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

REITs. He owns very few REITs because his clients normally have one or two properties anyway. But Fed said today that interest rates are not likely to up, so REITs are likely to do well, as they often do in the summer. Yield is usually fully taxable. You have to look at each company and determine the growth prospects.

In a market correction the sectors that have not outperformed (e.g. utilities) will just chug along and will hold their value better than others.

Distributions from trusts are taxed as income rather than as dividends from Canadian sources. This is one of the reasons he avoids REITs.

Markets. All the acquisitions and mergers that are going on at the present time is a positive sign for the economy, for business and for investment banking. Many US companies have a lot of cash on their balance sheets and overseas. A lot of US companies are deploying their overseas cash by going after European companies, instead of bringing them back to the US. Also, feels corporate management is gaining more confidence that this recovery is sustainable. Also, there is pressure from active shareholders for companies to use their cash effectively or will be forced to do something otherwise. Some of the large companies, such as General Electric (GE-N) want to become more focused so are making acquisitions in those particular areas. Thinks profit growth will mainly drive markets upwards from here on.

Markets. Markets are going through a consolidation phase. We had a pretty strong year last year, certainly in the US and certainly in the high beta names. We are seeing that going through a little bit of indigestion. Canada is doing quite well, but is mostly based on energy and, at one point, a bit of a gold move. There will be a lot of consolidation, but what makes him a little bit more comfortable is the PMI indices globally. Above 50 means the economy is expanding. The numbers including Europe, and to some extent, China, are positive. There are a lot of studies that say bull markets only end on a recession. The problem he has with this is, what if we sink into a recession. Doesn’t think this has been priced into this market as effectively as people think. His strategy is to hang onto the good quality names, dabble a little in the high beta, but at any time, he is going to use his Stop/Losses to get out of things when they start to get a little worse than they are.

Markets. The number of jobs report had a great headline number, but if you dug deeper it was not so good. There was a drop off in people looking for work. Labour markets are very, very weak. Fed is not looking at unemployment rate when considering tapering. Gold has its next big rally when inflation takes off, but deflationary factors are more of a factor these days. Labour wage rates are actually contracting slightly. Compared to 5 or 6 years ago, we have double the debt in the world. The Euro has a little bit of risk and you might want to pull some money out of Europe.

Basic Material Sector: Gold, potash and forestry, then base metals. Thinks the outlook is not good for the next couple of years. Wait until gold goes below $1200 to buy this sector.

Educational Segment. As we age, to deter dementia, learning and physical exercise are what we can do to delay that. His research is suggesting that being ‘primed’ or upbeat and positive, emotionally, before making trades improves results.

Markets. He is not taking calls on Resource stocks. He is having trouble finding value stocks right now. Market is becoming expensive and is quite frothy. You have to dig a lot deeper to find long term opportunities. This applies to all markets across the world in developed countries. He is being more prudent and sitting on more cash. He prefers taking his time to find new opportunities. Markets will still go higher if interest rates stay low. China has cracks in their financial system and manufacturing is slowing down. Things could surprise us and cause the market to correct.

Markets. Both US and Canadian economies are growing. Analysts and strategists are readjusting their growth metrics upwards from beyond 2 to maybe 3. Feels weather had hampered a lot of statistics and the US is growing very quickly and we are starting to see a lot of really big numbers. There has been employment growth in the US and he thinks this is going to be the trend because we finally have some visibility on the economy. There is no government shutdown in the US; no European debt crisis; no 2008-2009 crisis. We are finally exhaling completely and the bond market rates are adjusted for that as well. Growth is going to be very good in the next quarter to a year. Believes interest rates are going to creep up from here. It is going to become a “stock pickers” market as opposed to an equity market. You have to be in those right type of mispriced companies and maybe you’ll get a little bit of pop. However, valuations are neither cheap nor expensive so he expects the equity market to move sideways, but will probably trend upwards over the next 6 months.

Non-Canadian bank fixed reset preferreds? It has not been a great environment for fixed resets because everyone piled into them when the market thought rates were going higher when Corporations have the ability to call them. These do very well on rate increases, but do the opposite when rates stay the same or drop. Rates have come down it is not surprising. It is just a matter of when, not if, rates go up.

Markets. He is seeing a rotation out of growth stocks and into value stocks. Growth would be something like Facebook (FB-Q) or Twitter (TWTR-N) where you have lots of revenue growth, but not much earnings and valuations were getting ahead of themselves. Later in cycles, you would see energy, financials and technology being the groups to go to. People are starting to move some, but now we are getting into stock by stock. For example in energy some stocks have moved and have done fairly well and may be getting close to a pull back, but there are still others relatively cheap. Thinks we will go higher for the balance of the year, just not to the same extent.

Natural Gas. We are now in the midst of and the beginning of a multiyear trend with the big build out for liquefied natural gas. LNG being shipped to Asia will take a while to happen, possibly 2018, but there is a build out, so pipelines, infrastructure and gas producers benefit. Natural gas storage is still so low that you will probably have higher prices. A lot of stocks, on a basis of $4.50 MCF, look cheap.

Banks. As a whole, banks have not been doing much for a month and have underperformed the Canadian market by a fairly wide margin year to date, so are now playing catch up a little. They are obviously a source of funds when the market pulls back. You could wait for a further pullback, but if you are a long-term investor, you could go into them now. Rates having retreated back the other way, in theory will squeeze margins a little bit, probably next quarter. But that would argue that the real estate market is still healthy. Thinks there is 5% earnings growth and with a 3.5%-4% yield your total return will be in the high single digits.

Markets. Unemployment is at a recent new low. It is because less people are looking for work, so it is not so good. Part of it is demographics – baby boomers are aging and retiring. This is not going to go away. He was encouraged, though, that more companies are hiring. Weaker Canadian dollar is helping resource companies because commodities are priced in US dollars. Exporters benefit. Companies that have lots of capital buy most machinery from out of the country so it is a negative aspect of a lower Canadian dollar. Consumers find it a negative because so much of what they buy is imported. He continues to expect a market correction.