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

Markets. There is a lot of market chatter about the market backing off on tapering. They are saying if the pace does not continue in the labour market then they will not be as aggressive on tapering. Feb 27 is the drop dead date for the debt ceiling. Doubts they will shut down the government. Thinks the markets will grind higher and last week the markets corrected so there is a leg upward to come. If you lost your job right now at 50+ and looked around for a year and found nothing then you would likely retire. It is a demographic change that policy can’t control. People are choosing to retire early if they have the means.

VIX. ETFs track the VIX futures and have a forward price premium in them. The ones with leverage in them cannot be used for a long time because of rebalancing. Nothing really tracks the spot VIX very well.

Oil. Short term, anything goes for oil. There could be a pipeline issue somewhere. There could be a short term supply issue or some money flowing into a hedge. It will probably trade in this range for the next 5 years. You want to add money at the bottom and take it out at the top. When pipelines are built, Canadian energy stocks should take off. There is no immediate catalyst to change the range bound nature of oil.

Educational Segment. Dow in 1929 and Today. Chart showing that crashes have a similar pattern. 29 vs. 87. The difference is that the 87 crash was actually the low. Current vs. 29 shows we have one more leg up before a crash. A lot of people are concerned about this right now. The fact is that we don’t know if history will repeat itself. He then showed a chart of percentages and showed we are nowhere near the extremes of 1929. If you believe a crash will happen then take money off the table every time the market goes up a couple more percent. Then put the money into long bonds. The sleep-at-night factor. How much do you take off the table? He is focusing on this on his speaking tour. Don’t lose sleep but learn how to navigate your portfolio.

Markets. Markets are taking a bit of a breather. 2013 was great. Now some of the economic data is soft and the weather plays a factor. It is realistic that buying and building go on a pause. Quality of earnings this year is really going to matter. Now it is about margins and cash flow. Industrials in the US are the best bet for 2014. Incremental margins are going to be quite high. Banks are repairing themselves. The challenge in a balanced fund is having the right mix of growth and bonds. He has mostly high yield bonds and he is overweight equities vs. bonds.

Dupont Performance Coatings 7-3/8, 2021 Bond. (Top Pick Feb 04’13, Up 13.70%) Dupont spun out their coatings or paint business. Dupont Performance Coatings was bought and the bond was re-named. He use to own the high yield bonds but now has sold.

Economy. He is bullish on the markets. We are getting a global scenario where it is coming together again. US is doing fine, Europe has seen the bottom, Japan is getting better. Although people are worried about emerging economies, there is still long-term growth there. Interest rates are going to stay low. Corporate profits are at record levels.

Markets. Constructive on US and Canadian stocks which got off to a little bit of a rough start and data was a little bit weaker than what would have been expected. The weather had an impact. Feels US economy is well on the road to recovery. Looking through 2013, the housing recovery seems to be well underway. Consumers’ confidence is still up. Hiring is not fantastic, but is not terrible either and is moving in the right direction. Looking for a reasonable growth of the US of about 3%-3.5% and this will trickle over into stronger growth in the Canadian economy.

Markets. Thinks that the pullback is now over. You have the Fed tapering, a hard landing in China and some emerging-market issues, but if you look at the emerging markets they had a big swoon in the summertime and this dip is not that big a deal. If you look at earnings reports of S&P 500 companies, 55% have beat expectations. He is going to blame the slow down in US numbers on the weather. Dow is up 90% in the past 5 years and since then we’ve had 18 corrections of 5% or more. It’s just a correction. The whole idea is to Buy low and Sell high. A lot of stocks have come down to 200 day moving averages, have bounced higher in the last couple of days and this is a great buying opportunity.

Markets. There is no secret formula for his 44% returns. He spent years reviewing strategies. If you want to succeed you need to have one style and stick with it, but have a few different tools in your tool kits. 28-28-28. Markets came off a bit in the last few weeks. There have been 28 declines of 10% or more since the late 1950s. We are in month 28 since the last major decline. He is positioned for markets going up and also for markets going down to the same extent. 83% of the time the S&P goes up after a good year for that index, so it may not go down this year.

Markets. This year, everybody was waiting for a correction. When emerging markets started showing a few cracks, we finally found our culprit and started blaming emerging markets. Very orderly selloff. Almost every large, blue chip US company was down, almost in unison of about 50% from their recent highs. It was too orderly to get him worried that it was a macro or an Asian contagion. There are some good things going on out there. He is definitely feeling there is a lot more room to run in this economy. Valuations have come back down to around 15X forward earnings. Gets a little bit worried about what is coming out of China. Growth is still great. You wonder how much they have stockpiled. Canadian investors really have to keep an eye on this. He is heavily underweight in resource stocks. Sitting somewhere around 6%-7% energy, which is vastly underweight the market. Feels the US economy is going to run at a less than optimal level, but we don’t have to worry too much about the market. He is worried about the US market and is particularly worried about the Chinese market and the growth rates of those economies. But we seem to be getting through this.

Shorting Natural Gas. Natural gas has had a great run in exactly 2 months. He just recently reduced his natural gas weightings by about 35%. However, he is not sure he would be interested in going Short. The good news is that one year ago, natural gas storage was about 25% below where it was and 17% below where it was 5 years ago. The issue is that the drawdown is going to give us some support on the way down. This means some of the gas weighted names are going to be good.

Markets. Every single time the market has pulled back, since the beginning of the S&P 500, it has gone higher. Focus on what matters. “Income”. Do we hear any company saying they are going to cut their dividends now that the Turkish lira has gone down in value? No. These things happen. As an investor, you have to use 2^nd level thinking i.e. you can now Buy stocks that you have always wanted but at a cheaper price or a company can now buy back even more stock at a cheaper price. Earnings season is a great time to look at stocks that you may have missed. Ignore the noise because none of this matters in the fullness of time.

Markets. This market pullback is needed, healthy and welcomed by him. Had been expecting it, but it just took longer to get here. People had put off selling for capital gains. Also, there had not been a 10% or more correction in over 2 years. We still haven’t had a 10% correction and he thinks that is needed. He couldn’t find stocks to buy because valuations have gotten ahead of fundamentals. Not looking in North America but looking at some of the emerging markets, especially in Asia.

Coal. There are 2 different types of coal. Thermal coal is used in utilities for electricity and metallurgical coal is used to make steel. He is invested in the metallurgical side. Natural gas would have to go up a whole lot more in order to make coal more attractive as an investment. (See Top Picks.)