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

Markets. The great rotation out of bonds and into equities – he thinks it doesn’t matter. Markets are up because earnings are going up. The bond market has collapsed but the equity market does not care. He thinks the great rotation will be within the market. Sees rotation into materials, tech, industrials. There could be a pause that refreshes, rather than a correction. Advance/decline line of the S&P is showing a top. But it is not a breakdown. The price trend has not been broken. It's just a bit concerning.

Hindenburg Omen. Has to do with advance/declines. He thinks it is a lot of nonsense. The next crash will probably not happen for another 15 years. Focus on reality.

Markets. The correction is not overdone. Many people have been expecting a correction for many months. They are normal and happen fairly often, at least every couple of years, 10% or better. There has to be a balance of risk and reward in the marketplace. The skittishness is rather healthy because it keeps the market grounded. He is more interested in what the companies do. It gives stock prices a solid floor. There is a danger of being underinvested in this market. There are those on the sidelines that try to time the markets. You need to set the proper asset mix as a foundation for your portfolio.

Markets. Some of the regulations around capital requirements cause banks to hold fewer treasuries. The fed has noticed spreads on prices for bond dealers are widening out a bit. AGG-N represents the bond market. He finds bonds attractive in the short term.

[Caller asked about debt ceiling affecting Dow] Thinks there will be a prime time debate in Sept/Oct. and could contribute to a correction (5-6%). Step into this with DOW below 1600. Consider ZWA-T instead.

What do you hold to protect against US going into default? Varies with each investor. Depends on whether you need income. Maybe use a bear ETF, or put options.

Educational Segment. Chart of global equity index and fixed income index. Stocks were at the top of the channel, during May, 2013. We got some correction but now they bounced back. Stocks are expensive relative to bonds. Looking at the last 4 tops, the corrections were sometimes significant and sometimes not. Keep some powder dry but don’t sell everything, or move all to fixed income.

Markets. Volatility over the next few months. Markets have come to terms with the fact that rates have gone higher. We are a year away from really higher rates so the market is reacting 6 months to a year ahead. More traditional dividend paying names have been devastated. Resource sector is going to suffer and we would rather be elsewhere. You want to be in the US in early cyclicals.

Energy. Warren Buffett buying 500 million shares of Suncor (SU-T) shares last week was a really exciting development for Canadian investors. There has been a fund flow issue for years with US selling because of concerns of Canadian infrastructure issues and the differentials that Canadian oil has been selling at versus the US. Behind the scenes we have had a pretty big improvement on the infrastructure side and also on the currency side with the loonie dropping 4%, which boosted the realized sales price of Canadian producers by 4%. Hopefully, Warren Buffett’s move is the beginning of the shift. We are in a pretty strong seasonal period.

Short selling. When Shorting, do you match it with a Long of roughly equal $ value or do you sometimes match multiple Longs to a Short and vice versa? What is your rationale? He does Short at times but not often. If he places $1 of Short, he has to have $1.50 of cash. Makes it a little cumbersome. He is especially not doing this too much, seeing as how out of favour the sector has been. Always remember, when you are shorting, you have unlimited downside.

Markets. For the last 2 months, she has thought the markets were somewhat overbought so she has some cash on the sidelines to take advantage of any weakness. Finding a large majority of the stocks she is interested in buying, particularly in the US, are too expensive for her right now.

Income investments. Has been negative on bonds for the last few years and doesn’t hold very much in the way of actual bonds. What she does hold are very short term bonds that she ladders so that they mature every 6 months and she doesn’t go out beyond 2 years. For clients that need fixed income, she has gone to the preferred shares market and they have been hurt somewhat by the rising interest rates and have corrected by about 5%. For those clients that need cash flow, she has gone to the REITs and high-yielding products such as pipelines, etc.

Economics. Data is actually improving. US recovery is happening although it is slow. Apparently now the Euro zone is actually out of the recession, which means that on the margin it is not going to detract from earnings, maybe stabilize and add to earnings. This gives the Fed some leeway to perhaps pull back a bit.

Energy stocks. Are improvement in prices a seasonal move or are we seeing something bigger than that? It is encouraging that we have seen WTI prices move up to about $107. Part of that has been political unrest and potential turmoil in the East. Also, there were infrastructure issues in the beginning of the year and they are still there but there are plans to increase world capacity by 700,000 barrels per day by 2015. Still thinks the pipelines will be needed. Crude could pull back by maybe $10 but it is encouraging that it has moved up.

Interest Rates. Thinks the Federal Reserve has lost control of interest rates. Had expected interest rates to come down a lot more than what they did. They can’t build homes if interest rates are going up, which is why housing stocks are coming down. There are 3 forces that are coming together. 1) Rise in interest rates 2) physical rise in gold/silver and 3) geopolitics. These are all interconnected through the paradigm shift between currencies. Debt problem is being solved with more and more debt. Japanese and Europeans are over debted. The federal government cannot taper. The reason why the bond market and stock market are getting nailed is because $85 billion is not enough. The only way to control interest rates is to buy the debt so they have to print more. They’ve lost control. Bond market has taken over. Bond managers’ fiduciary duties are to pensioners. They are selling their debt because they think the economic plan of the fed is not going to work.