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

Why the drop in so many energy related stocks? All of these types of stocks are down on the interest rate related play and has nothing to do with operations. What you have to look for is a combination of growth and yield because you want to be able to grow through the fact that maybe yields have to be higher when rates are higher. TransCanada Pipeline (TRP-T) looks like it has pretty good growth and Enbridge (ENB-T) has 8%-10% earnings growth over the next 7-8 years.

Markets. Earnings growth has not been particularly impressive. You can call this a Bernanke rally. If earnings are not driving the market higher, then it is the ultra low interest rate environment that creates people to take more risks. We have had 5 years of pretty much up markets and getting close to what he feels is a top. Time to take a breath and reallocate your capital, relative to 5 years ago when it was easy. Geographically he is seeing a little bit of growth in the US, nothing in Europe so far and China is slowing down. Although emerging markets are growing at a little faster clip than North America, as interest rates grew in June, a lot of money came out of emerging markets in stocks, bonds and currency. It is now coming down to being a stock pickers market. He is still in the market with 5%-10% cash. He is just looking for the cash flow growth of dividends so he has some downside protection in the event of a correction in 2014. Don’t forget that the 2^nd year of the presidential cycle usually tends to be negative.

Non-resident tax on dividends through the New York Stock Exchange? This is where strategizing has to come into play. For non-Canadian companies, there will be withholding tax, depending on country. It can range all the way from 15% in the US to 30% in Italy. Those accounts should be in taxable accounts because then you can claim back the withholding tax. On US dividends in RRSP’s there is no withholding tax. Something to think about is to never let the tax tail wag the investment dog. To invest just in Canada and Canadian dividend paying stocks, is fine but you are not going to get the diversification.

Markets. Market environment looks really good and he is excited about it. Things are going to go quite a bit higher, especially in the US. Thinks the S&P will finish at about 1,950 next year. Multiple growth has driven it this far, but earnings growth driven by capital expenditure will be the future driver. Company earnings as a percentage of GDP have never been higher in the last 65 years than they are today. There is lots of money and eventually that is going to find its way into capital expenditure, which will drive organic growth and hence earnings. This is a cycle where companies are saying we have cash and we have to upgrade our IT systems. This is good for technology and good for manufacturing. Ultimately, when you have these high cash balances, eventually they have to be deployed.

Gold. He is fairly bearish on gold as a commodity. If gold is not going to work for you why do you need to be in this space? The 12 year run has been fantastic, but it has been over for a year or two and he thinks it will continue to slide. It is no longer considered a safe haven.

Markets. GDP number came out and was a little bit higher than expected. Doesn’t think the US Federal Reserve will start pulling back on its bond buying program sooner. The stimulus of the Federal Reserve and all the central banks globally really stabilize the economies and now you are going to see growth from that stimulus. US economy is growing nicely. Not huge inflation. Maybe growing at 2.5%-3%. Europe is starting to turn around a little. New Fed governor is not going to make any changes coming in.

Market. Cash and gold have really not done the job for a lot of people. That is principally where the hedge funds and a lot of the naysayers are putting a lot of their money and it just hasn’t been working. Expects cash will find its way into the market now. We are due for a correction, but we are currently in an emotionally driven market at the moment. Any kind of correction will happen stock by stock, but not on a broad basis. We are in a bit of a greed market that is starting to come out. US investor has been in a bunker for 12-13 years with no returns. It is finally getting interesting again.

Alibaba.com IPO. Does it matter what price it comes out at and at how well it does on the IPO? Thinks this one will be very good. Social media and Internet stocks tend to have more following in the US, China and Japan than they do anywhere else globally.

Invest in US or Canada? In the last few months, the TSX has been doing a lot of catch-up but remember, the TSX has only 3 areas, energy, financials and the rest of the commodity complex. He sees a very big positive momentum that is occurring globally with people being interested in the equity markets again. The 1^st place people are going to go to on a global basis is the US and it will be led to large caps. As far as Canada goes, he feels banks still have pretty good run here. 70% of Canada’s business is an indication of what is going on in China and the globe and we are seeing positive indicators from both of those areas. Purchasing Managers Index globally show about 70% of the countries with readings of 52-53, which is very positive. This means economic activity is picking up. He is about 50/50 on US and Canada investments.

Markets. Behaving remarkably well. Could be a pullback at any time but we have come through the 3 seasonal weakest months of the year with all kinds of news headlines and all the market could do was to muster a 4% pullback. Both institutional and private investors are underweight equities. There is healthy skepticism in the market and earnings beat by about 5% on the quarter which is pretty strong. We have very low growth and slow growth recovery, which means interest rates stay lower a lot longer than people expect. In that world dividend growth continues to work well. Because the great rotation of cash from bonds into the equity market has now begun, although we could see a correctional of no more than 3%-5%, it is the institutional money that will push us forward. Talking big picture, he prefers developed markets over developing markets such as US, Germany and to some extent, Japan. Canada will be lumped in with developing markets. Commodity prices continue to be sloppy.

Views on tech stocks that are trading post to 100X 2014 earnings. On the social media companies there is no question that there is some froth. However, you have to keep in mind that many of these companies are beating by a wide margin, both on revenues and on earnings. You are not buying these for the valuation that they are today, you are buying them for what is coming. As long as the trajectory of growth is strong, there are opportunities. There is a very good ETF 1^st TrDJ Internet (FDN-N) which are web-based companies. You could also buy the Global X Social Media (SOCL-N). Both of these give you a little bit less company risks. Another attractive one is PowerShare Dynamic Media (PBS-N).

Markets. Optimistic about the US economy and market. It will continue to recover driven by improving employment and housing. Valuations are around long term averages. People need to focus on specific situations and companies. He has a little more cash in his fund. Finding Canadian opportunities as it has lagged the US market. He has a neutral outlook on the Canadian economy. He still finds pockets of value outside of the resource sector.

Markets. Still very much a bull market but is seeing it being a little tired. There is going to be some rotation as some of the old leaders start to take a step back and, some of the new leaders emerge into new up trends. S&P/TSX Small Caps (XCS-T) chart shows a downtrend from the beginning of the year, which has now been decidedly broken. A relative strength index (RSI) would show that they have just started to outperform the TSX a few months ago. You are now seeing an outperformance so this is a newly emerging sector. On the US side, they have been outperforming for the past 12-18 months. Normally in the summer, the staples (XLP-N) tend to do better than high torque stocks like discretionary and technology. The opposite happened this summer, they went flat. Have just broken out so this is another emerging sector, which he thinks will be a new leader. Health care stocks (XHC-N) had a relatively flat summer where normally, these are the stocks that tend to do well over the summer. Sectors that normally start to roll over at this time of year are now starting to emerge. IBM (IBM-N) was an upper leader from 2011, one of the leading stocks, but broke support and is now in a downtrend.

Do you see, Oct 27 being the star of seasonal strength this year? What sectors are the strongest and weakest? From the end of October the markets, generally speaking, tend to do well as a whole but are led by the higher beta type sectors such as technology and consumer discretionary. Some of the lower beta, such as utilities, staples, health care are actually starting to pop right now also, which is really bizarre. He is going to go with the trend.

Markets. Blackberry. The bigger question is if the company is going to survive. Everyone is going to have a smart phone. There is nothing wrong with the products but sentiment is terrible. It probably takes a while to transition and the question is if they have enough cash to take them past it. They probably don’t. Most of the bad news is discounted. Let the dust settle for a number of days. Maybe take a longer term speculative position in BB with the idea that they do a turnaround. Discounts of Canadian oil have moved out to low 30s in the last couple of months but has now widened and he things it will be an issue for the next couple of years. Twitter is upping the price on their IPO. They are not expected to turn a profit for the next couple of years. It is getting a little speculative.