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

Economy. There is inflation in a number of different places that is causing trouble for the consumer to spend on discretionary items. Because of this, there is a fairly lacklustre performance on the discretionary side of things. Inflation is coming mainly from commodities such as food, metals, rents, etc, places where people have to spend. If people have to spend more in these areas, there is going to be less money spent elsewhere. He is now taking a conservative approach by transitioning over to some of the metals, particularly gold.

Gold. Constructive on gold at this time. A very volatile commodity creating very volatile stocks. He is seeing some interesting technical levels being supported as well as some of the macroeconomic factors. In Europe there are more troubled signs of the recovery that will create more easing for money, more printing of money. This is good for gold as a currency. He is a bit more constructive on China as an economy. Looking at the economic growth forecasts that are projected by the Chinese government, there would have to be a pretty healthy pick up in the second half for them to meet their goals. China is the largest consumer of gold.

Silver. If you see an economic recovery globally, particularly in Europe and China, you are going to get a bid from a fundamental perspective. It reacts very much like gold. Fortuna Silver (FVI-T) is a stock that continues to execute well. Also Silver Wheaton (SLW-T) is a solid company.

Copper. He is constructive on China for the back half of the year, which would be good for copper. This has been supported at around the $3 level recently. Given the supply/demand situation, it either consolidates or runs a little higher. Capstone Mining (CS-T) and Lundin Mining (LUN-T) are 2 names he would recommend.

Seasonal Trends. There are some very important things happening right now. Historically markets move up late in June through until the 1^st few trading days in July. This is the Independence Day holiday trade. However, after that, things tend to go wrong. There tends to be a surprising event that always happens. This has happened 6 of the last 7 years. You get a spike in volatility, and markets have a difficult time. It looks like it is going to happen again this year. Seasonally the S&P 500 normally reaches a peak around this time of year. He is currently looking for the markets to be under some pressure. There are signs that the volatility has started to spike again. The Volatility Index (VIX) this week was up 20%, a huge move, implying that once again volatility is coming into the markets.

Gold. This looks very good, and has been up 6 weeks in a row. There was a breakout yesterday when it went above $1335 level, and looks like it is just getting started on a seasonality basis.

Canadian$? Chart shows the dollar bottomed in May/June, and subsequently went into an upward trend. There has been a little bit of weakness in the last little while, but nothing significant. Trend is still on the upside. Trading above its 20 day moving average. On a seasonal basis, the dollar is not so good at this time of year. The best time is from March right through until May each year. Right now it tends to be neutral relative to the US$.

(A Top Pick May 9/14.) 90 Day Gov’t of Canada Bond. Wanted to be very conservative at the beginning of May, so only went into select areas.

(A Top Pick May 9/14.) 5 Month Gov’t of Canada Bond. Wanted to be very conservative at the beginning of May, so only went into select areas.

Markets. We should be a little bit concerned about the Portugal banking incident as we don’t want to see contagion happen. Right now it is a one-off, and has a little bit to do with a parent company transferring some debt. Hopefully it is contained. There are definitely still problems in European markets. In Spain and Portugal particularly, as well as Italy things are a little bit volatile. We are going to get periods where we hear this, and then it will quiet down. Doesn’t think it is an endemic problem any more, but if there is a slowdown in the economic peripheral parts of Europe, it will start to bubble up again.

US Markets. Manufacturing data and ISI Truckers survey are telling him that things are strong in the US. The ISI numbers are as strong as they have been in almost 8 years. This deals with things that are manufactured and shipped in the US. Unemployment numbers are starting to look better, and wages are starting to go up. From a top down point of view, the US is looking like the strongest place to invest in.

What is the principal purpose and reason for the existence of American Depository Receipts (ADRs)? What is the advantage of owning a depository receipt versus simply buying a stock directly? He does not buy the ADRs as he has access to markets around the world. ADRs are there to allow retail investors to participate in a non-US name in the US stock market. It adds to an investor’s ability to buy shares, where they don’t have access to Europe, Asia, etc.

Markets. His view is that we are overvalued in North America. Global equities are less and emerging markets are fairly inexpensive. Generally speaking it is the small to mid-cap stocks that are overvalued. Large caps are fair value, if not a little expensive. North America is definitely priced to perfection. S&P is overvalued by 20%, and this could continue for a while. Rates have hit the bottom and could be going up, but it is just a question of when. Stocks are cheap in emerging markets such as China, India somewhat, Japan, but there are potential headwinds there as well. If he had to pick a region, it would be the US, but he is very sector focused. Technology and healthcare in particular and, in Canada, the energy side would be favourites.

Markets. 2014 has been much better than 2013, when the market was focused on tapering. In 2014 fundamentals remain strong, occupancy and returns remain strong. Interest rates were supposed to go higher in 2014, but they pulled back which was good for REITs. This year any rise in rates won’t be a surprise. People try to direct you to economically sensitive lodging because they can grow cash flow rapidly, but all he looks for is free cash flow above average. Investors should be cautious. Returns will be more normalized for the balance of the year. The sector is no longer undervalued, but rather it is fairly valued. He doesn’t see the sector going lower.

Markets. He bets against the trend in stocks, but in terms of the market when it is really going gang busters, it is often best to just believe in what is happening, and try to profit from it. If he had the opportunity he would like to take some money off the table. Even though he is going to go with the trend, that doesn’t mean he is going to fall in love with the trend. Unfortunately, none of the stocks look like they are going to hit his initial Sell targets. It is going to be much harder for him to find contrarian plays. A few years ago, there were over 350 stocks on his Stock Watch list, and now there are only about 180, of which only about 24 are of real interest.