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

India. Over the next decade or two it should be a fantastic place. Average age is 28 (US is 48) in their workforce so huge potential for growth. There was a huge devaluation in their currency in the last year or so, but that is built into the markets. (But a couple of companies are a huge part of the market). ZID-T or EPI-N as ETFs to benefit from this country.

Markets. Short-term he is neutral. Intermediate and longer term he is extremely bearish. Using the S&P as an example, the EPS is about $120 a share on a go forward basis. 18-19 times is pushing the higher end on the valuation side, even in the short term. However, that is at peak corporate margins while net margins are somewhere in the 7%-8% range. Historically, over a full cycle, the long-term average is closer to 4%-5%. So if you have more than an average margin, then you are looking at somewhere between 40%-50% downside, just in terms of the current PE ratio. If that P/E ratio also contracts, which is likely if interest rates do rise, you could see even more downside than that. The catalyst for a decline would likely be some sort of rise in interest rates. He would definitely be lightening up on equities over the next few months.

Markets. His analysis goes back to March 2009, and he feels we are only 5 years into this Bull market. Feels this is a secular bull market so therefore it has to be a decade long. From that point, the disparity of returns from equities versus bonds had never been bigger since the Great Depression. Even though it was tremendously bearish, there was only one way to alleviate pressure between bonds and equities, and that was for equities to go up and bonds to go down. Therefore his call is to be Long equities and Short bonds. This year, there has been different parts of the market that have sold off, which gave him opportunities to go a little bit more Long on stuff that he wasn’t expecting to be able to do until after a correction happened. He is about 90% Long. He has about 10% cash waiting for something to happen over the summer.

Markets. Thinks we will be in a trading range for the next while. The economy may accelerate, but it could be a long time. Thinks there is a lot of pent up demand by the US consumer. M&A activity is a positive sign for the economy. There has been all that cash on balance sheets and now they will use that on acquisitions. Energy infrastructure and US housing are two areas he likes. We don’t need much of an uptick in US housing starts to get a jump up in lumber prices.

Companies selling on the news of Northern Gateway could be profit taking and as well there is as concern over the number of conditions and when it will get built.

Railroads. Which will benefit the most from pipelines? They will all benefit, especially CP, CN and Union Pacific.

Markets. Record highs on the TSX, but he is skeptical. Technically we are really overbought. Relative Strength Index (RSI) of the markets indicates that we are due for a correction. Typically when the RSI peaks, we are going to get a fairly good correction of 5%-7% some time in the next 90 days. This is not a perfect indicator, but probably right 75% of the time. For people who are fully invested or sitting on some leverage, now is a good time to trim your portfolio and build some cash. We have had a really strong market, and it is hard for him to see us going dramatically higher from here. He Shorts the Broker/Dealers because they are a mirror of the portfolio. When the market goes up, they go up faster, but when the market goes down, they go down faster. He is going to take it easy for the summer and look for opportunities. May-August is a quiet time for the markets, and gives him time to really look at stocks that he wants to add to the portfolios.

Markets. He sees opportunities in both Long and Short, and will make investments on both growth and value. Thinks there are a lot of opportunities in the Short side in some of the social media names. Cloud names for example, have a particular buzz and hype about them. (See Top Picks.) Often when you have a crowded or popular trade, it presents opportunities for the Short side. There are very few that he finds attractive in those areas. In the overall market, he doesn’t find valuations to be unattractive. When you have a certain sector, like techs, which he thinks is overvalued, by definition that means there has to be some sectors that are undervalued and his job is to find those on a stock specific level. His sweet spot is in mid-cap stocks because he can get out of a position when things are not working well.

Shorting Stocks. You have to be very careful about crowded trades such as Lululemon (LULU-Q). The downside is that when a stock gets to a certain level, you get the value players taking a look at it, and the value players can actually be painful on the Short side.

Investing in Asian demographics? Healthcare is one area that he looks at and the other is pharmaceuticals. In pharmaceuticals, he has played it through the generics because he doesn’t like taking a specific risk on a drug. In Canada, you essentially have one option, Valeant Pharmaceuticals (VRX-T), which he is not particularly fond of. He has gone into the US with a company called Mylan (MYL-Q). On a 5 year basis, it has been a rock steady name. With generics, you are not taking specific risks. If you are looking for a zippier way to play, there is the biotech space. Not a lot of biotech names in Canada but he does like RepliCel Life Sciences (RP-X), which takes a hair follicle and grows a cell, which can be re-injected so that the patient can re-create their own cells. US military is interested in this. Another use is in pattern baldness. Currently in phase 2 of trials, and that is where the real value comes.

Markets. This market reminds him of the 1986 markets. The market had gone up for 4.5 years' and everybody said it was too expensive, it's over, it's going to die, but it just took off. If anything, we are going to have a “Melt Up”, not a “Melt Down”. There is just so much cash on the sidelines. Every time this market tries to sell off, the money flows in. He focuses on Large Caps because you want to go where growth is. The difficulty in North America is that the economy is struggling at about a 2% growth. Easy money is made in economies that are growing faster, not slower. There are all kinds of emerging markets that are growing at double the rate that we are growing.

Emerging Markets. Thinks they have all turned in the last quarter. One after another, starting in February, they started to put bottoms in, and started to look better. This is sort of a stealth Bull, because everybody is focused on the S&P and Dow making new highs, and now the TSE has made a new high. These emerging markets turned the corner, and nobody cared, and that is always the best time to be participating in them.

India. India has done a 180° turn, from “impossible to get anything done”, to the new president saying “he would do everything to make sure things get done.” This changes money managers views on everything. India has been underweight in a lot of portfolios, so he thinks money is going to flow back in to that market. Had a relatively bad year, and yet still grew at 5%, double the North American growth rate.

Markets. If you are looking for a 2008 correction, you are mistaken. There would have to be some kind of real financial excess that would get us into real trouble such as housing, high-tech boom, etc. Things are reasonable enough that he thinks we can plow forward. As an investor, you need to be looking for opportunities. There are some good opportunities out there, but not across the board. There is a general expectation, where people think that sooner or later interest rates are going to rise and central banks are going to throttle down on things. Feels we are not going to have 3% growth out of the US. For investing you have to look into cheap sectors of the market, such as Energy. There are still good opportunities in the Financial sector including banks and REITs. The Materials sector is really cheap.

Economy. She is seeing a shift to a mid cycle. Instead of the latest and greatest app getting funded, it is actually industrial CapX and the broadening out of the business cycle, which is why energy is moving. It’s commodities (energy first and precious metals) in the 2^nd half. Had been favouring US over Canada, but now has Canada outperforming the US. However the US will continue its bull market. Currently prefers Value Stocks over Growth Stocks.