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

Markets. They’ve been very strong, particularly south of the border and thinks we are looking at the best in 2 years in the US. Economic forecasters are calling for 3%+ probably backend loaded into the 2^nd half of the year in US growth. That translates into 7.5%-8% historical earnings growth and when you put in share buybacks, you are looking at the better part of 9%-10% earnings growth. Also, correlations between stocks and even within markets, is falling so the value of advice and the value of stock picking goes up in that kind of framework. There will be much more differentiation between winners and losers. He is still focusing on cyclicals. While, the defensives (pipelines, REITs, utilities, etc.) have done quite well in the last few weeks, the longer-term play will be in financials, industrials and technology. Towards the back half of the year, he’ll probably start looking at materials and energy.

Markets. It only took 3 or 4 days for the market to retrace 75% of the 5.8% pullback on the S&P. Difficult to time those types of things, but it is certainly a time to buy into that weakness. Emerging markets was really an excuse for the markets to sell off a bit at that point. Also, poor weather made some of the economic data a little bit weaker. Views Q4 in 2013 as the inflection point whereby the European economy is switching from a recession into an expansion. Typically, the best time to get into a market is 6 months before the turnaround. Compared to Canada, the US is fairly valued and is no longer cheap, but it is not expensive either. Thinks this year is going to be an environment whereby it is going to be more about micro or fundamentals rather than looking at the macro picture. He still would like to allocate more towards the US and Europe versus Canada.

Gold. He sees gold breaking out of the 200 day average, but is not sure this is extremely sustainable. We had a really oversold environment in gold and gold stocks last year, but with the US dollar moving up and inflation nowhere to be found, he is not sure that this is going to continue for a long period of time.

What US healthcare ETF would you recommend? Healthcare side has done very well and that is more typically a defensive play. Had some great returns last year. On a “go forward” basis in this area, he would probably be looking more at the growthier sides of healthcare; biotechs rather than pharmas. A biotech ETF that he would consider would be iShares NASDAQ Biotech (IBB-Q).

What ETF would you recommend for a young investor with a long time horizon who only wants about a quarter of their portfolio in bonds? In the equity space, he would probably look into diversifying European ETFs, US ETFs and maybe a bit of Canadian ETFs but he would overweight the US and European side. Likes SPDR Euro STOXX 50 (FEZ-N) on the European side. For the US, you can choose from so many.

Oil/Gas. A lot of companies are shifting to a dividend paying model because of a bunch of negative things that have happened. There was a change in Income Trust rules back in 2006 followed by the new Royalty framework in Alberta in 2007. Also a bunch of things happened in 2008 that scared investors. Feels that people are now saying “show me the cash; I don’t want to talk about growth”. Part of this would be demographics with baby boomers wanting to fund their retirement. As these dividend paying entities churn through their inventory of development to sustain their distribution, they’ll start to look elsewhere to add project inventory. This probably drags into some of the smaller companies that eventually become takeover targets. There is a possibility we could get into a bit of an M&A frenzy as dividend payers need to augment the sustainability of their production and therefore cash flow. We’re not there yet, but it is around the corner.

Pipelines. This issue is not going away quickly. Keystone XL has the southern leg built and who knows on the northern leg? Also, other projects inside of Canada such as the Eastern project that is going to drive crude oil East. These issues are not going to be resolved quickly. In the meantime, the producers have responded with CBRs (crude by rail) to get their product to market. This doesn’t work in all cases. Sometimes crude can be very volatile, some of the lighter blends in particular, but for heavy oil producers, the volatility is not there. Thinks crude by rail will be a big benefit to industry, without the pipelines even being built.

Gas. A pretty safe bet that gas prices will behave differently this summer than they did last summer. This is because of the spiky nature in what happened in Alberta in this past week with gas prices hitting the stratosphere. Gas storage inventories in the US are going to be at all-time lows. The injection season could prove pretty beneficial to gas producers.

Markets. Markets tend to go down in January and then go up from February through April and then we go into a corrective phase from the middle of April right through until the beginning of October. From the bottom of September into early October, markets reach a four-year cycle of lows and move higher right through until the end of the year.

Oil. Crude oil broke out of the chart today and looks fascinating going forward. Seasonal strength is from now right through until around the 3^rd week of April. Continues after that, but that is the sweet spot. Another reason it is happening has to do with weather. It is really cold this year and as a result people are using oil for heating more but also, as you get past the heating season, you get into the typically rebound in the spring where people are buying refrigerators, cars, etc. This year, there will be a slingshot effect. Economy is still now, but it is going to really recover as we get into springtime. That will drive crude oil prices even higher.

Gold. Completed a reverse head and shoulders pattern earlier this week so it is finally getting into gear. Gold stocks are actually outperforming gold itself. That is a good sign for both. Chart indicates that gold could reach $1350 or so in the next couple of months.

Markets. If you look at the disappointing payroll numbers from non-farm payroll, the household job numbers may be better and some prefer these. We had a record amount of wealth created last year. Markets are reacting favorably to US fed talk. Emerging markets he thinks will not slow down due to tapering. Most of the governors are focused on getting of the QE program. Money from the US may want to come back and that puts a little pressure on the emerging markets. He doesn’t think there are any big events in the emerging markets. He is split equally between Canadian and US markets. Canadian growth projections are lower than US and he thinks they may be a little high at that. He likes Europe a lot where businesses are growing. CGI announced a big contract today in Europe and he thinks you will see more of that. He also likes the consumer discretionary space in the US.

Canadian banks are a popular asset class. Have been great except for ‘08/’09. Banks in the US are levered to underlying economy. BNS is more internationally levered than the others but TD is pretty well exposed, especially in the northern US. He doesn’t own any. Economic growth is not what you think. He has City Group in the US. He has no European banks because of the issues with the banking system.

Markets. Markets rallied after the fed chairwoman Yellin spoke as a reaffirmation that it is steady as she goes. There were no surprises. Reconfirmation that tapering was going to happen but the world is not ending. US economy is growing. The private sector growth is growing, not like gangbusters, but is growing. This helps underpin the equity market. As to bonds, he has always been in the camp that interest rates would probably stay low and that deflation is more of a concern than inflation. Because of this, looking at the bond yield curve, he exited out of emergency lending issues in 08-09 and started normalizing the interest rate curve.

REITs. The whole sector has had a real shift. Less on growth and more on sustainability. The real estate sector, over the last 2 years, has really lowered their payout ratios to a much safer level which is really good for the sector. Wouldn’t be surprised in the next year or 2 to see some distribution increases.