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

Markets. Stocks are still the best option for the year. Economic growth globally is picking up. Thinks we are getting closer to a pullback. He has scaled back on some of the areas where he would tend to want to buy back into on a pullback, e.g. bio techs, internet stocks, high tech, energy. We are seeing a flood of foreign money come into the energy sector. Nickel has probably been the commodity of the year. Global manufacturing looks good. There is plenty of risk: Valuations are high, the interest rate backdrop, political risks and the seasonal – ‘sell in May and go away’.

Markets. US economy is slowly improving as he thought it would. The only breakdown in markets is that the NASDAQ went through its 50 day and approaching its 200 day moving average. It will probably hold, but you never know. If it broke he would be more cautious. Russia and Ukraine are the biggest wildcards. Europe and Japan seem to have faded in the mean time. He looks at water, industrials and agriculture as being the most promising.

Russia / Ukraine sanctions and their effect. Ag stocks could be impacted if the crisis is long. He feels they will do as much as they can until the US mid-term elections. This is his one major caution on markets.

How to take advantage of new US legislation regarding rail car safety. WAB builds locomotives and rail car safety equipment. ARII-O, KLS-X and TRN-N are in that business also. He believes keystone is dead.

Gold. Feels it will go higher. Russia meddling in Ukraine will help this. $1400-$1500 is doable this year.

Markets. He is bullish on the markets, but the whole "Sell in May and go away" thing may come to fruition. The market wants safety and yield. It is setting up for some sort of correction. He is at about 20% cash.

Markets. We saw an inflexion point recently where fund managers are beginning to come back into this space. There is a lot of US money coming in here. He had been waiting a long time for this in this space. He thinks there are upside scenarios for oil prices. The inventory picture changed through the year as it was the coldest year in a longtime. In Canada it has almost reached crisis proportions. The producers have a big job to do to refill those inventory levels by the beginning of the next heating season. This is a better natural gas picture than we have seen for a long time. He decided not to go headlong into the gas trade, but to increase exposure to balance producers that have exposure to gas as well.

Markets. Thinks the recovery in the US is in fact occurring, but the market got a little ahead of itself. Unemployment and consumer spending are both moving in the right direction. Europe seems to have bottomed, but the market was a little ahead of itself there. Emerging markets are where there are opportunities. Developed Asia is probably the best place. Hong Kong, Korea, parts of China, and Singapore. Euro zone growth will be tepid. Ireland has emerged from special measures and Spain is doing well. Japan has to maintain the printing presses, but to move beyond the current levels of debt, they need international holders. Longer term, he thinks this is a dangerous place.

Weak Canadian Dollar. If the US continues to strengthen you will see a normalization in the currency. If you have holdings outside of Canada they will have their growth and dividends magnified by any weakness in the Canadian dollar.

Markets. Stock markets have had a great run in the last couple of years. This is not just due to corporate earnings, but is also due to price/earnings inflation. Valuations are simply more expensive. With the prospect of interest rates rising at some point and if the Fed tapering continues, that will put pressure on some equity prices. Also, corporate earnings have been somewhat disappointing for some of the large mega international multinational companies. His equity fund is about 30% cash because he is having trouble finding good things to buy. He still finds value in Japan, but a lot of the companies have moved up quite substantially. Also, seeing value in European financials.

Interest Rates. The 10 year bond yield rose after Ben Bernanke’s famous comment last June. Since then, the reserve board has done everything it can to ensure and talk investors into believing rates will remain low. 10 year bond yields have actually declined in the US to about 2.5% so investors have become quite comfortable for the next 2-3 years. They believe interest rates will stay low so ETFs like SPDR Barclays High-Yield (JNK-N) and iShares Hi Yield Corp Bond (HYG-N) ETFs have come back up again as people begin to feel they are not going to suffer any capital losses. This is the same with preferred shares.

Convertible bonds. What is your best suggestion in the five-year maturity range with reasonable yield and liquidity? After the massive run-up in equity markets, he can’t find any value in convertible bonds. Anything decent is trading at a huge premium because share prices have risen up, therefore yields are extremely low. He does not find this area attractive at all at the present time.

Markets. It is rare that we see buying in favour of selling 2:1. It means there is a good move ahead for the markets. We did a sprint, the market is consolidating and then it should move higher over the next few months. He has a diversified portfolio. Looks for earnings growth on an accelerating basis. Mid caps are most attractive to him because of his analysis method. Early stage equities are giving up some strength to the later stage equities.

US Economy. Has been some recent concerns that there has been some slower data in the last few months, with some of it being weather related. The very harsh winter had a negative impact on certain sectors such as transportation and retailers. His view is that the US economy is gradually getting better with unemployment coming down, corporate earnings still growing and the federal reserve still relatively supportive with a very low interest-rate policy, which he thinks will be in place for some time. Earnings really have to kick in here to propel share prices higher. Corporate balance sheets, being very healthy, companies have more cash than they know what to do with. In today’s low interest-rate environment, for companies to be sitting on billions of dollars of cash earning a treasury bill rate, is not really doing shareholders a lot of good so he thinks there is a lot of pressure to put that cash to work. With CEOs more optimistic and feeling better about the economy, we will be seeing more and more deals for mergers and acquisitions.

US Housing. It seems like this has flat lined and taken a paused for a while. He sees another leg up soon. Timing is always elusive and difficult to figure out. Very simplistically many, many studies have shown that over a long period of time, the US needs about 1.3-1.5 million new homes built every year, just to keep up with population growth and immigration. Over the last several years, housing starts have been running at anywhere between 600,000 and 900,000 so not enough homes are being built to satisfy that natural demand. Thinks that over time there will have to be a reversion back to the mean and housing starts to go back to the 1.3-1.5 million range. (See Top Picks and Past Picks.)