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

Cdn$ in relation to the Québec elections next week? If you think the PQ is going to win, then you should short the loonie. If you think they are going to lose and that there will be a Liberal majority, that will probably be good for the loonie.

Markets. Feels we are in the midst of a bull market. Had been expecting a pullback and we got one in January to early February. However, the market quickly recovered and now with the quarter end, the TSX is up 6% and the US market is up just under 2%. She has money on the sidelines waiting for a pullback. Thinks that profit growth is going to be the primary driver this year. Right now, consensus expectations is that corporate profits will grow in the 10% range. As long as the economies are recovering and manufacturing is relatively healthy, that is positive for earnings and the market slowly climbs higher.

China. History says that they can usually execute on what they are targeting and they are targeting 7.5% GDP growth. Over the long-term, she feels their GDP growth will slow because their economy is getting bigger. They want to focus on increasing the percentage of their population in urbanized centers. Right now it is just below 54% and their target is to get it up to 60% by 2020. Manufacturing numbers that came out today were soft.

Markets. High frequency traders getting advantages. He thinks the markets still work and are not rigged. It is mostly high frequency traders trading with other high frequency traders. The bid/offer spread is narrow because of these high frequency traders, who add liquidity into the market. If the liquidity goes away, the market goes to ‘no bid’. You have to understand the market and deal with it. Maybe high frequency traders will come out with their own retail business in the future.

Educational Segment. The Downside on Oil Prices. Deferred futures contracts have been trading down for quite some time. End of 2022, we are at $77 a barrel. This is fully priced into the market. The US is considering trying to hurt Russia in terms of oil prices by releasing reserves to add supply to the market. Looking at a chart of oil futures, the front month contract has been pretty steady, but the 5 year out contract has been dropping. Yet spreads between WCS and WTI prices have narrowed. Canada needs to get moving on east west pipelines.

Markets. Markets are directionless right now. Very good stocks are getting shaved because people are noticing a big win. There will be some rotational rallies, surprise ones.

Markets. Fed has indicated that rates are expected to go up in 6 months. Market has been very volatile and the yield curve is starting to flatten a little bit, which concerns some of the growth names, which is why they corrected. We are also between earnings seasons. Also, the Russian situation is going on. As usual, when people are very nervous in the market, they don’t take advantage of the fear and don’t pick up the names they have been watching for a long time. He is sitting a little bit higher than normal on cash. Last quarter was really nothing to talk about. The biggest surprise was that the long bonds were up 7%-8%. In the short term, anything can happen, but you have to really have an articulated, solid group of companies in your portfolio.

REITs? He has favourite ones. In the big names he likes H&R (HR.UN-T) and RioCan (REI.UN-T) because of their size and the weight they throw around in the business. Very well managed. Also, owns Allied Property (AP.UN-T), basically brick and beam with the majority of properties owned in the GTA. Retrocom (RMM.UN-T) which is a pretty healthy 9% yield. Had owned Artis REIT (AX.UN-T) in a big way, but was a little bit worried about office space out West so peeled that back a little. Also, owns CAP REIT (CAR.UN-T), the largest landlord in Canada.

Markets. Feels that a lot of people still have incredibly heavy bond portfolios and are still defensive, because everybody remembers what happened in 2008. Because of this, they missed a pretty good market last year. Thinks this good market will continue. You have this taper and eventually we will have higher rates, perhaps earlier than the market has anticipated. It may not be phenomenal for the stock market, but it is a lot worse for the bond market. On a relative basis, she thinks that people will still have to look at owning part of the equities, as opposed to being in fixed income, which really has no upside. Over the next 2-3 weeks, she would like to see some basing.

Markets. More comfortable with US and Canadian stocks. Companies here are more comfortable spending over the next 3 to 4 years. Dividend payers are appreciating more than non-dividend payers. REITs are an asset class, apart from traditional equities. Steady income year in and year out. He thinks we are in a lower and for longer time interest rate cycle. In an increasing rate environment you can increase rents and occupancy without paying raising interest rates.

Markets. He is finding lots of good ideas and lots of opportunities. Wishes he had more cash. He really doesn’t look at the market; he looks at individual companies and tries to pay less than what they are worth. Market is not as cheap as it was, but you can make data fit it any way you want. At the end of the day, he is a capital allocator and he has to take his clients’ money and either put it in cash, fixed income or stocks. Cash and fixed income are not attractive to him. If a client came in with $1 million to be invested, he would probably put 30% into the US and 70% into Canadian stocks.

Markets. We are just in the early innings of a US$ bull. There have been 2 bull markets in the US$, one in the Reagan administration and one in the Clinton administration. The one in the Reagan’s administration almost doubled against a basket of securities. The Clinton administration’s only went up about 40%-50%. He sees a bull market coming that is more along the lines of the Reagan’s administration. Energy independence will be a huge topic. Thinks the US is going to get their act in gear after 10 years of misadventure abroad and foreign-policy. They will economically lead the world again. He has a skew towards larger cap stocks. The top 100 in the S&P 500 are undervalued. Following the 1990-1991 recession, we saw money flows over the world coming into the S&P 500. There was a large cap rally from about 1992-1993 to about 1999.

Model Prices. For Brian’s model prices go to Google and type in “model price guy” and you’ll get his blog. His Facebook has 2000 companies listed where he gives his model price calculation (Fair Market Value) along with parallel lines which are called EBV (Economic Book Value) lines. These come straight from the balance sheet. Whenever there is a positive transit of these lines, it means the fundamentals are improving. A negative transit means fundamentals are getting negative. Usually the market responds before the fundamentals are known to the analysts or to the Street.

Markets. Very comfortable that stocks are going to go up over the next little while. There is always going to be a pullback or something like that and his view is that you should look to buy those things over the next little while. Doesn’t see interest rates going up dramatically. You had margins get to peak levels which people were worried about, but you also had P multiples expand. In order for stocks to go higher, you need to see more revenue growth. He thinks you will because there will be more capital expenditure down the road as people feel a lot more secure about where the economy is going, not only in the US, but in Europe as well. That will lead to some capital expenditure. Most of these companies, because of what happened in 2007-2009 have very good cost structures so he expects to see very reasonable margins go higher as you see capital expenditures and some top line revenue growth.

Gold. Reached a Golden Cross technically in the last few days. These can be short-lived, but hopefully this will stay around for a while and mean that the next phase will be the new bull market. He is very encouraged by it. Starting to see interest from the US, the generalists seem to be coming back and we are seeing interest out of Asia. He sees 2 things at work. 1.) Money printing. They may increase quantitative easing, but right now they are decreasing it, but printing is going to go on for the foreseeable future as we run these big budget deficits. 2.) Believes the Chinese are going to continue to buy gold. They have been taking physical delivery of gold in record amounts.