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

Japanese automakers, Toyota and Honda, taking into account currency risk? He is a real sceptic of ??? economics which is ultimately driving down the currency. To believe that there is not going to be any response globally from the Japanese devaluing their currency is a little naïve. If the Japanese are going to decrease the value of the yen to stimulate export demand, you are either going to see some currency battles or trade barriers, etc. Thinks this is just a phantom run. Wait and see for it to break down.

Markets. Canadian market has been lagging, mainly because of our resource exposure as opposed to the emphasis in the US on non-resource names. He has been taking some risks off since the middle of March, partly on the “Sell in May and Go Away”, which now seems to have stretched to April.

Long and Short strategies. Use technicals, fundamentals or a combination of the 2? As a fundamental investor, he doesn’t use any technical analysis. When he is positive on one company, he looks for an opposite side to pair it with. He generally uses pairs but not always. Sometimes he’ll have a lot of conviction on the situation where it requires a Short.

Market. Feels this bull market is in the later innings, 8^th to 9^th. We have to be increasingly cautious as we move through the summer and into the fall. Bull markets tend to peak over an extended period of time. One indicator he watches is the advance/decline line on the New York Stock Exchange. This often indicates deterioration in breadth i.e. fewer and fewer stocks are leading the market higher. Expect there are a few more quarters to run.

Markets. He is not a bull this year, but that is not to say market couldn’t go higher from here. Suspects we will go into a consolidation mode now. The following table shows how many of the total companies have reported earnings and how the share price responded:

We expected Energy to do badly, but Financials had a good quarter so far. Industrials have dropped off substantially from last quarter and we need to watch that.

Lumber. You are not early here. These stocks have had phenomenal runs. They are going to go into a consolidation phase and will retrace some rallies. We are due for a correction in the housing stocks. We will cool over the summer. You may want to wait for another leg lower before buying these stocks.

Education Segment. US market is only place in world with any returns over the last 3 years. You have to ask if it is leading the world out of recession or is it just the liquidity. Look at copper prices vs. copper inventories. Copper inventories are higher than any recent time. A chart of China rebar prices and the TSX show a high degree of correlation. He feels steel prices are heading lower and that is not a good thing for commodity based indices. He thinks now the US market will have to cool.

Markets. The worst case is that we go back to last summer’s lows but he doesn’t believe that will happen. Fears include slow down in US and worries about China but does not include Europe this year. We don’t have revenue growth so how do we have market growth. You had weather problems last year. 72% of analysts are bullish and that is worrisome. You could see some weakness but not to last summer’s lows. Copper has gone down about as far as it is going to. He prefers US vs. Canada for growth but for dividends, stay in Canada.

Sell in May and go away? He is going to watch it very carefully. Maybe it is April. But we are seeing the housing market in the US recover.

Market. What we saw in the last few weeks was the early part of the selloff. What we have had was very strong growth in the capital markets, particularly in the US. Canada has had very disappointing returns showing the disparity between the 2 countries and he thinks this disparity is going to persist for the rest of the year. His strategy is 1) to have a little cash to take care of some buying opportunities that come up in the next few months and 2) weight the more defensive names in a portfolio, which would include your utilities, pipelines, consumer staples and healthcare names. Expects the market to continue to slow giving a 3%-4% slide from here on both sides of the border.

Natural gas. This would benefit hugely from LNG. Expected to be range bound, possibly getting to about $4.23-$4.50 in the summer but doesn’t expect it to get much above that. Fundamentals are pretty weak at this point.

Markets. Much more neutral on the market now. His call in 2010 was predicated upon the economy getting much better. Looking at the leading economic data at that time, which is what he likes to focus on, housing looked like it had bottomed and was turning a corner, incremental data points were getting better and, typically, the market will start to interpret that with a longer lead time. There was a compounding effect of zero interest rates, the Fed pushing a lot of liquidity into the system but very low expectations for equities. Currently, the North American housing index has rolled over; the ISM manufacturing data has rolled over. This means we are in for slower economic growth. Expects some sort of correction now because we have gone too far.

Markets. Getting a little more rational and a little less panicky. Gold seems to have stabilized and oil was up a bit. He will continue to try and get dividend income stocks into his clients’ portfolios. You have to be concerned that the dividends you get are relatively safe.

Markets. Lots of earnings coming out: big names in technology. Looking for top line growth this quarter. In general the computer services market has had challenges to grow this. She focuses on those names that she thinks will do better in this very competitive market. She does a lot of bottom up research and thinks this will be the key to success. She took some cash off the table because some companies have different earnings schedules. Valuations are fair market but if you don’t have good earnings you get punished. She sees a buying opportunity. She would still be buying into this market and sees a rotation into a little more tolerance of risk.

Markets. Current situation could be a seasonal thing. Think we saw the same type of rough patch last year, where everybody got concerned. There is no question that the data is not going to be hugely robust but it is a recovery so it will be in fits and starts but it is heading in the right direction. Pretty much every new stock he has added to his portfolio has been US. Has gone from 0% weighting in late 2011 to 25% allocation. Likes companies that are paying dividends and/or buying back shares and with extremely low valuations. Very excited about buying US companies that he can’t find in Canada. Feels the drop in the price of gold is good news. It tells us that inflation is not a concern. He is still positive on productive commodity assets such as copper (for the long-term), oil, natural gas, lumber, etc.