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

Markets. It’s Oliver’s call today! He was upset when Flaherty went into the banks to talk interest rates. When governments get involved, that is when the system starts not to work so he is glad the finance minster is taking a back off approach. Canada’s fiscal situation is amongst the best in the G20.

Gold Rates. Forecasting anything is really difficult. Anyone who is really good gets it right only 2/3rds of the time. No one knows the future. Thinks gold goes below $1200 before going above $1400. He might be right or wrong.

Educational Segment. ETFs: Equity Weightings and Returns. ZRE-T is equally weighted. Don’t get a single stock risk. New series has a quality type index. They have a European ETF with lower risk and higher returns: ZEQ-T. Canadians are often overweight Financials and Energy and this mitigates the risk of being in just those.

Markets. He is a stock picker and it is getting more and more difficult. He wouldn’t be surprised to see a bit of a correction. He is accumulating reserves on the side to take advantage of setbacks. The TSX is doing a bit of a catch up, but Energy is leading it. Materials are up almost 10%, but with lackluster performance in primary materials. It is a confused market. Investors should concentrate on at what price they are comfortable buying a stock and to watch for it.

Is it profitable to still be thinking of buying TOU-T and its peers? This has been the strongest sector of the TSX. It is difficult to find things that are you think have a sufficient margin of safety here. He has CPG-T and is thinking of taking some off the table at these levels. TOU-T he does not own, but does own PD-T.

Markets. Thinks the economic backdrop for equities looks pretty good. You almost have to take a look at the overall economy before you make your judgment as to what the market is going to do. We have a continuation of mixed signals from different areas, but the overall thrust of the global economy is forward. These days, it is being driven mostly out of the US. He is seeing some undervaluation, and it is most pronounced in small cap areas, but the general market has done phenomenally well for the last 5 years. A lot of stocks to reflect that, but a lot of them have been backed up by good strong earnings and cash flow progression in rising stock prices. However, some stocks are definitely getting a little pricier now. There is a certain momentum behind certain stocks while others continue to be left alone and ignored. If you are willing to dig in and find those opportunities, it’s great.

REITs. Some of the popular REITs have run, but there are still some hidden treasures that can be found. In the REIT market you are really looking at the relative valuation, and understanding what the value of the properties are. The real run that has happened now has really been focused on those largest real estate investment trusts, and a lot of the smaller and mid-caps have been left behind. He has had a preference to the US, however they are up 16% to date, so you have to be a little more cautious now.

Markets. Investors have got to stop trying to call a Top. Experts say “We are due for a crash” again and again. Investors should just get invested and stay invested. Since 1970 we have had 4 crashes. ’73-’74, 1987, 2000 and then the financial crisis. In each case, every time we’ve had a nasty so-called crash, the markets still ended up higher. If we have a 10 year time horizon, stop worrying if we are going to have a crash. We’ll have corrections, 3%, 4%, 5%, but that’s meaningless. Buy good stocks and use Market Rotation. In our own markets, financials and telecoms lead and then you have the middle of the market where you have consumer, technology and then at the tail end of the market you have the materials, mines and metals. That is a normal rotation. We are running into a sort of Global Rotation now. The early part of the bull, following the crash, was led by North American markets. They are now starting to lose momentum and the cash is going into the back end of the market, emerging markets, South America, etc.

Markets. It is like the ‘90s. It didn’t end so well. There was a great time when investors were able to make lots of money because of the Fed, and growth wasn’t too hot, or too cold. It is like that now. Where are people with cash going to go? Dividend stocks with rising cash flows and 3-5% dividends. We are in the half disbelief phase. Own quality and practice asset allocation. No one knows when things will change. If you have some kind of Leman event, you have to have a switch you click off to protect yourself and that is with futures. Energy trade looks attractive but it is stock specific. If a stock is not accurately discounting future cash flows, it is a buy.

Markets. There are periods where there is a lot of change and transitions, and then you go through periods where there is some fairly steady leadership. For about a year now we have had very steady improvement and breadth in the market, meaning more and more stocks are slowly participating. He sees a very healthy environment. Alternatives would be a 2.5% treasury bond or an average stock in the S&P with an earnings yield of somewhere north of 7%. This means you get paid very well to take equity risks today. Unless you think rates are about to shoot higher, equities are probably the place to be focused, and there are some very clear themes in the market.

Energy. His exposure has been going up through the year. For about 4 years now he has been focused on energy infrastructure, but in the last 6 months he has really extended his exposure to producers and service companies. It is not so much a story of the price of oil, but just a boom in volumes and falling costs in finding and lifting new reserves. The cost to find and lift new reserves has fallen about 12% a year for the last 4 years. They are mass manufacturing energy in the US right now, and a lot of companies are benefiting. His equity portfolios are above 40% in energy across a broad spectrum of different themes. Natural gas companies are doing a lot better for the first time in a long time so that is a newer theme for him. The net of this is that the cash flow generation is growing, and the costs to bring on new reserves have come down to such a level that this is just a good margin business.

Markets. Market has been very good this year. One of the better G 20 countries, much better than the US in a lot of places. For us to push through our all-time high, we do need energy companies to go a bit higher with growth in production and cash flow, and thinks we have a decent shot at it here. He has been fully invested, but started taking a little bit of profit the last couple of weeks. Thinks a correction becomes a “time correction”. Everyone is saying, ad nauseum, that we are due for a correction, and therefore it probably doesn’t happen in exactly that way. You might get a series of rolling 3%-5% corrections, and then come back, and we end up net flat from here to September. Valuations are now fairly valued, but we now need earnings to follow through. More than ever, to him, it feels like a “stock by stock” value. You can’t just throw a dart any more because some things are more fully valued than others.

Global Growth. World Bank cut its global growth forecast, from 3.2% down to 2.8%, and he sees some weakness in US, Russia and China. He is still looking for something in the mid-3% range, and thinks economic growth will pick up materially in the back half of the year. US had a tough economic 1^st quarter because of lousy weather hitting all kinds of industries. To the extent that the US is roughly a quarter of global GDP, it is not surprising that as the US suffers over finite period that it will drag down the whole data set. This is still going to be better than 2013, which was better than 2012, so the direction is going the right way. The key economies of the world are picking up steam. The EU will demonstrate positive economic growth for the 1^st time in 3 years. US growth continues to accelerate, although far below what you would normally expect at this point in the economic recovery. Japan will grow for the 3^rd year in a row at a reasonably static rate, but the good news is that inflation has cut back, which augurs well for long-term spending. The only economy that seems to be having problems finding a bottom and recovering is China, whose growth continues to decelerate, albeit from fantastically high levels.

Valuations. Geographically, he would say the US is more fair value. Valuations are certainly a little more attractive in Europe and probably more attractive in Japan as well, given that the fundamentals are improving so rapidly from a profitability standpoint. Another area is Asia ex-Japan, the Chinese peripheral markets, such as Singapore and Hong Kong, which are trading much below their historic norms. This reflects concerns about the Chinese economy.

An ETF in the BRIC category? Growth has pretty much unwound in all of these countries, particularly in Brazil. Russia is a market that he simply would not invest in. India is really the star of the show, because with the election that recently happened, stocks that had been languishing for a good 4-5 years have had a spectacular run year to date. The appetite on China is absolutely abysmal, but it is the cheapest market in the world at about 9X forward earnings. On a country basis, it would be China and India he would steer you to. However, he would not advocate an ETF for these markets. You are much better off using individual stocks.