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

Energy Stocks. Energy stocks in the US have performed okay but Canadian stocks are still painted with a negative brush. There is a lot of worldwide and US negative sentiment on Canada’s dirty oil from the bitumen. Thinks we have probably found the bottom here so it is time to look more positively on the Canadian energy sector. We are at the margin of starting to see a bit of a rotation into our oil stocks. Differentials were pretty wide at $35-$40 over the last 3 months but have now narrowed on the heavy oil side down to about $20. Edmonton light oil has narrowed from $10 down to almost par. This has all happened in the last couple of weeks. Hasn’t really caught on to media yet and no one is really talking about the narrowness of the differentials.

Short Pace Oil & Gas (PCE-T) and go Long AvenEx Energy (AVF-T) as a bet that the merger will fall apart? Guess that could be a trade. There is definitely a camp out there that is against the merger. The question is, is there another buyer for Pace as a stand-alone entity or does it get broken up? Not a trade he is putting on.

Markets. Feels that investors are shifting their focus a little bit further out the risk curve, looking for other sources of income like dividend growth. There is definitely an update for that. His big believe is to identify parts of the market that people care about or that fit the current environment. Over the last period of time, people have been willing to pay higher and higher prices for things that are predictable, where there is some catalyst leading to a positive change. For instance, the oil/gas boom in North America has not been so good for the producers but there is lots of new volume for energy infrastructure companies.

Stop-losses at 10% below the 20 day moving average. How current is this? Stop losses as a concept simply means that you should have a risk budget. We all make mistakes so you want to limit the downside. He uses point and figure charts, which are a little bit more complicated. You could use a moving average. For a shorter-term investor, you might use a 20 day smooth moving average. A little bit longer, you might use a 50 day or for very long you might use a 200 day moving average.

Markets. Rising dividends lead to increasing stock values so don’t focus on stock prices. He is watching for a correction but does not hold a lot of cash. He opportunistically reinvests dividends when there are pullbacks. Markets steadily rise over time so look at the beginning point and the end point and don’t worry about what happens in between. Average holding time is in excess of 10 years.

Markets. We are always wondering how the US will shrink the debt by $2 Trillion. Their policy is to monetize debt. The world is fixed and everything is ok if central banks can back away from their artificial support.

Education Segment. Evaluating Risk relative to Returns. People look at mutual funds and say ‘how much can I make’. ETF XME in the US averaged 14% a year over the last 10 years, but that holds the most volatile sector out there. It could go down 70% or up 100% in any given year. Canadian utilities, for example, have significantly less volatility yet good returns.

Interest Rates. Low rates, attractive looking dividends, etc. Nothing has really changed and looking forward it doesn’t look like it is about to change anytime soon. Whether it’s Bank of Canada, the Fed or Bank of England, it looks like rates in developed countries are pretty much on hold. This just increases the attractiveness of dividends and distribution paying companies. Challenge now is that it has become a stock picker’s market in that you really have to sift out those companies that have the ability to grow cash flow and subsequently growing dividends versus those that are just harvesting cash flow and are winding down.

Markets. Sees a lot of good value still in the Canadian equity space and he is building a portfolio of stocks that are trading at less than 10X earnings at an aggregate level and have a pretty healthy level of ROE as well at over 20%. Thinks the US is going to really pick up steam and you have to focus on US sectors that are exposed to that. Feels that energy and material stocks will continue to do poorly in the months ahead.

Market Call Tonight is a repeat of the previous program by John Stephenson.

Markets. Equities look very inexpensive especially in comparison to other asset classes. We are in a positive credit cycle. Commercial banks are now making loans in the US and money is now going to get put to work. We may go through a couple of quarters of scaling back of GDP growth. In a year or so we will see more signs of inflation and that will push up the curve. This could be the year that every waits for the correction that doesn’t come. He sees a long bull cycle.

Markets. Largely a liquidity driven market. Investors are sick and tired of not making money in bank deposits and US treasuries so are coming to stocks, especially dividend paying ones. We’ll probably see this going for quite a while but there might be some corrections here and there. Fundamentals of the economy have been pretty weak. Growth is positive which is good and he thinks it is going to get better. Gains we are seeing are more than what he expected. There are long-term challenges which we should not ignore. The market favours larger cap, growth oriented, blue chip dividend playing stocks and this is how he is positioning himself.

What is your view on US banks versus Canadian and do you have a favourite U.S. Bank? On valuations, clearly the US banks are a lot cheaper, but for good reasons. Our economy had performed better and regulations had been more stringent. Canadian banks continue to be good plays. However, for better upside, you probably want to be in some of the US banks. J.P. Morgan (JPM-N) and Wells Fargo (WFC-N) would be 2 of the names that he would go to.

Markets. Dow is moving to all time highs due to corporate earnings and Asian markets. We are seeing more flows into the equity markets. Rallies should continue and corporate earnings are higher now than when the highs were set two years ago. Can’t understand why the resource sector is not participating in this rally. China needs both energy and base metals. He cut back his gold projection from $2013 in 2013. He paired it back to the $1850 level. $1525 is the support and once it hits that it will trade up to $1850.

When do we see the turnaround for the juniors? Start first with the seniors. $60 billion in write downs and firing of 20 CEOs. There is pressure for companies as to carefully decide which projects they invest in. Short term there will be a cleansing of the juniors. Those that can generate cash flows will survive.