacks and you have to buy on that. There are lots of good opportunities in the US, UK and in Europe. European companies get a lot of revenue internationally.

Markets. Market is showing a much stronger US$ against the euro, the yen and other currencies. Japan, despite all its quantitative easing, has been horrendously weak. Also, Europe, despite efforts, has been tremendously weak. Because of this, money has been fleeing out of those 2 areas and into the US. However, what is really ironic is that the US isn’t any better. What really saves them is by being the world’s key currency. This continues to drive their stock market higher. Company balance sheets, generally, are in the best condition that he has seen in a long time. They also have the wherewithal to do anything they want. He does not see speculative excesses in the market at this time. The S&P is getting to a level that overall is going to run out of gas, but it did that back in 2004-2005 and then kept going for another 3 years. Increasingly this market is going to favour stock pickers, and less the over all market.

Economy. The Federal Reserve Board is taking the money away from the market. Psychologically, this could impact the market and investor psychology going forward. They may taper it off so quietly that it is not a big impact, but if the bond market does move quickly, that could change the tenure of the stock market quite dramatically. People should be on their toes from here on in as to how they are approaching the market. Everybody should be aware that the easy trade into high-yielding stocks may not be as good a trade as it has been for the last 4-5 years.

Markets. Alibaba IPO blew off the doors. There are signs of bubbles. You have to know how to manage your portfolio post-stimulus. The demographic trend is that we are all aging. People just want that yield and yet safety. Utility type stocks have therefore been caused to trade way above value and when will the bubble burst. Pipeline infrastructure is still a growth area.

Uranium. URA-N is a basket of companies that deal in the uranium space. A lot of commodity stocks are selling off as the Euro and Canadian dollar weaken. We should see a recovery as there is a long term base pattern developing. Right now the market is focusing on currency, rather than commodity.