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

Markets. This year has been a bit of a struggle for a lot of active portfolio managers. Underneath the surface, investors have missed what has been going on. Looking back to March, a lot of the highfliers in biotech, cloud computing, etc. corrected heavily. At the same time, the blue chips were doing not so badly. Then the social media stocks, biotech’s, etc. rebounded very sharply, while some large cap industrials were starting to roll over in June and into July. The net result had been a zero to a +4 in the US. In Canada it’s been masked by very strong performance in materials, a run-up in energy and, Canadian banks have come back into their own. A lot of moving parts. The correction that we have been waiting for has sort of happened in sector and theme, month by month. Feels this is one of the quietest 6 months he has had in the spring/summer in a long time. He is fully invested.

Canadian Telcos? The headwinds they are going to face in September are some hearings that are coming with respect to Spectrum and some initiatives. The government wants to bring in a 4^th carrier, which he hopes happens because there needs to be a little bit more competition. His order of preference is Telus (T-T) as a long shot, BCE (BCE-T) as a Hold and he wouldn’t touch Rogers (RCI.B-T) if his life depended on it. Quebecor (QBR-T) comes up in a lot of research. He would be comfortable sticking with Telus and BCE.

Markets. These markets are aging. They are in year 5. As a market ages, it starts to rotate, which he thinks is happening. We are moving out of high-priced assets or assets that have been working and into assets that have a bad reputation for not working. The current market can go on for quite a while. Watch the 200 day moving averages. Most indices corrected back down and bounced off the 200 day, and will probably continue higher. As long as the 200 day is pointed upward in a rising trajectory, we have a bull market. Financials have not rolled over and are still in an uptrend. The Dow broke the 200, but he doesn’t trust the new Dow. They screwed it up by putting too many consumer stocks in it. In a rotation, you have 1) leading sectors, 2) coincident sectors and 3) lagging sectors. Currently we are going through the coincident sector. We are done with consumers so we are moving into industrial and technology, and then we are going to work into materials, which are coming along too. If he had to pick one sector where he wanted to be now, besides materials it would be industrials in both US and Canada, but particularly in Canada. ETF’s are probably the best way to play this market. If you are a good stock picker, what you can do is pick a sector that you like, and then you can drill into the sector and pick a few stocks.

Oil. The chart on crude oil shows a “short-term” break, which is just a trading break. It could correct down a little bit more. Anything related to crude, he would be careful of.

Gold. He likes gold, because the US$ has had quite a rally over the past 6-8 weeks. Usually a rally in the US$ is going to hurt gold, but it didn’t. It’s very unusual to have both of these rally, and it’s a very bullish sign for gold. Any reasonable gold stock, unless it has a mine in a dangerous place, probably should be held. It is important that from June of last year, we are seeing higher lows. It is just a matter of time until the pivot point of March 2014 will be taken out.

Markets. Feels the developed markets are the place to be right now and is steering clear of emerging markets. They are further along with deleveraging process and you should see better earnings growth, and hopefully, as a result of that, you should see better share price performance. He always sticks to dividend payers, companies with good balance sheets and strong management teams. To see emerging market growth at this point in the cycle, you have to see strength in developed markets, like the US economy, as well as a bit of resurgence in growth in Europe. As the US is our largest trading partner, a lot of Canadian companies will benefit from the strength in the US economy as growth accelerates over the next 2-3 years. There is a bit of concern that Europe is in a deflationary environment. That is why the German 10 year is close to 1%. That tells you there is deflation risk, so you’ve got people worried about prices falling during the next few years. However, when he looks at the European economy in aggregate, you have to keep in mind that the ECB still has a lot of arrows in its quiver. They can depreciate the currency, talk it down and implement additional quantitative easing in the form of trying to increase lending to small to medium size enterprises. Thinks growth well eventually resume and should accelerate 1.5% next year.

REITs. Canadian REITs still represent pretty good value and an excellent source of tax efficient income, so there are still some buying opportunities within the sector. He would be a little bit more leery about some of the energy infrastructure stocks, which are starting to represent full value, really spurred by some of the M&A that we are seeing in the US.

Telecom. Why are the players so volatile when it appears that a 4^th incumbent is coming? In Canada, this is an oligopoly. Government is pretty hell-bent on making sure that we have a 4^th player to really try to benefit consumers with much lower pricing. This is why there has been some volatility in the stocks. If the government steps in, there is lots they can do by reducing roaming charges, reducing domestic roaming charges, by positively impacting the outcome of the spectrum auction. If they wanted to, they really could create a favourable advantage for a 4^th player to come in to take market share away from some of the incumbents.

Markets. Master Limited Partnerships. There are a lot of smart people on Wall Street looking to make money for their clients. This is always a good thing except when the market gets frothy. Master limited partnerships are now a tax hindrance for the US government. Remember when Income Trust rules got changed in Canada? QE: We need the flowing money, globally to keep the global economy going right now. But the massive current debt, globally is also a hindrance to growth. If you see wage pressures come, that is a tell tale sign of trouble.

ETF for oil and gas services. HOG-T is not services exactly, but it is included. It only has a few weeks of price action. This is the closest thing we have. Not exactly like the XES-N.

Oil vs. Gold. Likes parts of the energy story over the next couple of years. Thinks we will pick up market share relative to OPEC. For gold we need inflation to take off. He thinks there is one more shakeout below $1200. Leave gold alone.

Latin American ETF recommendation. A lot are dominated by Brazil. It depends how you want to play Latin America. There is even Mexico thrown in sometimes. Etf.com is a web site to use to search for an ETF by criteria.

Medical and Pharma field. Sector has had a phenomenal run the last couple of years. Nothing is cheap now. There are a couple of ETFs (ZUH-T, for example) that gives you health care exposure.

US Tech ETF including APPL, GOOGL, etc. iShares has IYW-N, based on the Dow Technology index. This is not a great time to get in.

Markets. We saw good economic numbers recently. That is the economy. There are the Iraq, Ukraine situations. But what is really significant is China. They are now the largest issuer of corporate debt. He thinks over the short term we are going higher in the markets, however. Now is the time to get back in the market.