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

Educational Segment. Financial Literacy. Are you a smart consumer of financial media? The government wants to strengthen the skills of Canadians in financial matters. You can get ideas from TV, but you must do your own research. You need to have a plan as to when to get out. 65+ year olds’ bankruptcies have increased 600% over the last 20 years.

Markets. We had a bit of a sell off over the last couple of weeks. In Ontario, there has not been a day over 30 degrees in all of July and August. Usually Aug, Sept, and Oct are not terrific for energy stocks. He increased his cash weighting to 32%. Nat gas has fallen, but stocks that have been pounded in some cases do not get so much revenue from gas, but rather from oil. There are still opportunities although the easy money has been made this year.

Markets. September and October is a very difficult time some times. The record for a consistent decline during those few months is spotty at best. You have to be aware that it is out there, but who knows if it is going to hit. If it does, it will be for geopolitical reasons, specifically the Ukraine, and perhaps to a lesser extent what is going on in Iraq and the Palestinian/Israeli conflict. This could derail on a very short-term basis. Looking out 2-3 years, the US economy is going to finally get back to a more normal state of affairs. At that point, you might be pleasantly surprised by corporate revenues, corporate profits and perhaps P/E ratio expansion. A chart showing Forward P/E Ratios from 1977 to the current time had an average of 13.70, and as of last Friday we were 15.2X Forward Earnings on the S&P 500. Above the average, but not outrageously so. The most optimistic outlook for the PE ratio is 15. If it got up to 18 in today’s environment, he would be a Seller. Unless there is a cut off of oil from the Middle East, we’ll probably follow the US.

Markets. In July the markets were at all time highs. They were this week. He said there would be a correction after he was on last in July. The Dow came back 4% after he was on and then came back. Now markets are overvalued again. September is THE weakest month of the year. Beware, the ides of September. October in a mid-term election in the US is the bottom of the 4 year cycle so look for buying opportunities in October. Economically sensitive sectors would be the weakest in the month of September.

Gold. Strength is July to beginning of September or October. Gold has been slightly lower. Other gold stocks are actually in upward trends. He is still hopeful that the seasonality will still kick in. Buy when the US$ rolls over.

Seasonal investing through ETFs. Best time to buy the market on average is October 28^th. You want to be fully invested in equities until the beginning of May.

Markets. Everybody is talking about needing a correction, but if everyone is expecting one, it doesn’t really happen. A correction would be healthy, but the market keeps going up. There won’t be a 5%-10% correction, because there is so much cash sitting on the sidelines. Every time we fall 3%-4%, people see it as a buying opportunity. The dividend component of the Canadian market is healthy. It’s north of 3% on the index, which holds up well against the US index. Dividends pay you while you wait, and gives you a cushion on the downside in a correction. He is more in a position towards the growth side in dividends. Probably the most expensive area of the stock market is those stocks that have reasonable yield, but also are defensive businesses with good growth prospects. These have been expensive for a while.

Trailing stops? Basically a trailing stop is a “point” at which you are going to sell, that moves with the stock. If the stock goes up, the level of the stop goes up as well. The trouble with setting these stops is that you can get whipsawed. If you don’t set them at the right place and you enter some temporary volatility, you get Sold out and then the stock bounces back. Normally you set this outside of a normal standard deviation and set it below that. Also, the issue is that once you have Sold a stock, you then have to decide when to Buy it back, which is sometimes a very difficult decision to make.

Markets. He recovered very quickly from the crisis because of the banks. Canada is a very healthy economically and there are a lot of companies outside the resource sector that are not affected by the world economy. The world is recovering very slowly so it is a stock pickers market. Any rise in interest rates will be very gradual and will be put off. You need to go down the food chain into mid caps to chase yield. You need a solid company that can grow the dividends.

Markets. He is waiting for continuing progress with holdings he already has. September should assist us. He buys companies, so he is not concerned with the month, the Fed or war. He is trying not to sell because that seems to be wrong. There is a lot of money on the sidelines ready to be deployed.

Markets. Because this is such a slow recovery, she thinks it is going to be much longer than what we are used to, so she is not really concerned. Seasonality is not great as we have had lots of corrections in past Sept/Oct. Geopolitical events correct markets, but for really, really short durations. We are still more sensitive, since 2008, to financial events as opposed to geopolitical events. Central bank leaders have suggested that increases in interest-rats is going to be slow, so people are not really worried.

Markets. We haven’t had a meaningful correction since the fall of 2012. What we have just gone through over the last few weeks is what we have seen numerous times, 3%-5% corrections and everybody expecting it to be the big one. There is so much liquidity on the sidelines that people are stepping in when they get any opportunity. It will end someday, but none of us really know when. Looking at investors sentiments, there is still fear in the environment. For example, bond buying still trumps equity buying, which is quite surprising to many people. Statistics show that there are more aggregate dollars purchasing bonds than equities, and he thinks that is a very good thing. He would look to industrials, technology and healthcare as being areas that have the wind at their back, in terms of natural or organic growth.

Shorts. When you see a high short position on a security, 1) what is a High Short position and 2) how does that affect your view of the investment? A High Short position is generally an opportunity, because you have buying powers. If the company does well, then those shorts have to be covered, which is fuel for higher prices. You make your decision and then you live or die by it.

Markets. Seeing revision upward for earnings for the balance of the year. Corporate balance sheets are healthy. There was a small pullback over the last couple of weeks and that was healthy. We might go sideways for a while. The biggest risk is geopolitical. Figures show economies are still expanding. There is no recession coming. Energy had a spike up when things were tense in the Ukraine and Russia, but now things have relaxed somewhat. She likes Canadian banks, expecting modest earnings growth and dividend growth. They have had a nice run so maybe they stay flat for a short while. She wants some exposure to US financials, but that is just for exposure to the US economy.

Markets. The volatility index VIX is a tool, just a tool. You can see sentiment in the market through volatility, i.e., how afraid people are of the market or how bullish they are. When this index is very low, it means people are pretty confident about the market. That might suggest that when people are a little too confident, maybe there is some volatility coming. Although the VIX is low, there has been a lot of movement in this low band. The chart shows that the general trend in volatility from 2009 has been generally down. However, from 2013 on, the band of volatility has been very tight. To him this means the market is expecting good times to continue, but that is often a sign that people are a little too complacent. At the beginning of this month, the VIX was very low at around 10 which created a bit of a selloff. He has about 24%-25% cash sitting on the sidelines to take advantage of this volatility and he can move in and out of stocks.