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

Market. Looking at his “S&P 500 Price to Book” chart, it shows that the S&P 500 has gotten back up over the 2X Book Value and is trading once again between 2 and 2.5 times Book, where it traded for nearly all of the early 2000’s. For those people who think the market is really expensive, it has been here before and has actually been a lot higher. The question is, are the earnings going to come through. Looking at the 1^st lot of the S&P results, there is a really interesting phenomenon. Earnings are coming through at about a 10% growth rate, but the growth in sales is about 1%. This means companies are earning money, but not generating activity. This indicates it is not going to be the fast recovery that the Fed would have us like to believe. The market is just in a comfortable place. If we saw the market dropping 8%-10%, there would be something like a 3 alarm fire at the Fed and we would see a renewal of aggressive quantitative easing.

Uranium. His opinion on nuclear reactors is that they are things we have to have. We can’t have a planet that is being polluted by coal and we can’t keep burning up natural gas, etc. In the long-term, nuclear reactors are really important. The problem is, the fears overhang the whole industry.

Banks. When you are looking at the banks, you always try to buy the laggard because banks tend to move together. If you wait a while and let some banks go and then you buy the laggards, usually you will get a catch up, and you’ll probably beat the average bank stock. He has been using the strategy for decades and it is just amazing how it works.

Markets. Likes the structural reforms that are going on in Europe, including labour issues which will bring costs down, and hopefully will expand margins in European blue-chip stock companies. This would be following the footsteps of the US of 3-4 years ago. The emerging markets are what is currently giving the market a little bit of nervousness. Essentially what is happening in China and some of the other emerging markets is currency and the growth coming out is what could crack the growth globally over the next 18 months.

Natural gas. Because this market is so landlocked in North American, it is starting to resolve. Over the next year or so, we will start to have some export facilities in the US, being able to export LNG to the global market. If we continue to get drought and dry weather on the West Coast throughout the summer, all of the West Coast utilities will not be able to generate much in the way of Hydro, so they are going to be drawing on natural gas as well as coal all summer to produce electricity for the US. That could be a tailwind for natural gas throughout the summer at a time where there is not a lot of gas in storage. We have the least amount of natural gas in storage in a decade. It may stay at $4.50 all year and trend towards $5 by the end of the year, but in his opinion, we are not going to see gas move back to $3-$3.50.

Oil. WTI to Brent (the world price) is still approximately $10 difference. This has come down over the last 6 months or so. Canadian producers on the light side are getting a pretty comparable price to US WTI and some of that is the effect of our currency. Heavy oil producers, Western Canadian select, would be getting about a $16-$20 differential to our light oil, however that blew out as wide as $30-$40 last year, so it is much tighter than it was last year. This is why you are seeing some money flow into the heavy oil producers in Canada. A lot of the refineries in the US are changing over to take more heavy crude, which is a benefit to Canadian producers.

Energy seasonality. There are 2 seasonality factors in the Canadian energy patch. #1 the general stock market will dictate how equities perform. The general market seems to use the “sell in May and go away” but typically some years it starts a little bit earlier. Who knows? Usually in March, April and May there is some sloppiness with increased volatility. On the oil/gas side of things in Canada, we have spring break up in a lot of Alberta in a lot of the producing regions, where the ground is thawing and they don’t like to move the drilling rigs through softer ground for environmental reasons. There is essentially a month or so where activity slows down. This often leads to less news releases out of companies and a bit of a lull. You are probably getting a good entry point over the next month or so where there is a bit of weakness. The tailwinds on energy stocks this year will be a lower Cdn$.

Markets. There are certain sectors where the time for seasonality is pushed back a little bit, probably 2-3 weeks. That means you can focus on those sectors as they become available. One example is First Trust NASDAQ Global ETF (CARZ-Q). It is the time of year when people are buying new cars and car stocks go higher. The best time to Sell in the springtime, on average, is the 1^st week in May. That can vary. In a US midterm election year, it tends to be little bit earlier, around the 3^rd week in April. Political rhetoric can cause a lot of uncertainty, which causes stock prices to come down, from the middle of April right through until the beginning of October. The great thing is that the bottom of the 4-year cycle occurs in the 1^st week of October and after that, markets got significantly higher.

Markets. An interesting market. The market we have today is kind of caught between 2 conundrums. 1.) What does tomorrow look like for the US market given how well we’ve done in 2013 and 2,) what do we do with these resources, basic material stocks in the Canadian market that have done so poorly over the last 2.5 years and will they recover. Banks have done well, have good dividends and moderate growth. Also, likes pipeline companies and the possible growth potential behind the pipelines. He can see 5%-7% dividend growth 3 to 7 years down the road.

Uranium. With the Japanese announcements of rethinking their views on shutting down nuclear reactors, he feels sentiment is going to swing back in favour of uranium. However, positive sentiment does not necessarily mean that uranium stocks are going to be racing back to the moon. We still have abundant mining capacity so the question is, what is going to be able to make money on a consistent basis over that long period of time.

Markets. Canadian market is outperforming the US and other markets. Not only are prices higher, but volume is up, financing is something like 4X what they were last year. This is partly due to last year’s underperformance but also the makeup of our market. Late cycle energy, gold has had a bit of a rebound and, as well, he is hearing that US investors are buying Canadian banks and Canadian energy stocks. Thinks the market can keep going.

Gas. A little more optimistic on the longer-term outlook for oil than he is for natural gas. Gas has benefited from the weather which has been remarkably cold, and as a result we have burned much more gas this year than we did last year, which has led to very low storage levels. US is going to be about 850-900 billion cubic feet deficit. Alberta storage is at the lowest since 2004, which is creating a lot of short-term price strength for natural gas. His concern in the near-term is at we are now entering a period where the peak demand for natural gas calms because we don’t have to heat our homes as much. At that point, we can now revert to more coal fuelled power generation and right now, because gas has been so strong and the price of coal has been so weak, he feels we could see some very material switching that the market is not appreciating. Looking out to the fall, we’ll probably see another strengthening of natural gas but a little cautious over the next 3-4 months.

Oil. Price of oil has been high and will remain high. For the first time in quite a while, we are now seeing a repatriation of funds out of the US into Canada. Especially if you consider the impact of a depreciating loonie, the price of oil in Canada now sells for more than it does in the US. Yet over the past 2 years, Canadian oil companies have greatly lagged its US peers. We are starting to see a catch-up occur and this is what excites him the most. Prefers the producers over the services.

His model is to hold around 20 stocks, unless they go to cash. 1/2 the stocks are 3 to 6 months holds, the other half is things like Microsoft which are longer term trades.

Watching people of the false sentiment indicators (dumb money indicators) is trying to see what the retail investor is thinking. Try to measure the extreme levels of bullish and bearish. Want to do the opposite of the retail investor. However, currently there is a low level of bearishness and a high level of neutrality in the market. It could be a leading indicator of a month or two down the road of a correction... a sign of caution in his mind.

A good website is sentimate trader.com

If there is a sell off this summer (and he thinks it will), then the year will end very strong.