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

Markets. The new Federal Reserve chairman is significant to the markets. With Summers stepping back the markets are liking it. Larry likes the new favourite. But we are up against the August highs in US markets. We may get news on tapering this Wednesday and the market may not like it, so it could pull back. He is positive on markets, although not on the US economy, as long as the fed keeps up stimulus. With Syrian tensions easing in the last couple of weeks we could see some premium coming out of the crude markets. If we close below $102 then the breakout has failed and we will come back to the old trading range of $88 to $95 in the later part of the year.

Markets. It is the end of Summers’ rally J He is quite bullish on the markets so is on the long side. In Europe manufacturing activity is picking up. Economies are stabilizing quite quickly. Europe could be a very interesting place to invest going forward. Likes N.A companies with exposure to EU as well as Chinese companies. Retail spending within China is really pretty good.

Correction in September? Generally not a great time for the markets so not surprised people are talking correction. He does not sit and wait for it. Macro economics have a lot of positives that makes him think the rally can continue. Is seeing a recovery in Europe. The data is stabilizing. There is still an impetuous to stimulate economies around the world by governments.

REITs and their future growth prospects. Highly yield sensitive securities. As interest rates move up these stocks drop. But his outlook is for yield to stabilize here. An interesting time to take a look at those that don’t have big capital requirements. REI.UN-T is the benchmark in the industry and should perform well. Focus on high quality names that don’t need a lot of capital.

Markets. We are in the latter innings of this bull market in all likelihood. The S&P 500, rather than the TSX, is up over 20% over the last year, but this is more related to monetary policy, rather than growth in profits or growth in the economy. Markets should realign with fundamentals over the next year. The odds favour the Fed tapering by cutting back to 75 billion a month. That seems to be the majority of economists’ forecasts. He is concentrated in the dividend paying/growing areas which has been very choppy over the last few months. Feels that investors should be into some of the stocks that have been underperforming in the last while. For example, telcos have had very significant cutbacks.

Do you buy/sell according to market conditions or do you buy a reasonable company and hang on? He looks at stocks on 1) a 3-5 year view on their earnings per share growth or cash flow as well as 2) their potential for increasing dividends. Those companies that have strong, predictable growth and overall returns, in the low double digits area, tend to be his core holdings. Also, in a one-year timeframe, does a Buy, Sell forecast on a price, he would buy or sell. This leads him to buy new holdings or trim existing ones.

Canadian banks. What he particularly likes about these is that the PE multiple has compressed by about 1.5 points over the last 10 year average. Stocks are not expensive. There has been a lot of fear about a slowdown in the Canadian economy, although it hasn’t really impacted the domestic earnings of the Canadian banks yet. He sees 5%-10% earnings growth over the next 3-5 years and dividends should grow in line.

Gold. One of the things that he tracks very closely on a weekly basis is the total gold holdings in ETFs. They were run off very sharply in the April to June period. Physical demand for bullion is very strong. If the selling from investment sources diminishes, he thinks gold will stabilize in this area at $1300. Longer-term he thinks it can go quite a bit higher.

Resources. Feels there is a sense of calm in this space so she is sensing that we have hit the bottom in industrial metals in June/July. US has been performing very well and China and Europe also have been turning around. With this, she thinks demand is going to stay quite healthy, although you are going to have lots of supply coming on within copper and nickel space. We are at a point where we have lower volatility in this space and can start picking away at good stocks. Stocks are now so cheap that the pendulum has swung too far the other way.

Copper. In the short term, this year and next, there are supplies coming on. Copper has been depleting for a long time and it will be difficult for additional supplies to come on strongly. With stronger demand, we might be running into a deficit situation again, 3-5 years out. Currently trading at $3.20 and if we assume that we have a low copper price of $2.70-$3, a lot of companies are not going to be making money. However, when copper prices start to peek at about $3, copper levered companies can start generating cash flow. When we start seeing healthier copper prices, looking back it will seem current copper prices are very cheap.

Oil/Natural gas. Although China is slowing, you are still looking at a very strong power and energy demand. Longer-term, she feels oil has a chance to break out to $105 levels. That might put somewhat of a damper on economic fronts and she thinks we may have a longer way before getting to that point, maybe 2 years or so.

Gold. Expects it to go lower before going higher. Faces a few challenges, including a rising rate environment and Fed tapering. Consumer consumption as well as investment in the 2^nd quarter of this year dropped about 12% as compared to 3% last year. Investment demand actually dropped 50% with consumer demand increasing about 60%. In the next few quarters, if you have less consumers coming into the market, she feels there will be a larger shortfall on the demand side. Because of this, she is very cautious on gold. We still don’t know where central banks interests are in terms of buying gold. She is very cautious on gold.

Markets. We are 5.5 years on from the bottom of the bear market of 2009 and are at all-time highs. Earnings, especially in the US, have not been that spectacular. We are at the top of the valuation range although there are still some sectors that look reasonable. Cyclicals are still a good place to put some money because they have been the big laggards because of worries about China. Commodity prices have all been relatively weak with the exception of oil because of what is happening in the Middle East. If, as it appears, we now have growth accelerating in North America, Japan, UK, and even continental Europe and China (stating that they think they have slowed it down enough), maybe this will start feeding into the cyclicals.

Royal Mail IPO? He has registered his interest for this because it is a government IPO and whenever the Queen of England is selling something, you should be buying because they price it to go. 10% of the issue is given free to the postal workers, to make sure they won’t strike. They are basically profitable.

Be a half to a third in Canada. Favours energy over materials and fundamentals are better in oil over metals. LNG long term is attractive.