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

Markets. We are getting to that time where it is “sell in May and go away”, but there are also the midterm elections throwing a range in the works. The average Sell date for May is the 5^th, so we are approaching that time. The average decline in the summertime is a minor one at -0.02%, so it is not a given that the markets will decline in the summer. Actually 61% of the time they are positive during the summer. So the “sell in May and go away” is more or less a myth. It is a broad strategy in that you Sell the broad markets, and move to bonds and more defensive positions. However, there is a condition this year in that this is a midterm election year. These can cause a lot of volatility in the market between April 22 and Sept 30. Average decline for the S&P 500 is almost 5% and we have seen 10 of the past 16 midterm election years have had a correction of 10% or more. There is a very high probability this year that we are going to see the typical volatility in the summer. He is not expecting an end to the uptrend, but just a pull back. It has been 30 months since we have had a correction and we are certainly due for one. He is still fully invested, but has his finger on the trigger. During the summer, he becomes defensive and does not take on excess risk. He moves into things like consumers’ staples, healthcare, utilities, things that have a yield and even bonds tend to do well in the summertime.

Markets. Stocks have had a really good run, mostly on multiple expansion, so he believes 2014 will be a little more volatile, although making gains. Smaller companies can grow more easily. Even a few companies can make you some good money.

Markets. There are all kinds of ETFs all over the world based on the RAFFI index for fundamentals. People aren’t paying enough attention to the demographics in the world. They favour emerging markets for growth in the world over the next number of years. However, the demographics in China have the same problems as we do with an aging workforce. He prefers Indonesia, Malaysia, and India – the second tier of emerging markets where we will see tremendous growth.

Educational Segment. He has a very curious appetite and always wants to know why. He has always felt that asset allocation and diversification must be the cornerstones of your portfolio. ETFs make it very easy and eloquent to put together portfolios. The bond market has underperformed the stock market by about 35% since 2009. But when the TSX fell between 2011 and 2012, the ratio actually went up about 20%. The bond market is at the same place it was the last time the TSX had a bottom in 2011. So maybe it is time to rebalance once again.

Oil Stocks? Caller sold all his. The long term outlook is moderate at best. You should not sell everything, but raise some cash if you are at the upper end of the range. The sector is not overvalued because it was undervalued for years. He does not like the sector right now. To exit, you should sell a little at a time and see if it keeps going higher instead.

Latin America. Thinks we have some challenges in Latin America for the next few years. There will probably be a time in the future to step in in a big way. Maybe in the next year or two.

Sell in May and Go Away. It is effective 60-65% of the time, however, we don’t know ahead of time if this is a year when it will work and we couldn’t possibly. If we look at fundamentals and how long since a 10% percent correction, he thinks it might be coming now. Also, if you look at year 2 of a presidential cycle, it would seem this could be a weak summer. Maybe now ‘Sell in May…’ is 80% likely to apply.

Markets. The last few times in the show, he has been neutral, kind of a push and pull, between the big deleveraging credit bubble. Over the last 5 years, when you get acceleration in the feds balance sheet, you get an increase in risk asset values. When that balance sheet starts to decelerate its growth, then you get a decline in asset value. Thinks this correlation is likely to hold true. While valuations in the markets seem reasonable on a short-term basis, when you factor in the earnings numbers base, i.e., near record profit margins the market looks quite expensive. There could be a pretty good drop once the QE ends.

Markets. Fundamentals have been exceptional for a while now, but it is about the US investors who are now interested. Due to rail, we have ample take away capacity. The valuation between oil and gas stocks between Canada and US is narrowing. The first quarter of this year is the best quarter in 11 years for his fund. The gas picture is all due to weather. We ate away a ton of storage. The storage situation in Alberta is at a critical level. Demand for Canadian gas is very, very high, but the availability is very low. Thinks Gateway will not get approved. We have the first Canadian company shipping out of the Gulf of Mexico.

Markets. TSX is outperforming and he sees this continuing for the rest of the year. There has been an underperformance since 2012 against world markets, but more specifically against the S&P 500. When you look at what is going on this year, it seems to be turning around. It is up about 6% compared to a mostly flat US market. Also, if you look at the international markets, it is the same sort of thing as the US, really lagging behind the Canadian market. This is mostly a resource led game. The XEG index is up about 15% so far this year and the same thing with the gold XGD. These are the 2 leaders and together they make up about 45% of the markets.

Markets. We’ve had almost a 5-year rally since the bottom. About 2 months ago he started trimming positions and raising his cash levels from fully invested to about 15%-20% in cash, looking for a correction. However, there is a real resistance recently to the market trying to go down. When it went down, the NASDAQ went down but the S&P and Dow didn’t follow. Comparing it to the 1987 market, everybody thought the 1987 market was exhausted and would roll over. It went sideways for 6 months and then took off on the upside. We are in a long-term secular bull market that will last decades, not months. Corrections give you opportunities to Buy.

Do oil stocks still have legs? The good news in energy is pretty well here with $104 in the oil and about $4.50 in natural gas. He would probably make a switch towards more natural gas. He has reduced his energy component in the last little while. Owns Crescent Point (CPG-T) for the yield.

Markets. Looking at the overall markets in the US and Canada, they are trading at about 15 or 16 times this year’s EPS, which is slightly above the historical average of 14+ so they’re not expensive and he is finding them reasonably valued. What is interesting is that there are some sectors that are clearly overvalued. The US tech sector is one example. He is a bottom up investor and likes markets like this because it really appeals to stock pickers.

Markets. It is very difficult to predict the path the market will take. She is a bottom up analyst. You hope the companies come out and execute quickly and that the market recognizes it. You want to be focused and there are a lot of aspects of the market that you want to avoid. She is still able to find 25 stocks that are attractive in this environment. Focuses on strong management teams and how they invest capital on behalf of shareholders. Most gains in the market are multiple driven. She looks for companies that are going through a tough time and you don’t want to own them.

Markets. Sentimental indicators have been flashing caution, plus volatility has been picking up. Started selling a couple of weeks ago and raising cash. The Volatility Index over the last 1-1.5 years has been hanging out around the mid-to low teens. A higher volatility level would be in the 35-40 and we haven’t seen that in a while, so he thinks we are kind of due. We are starting to see some return of volatility now and expect it will pick up over the summer, which is perfectly natural and normal. In spite of this, he is bullish on the market and comparing this year to 2011, there is a similar background where you had a low volatility period for about the 12 months preceding the April high of 2011. To play the volatility you always raise some cash, and you can always focus your portfolio on forward beta positions i.e. lower volatility positions.