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

Markets. The important market now for everybody to look at is in the US and he is seeing increased signs of economic growth. There were signs of very good growth of existing homes today and there were very low inventories of existing homes which will drive new home construction. Auto sales are almost double what they were in 2009. Unemployment claims today were close to a post recession low.

Markets. We are in the middle of a short Santa Claus rally. A little premature to get too excited about what happens next. One of his core strategies is to use stop losses. Has been a bit of optimism coming into some names. There are some wonderful companies out there that are still investable. At the end of the day, if things start going wrong, he’ll be taken out of his positions but it is very dangerous to have too much cash as well as being too dangerous to be fully invested. For Canadian portfolios he has about 10%-15% in cash but is fully invested in the US.

Markets. It’s a wall of worries. We have been faced with macro issues that are certainly worrisome. The market is anticipating a ‘deal’ for the fiscal cliff, but that is not a deal. After that we have to search for a solution, which is tougher. Interest rates, earnings and psychology drive stock markets. For some time we have had the first two. There could be a very nice move if we get some strengthening of the psychology. It’s been a good year for US equities. Financials have come to life, perhaps because they got so oversold. There is also some feeling that the fundamentals of the US economy are strong.

Dow 30 or S&P – Which looks more promising. Both are somewhat odd in their composition. Dow is a price-based index. A dollar of move in a stock moves the Dow one dollar. The S&P is market cap weighted. The bigger the company, the more weight it has in the index. The largest 50 control half of the S&P, so it is a big cap index. For an ETF, he would look for an equal weighted index, not a cap-weighted index.

REITs. Expects the low interest-rate environment to continue throughout 2013, especially with the US policy stance on interest rates. Expects that more of the REITs will benefit from debt refinancing, which will significantly increase their cash flow next year, giving a pretty good support level. Office properties tend to be a little bit more cyclical. Thinks the industrial sector will do a lot better. The more defensive sectors would be apartments. Likes seniors housing.

US economy. This is the strongest housing recovery in quite some time. Also, the auto business is doing quite well. These are 2 major employers that are doing well so this bodes well for the US economy. It could cause interest rates to go up sooner than people think and this would be bad for bonds. (Not for a while though.)

Markets. Japan is pressing ahead with a program of QE. They have been doing this forever. He thinks they have to do these things. The markets are not responding. He has never seen bigger dichotomy about the future than now for 2013. A wide, wide range. Does EU fix itself? The US? He doesn’t think so, but liquidity can keep the markets going for a while. TSX has no net gains for 5 years.

Educational Comment. Outlook for TSX in 2013. The TSX is a concentrated index. You have to look at energy. It is 25% of TSX. What is crude oil going to do? Every forecast seems to be downgrading economic global growth. There has been no growth in the TSX for 5 years. The best to expect from energy is sideways. Financials are at the top end of their range. Maybe 5% upside next year. Materials – potential upside for gold but dragged down by others in the sector. It will be range bound also. That is 85% of the TSX in the top three sectors. Another year of nothing.

Markets. He is fully invested. He has a buy list that he is always ready to swap out gains on. He is playing the fiscal cliff that way. He is sitting there ready with some trades. He looks across the board and is seeing good value in the mid cap space but there are also lots of good large caps. He thinks the really good value will be in the mid to small caps. If we get pushed over the cliff, then this is where you get the opportunity. Expects a better year next year. Stocks sub-10 times earnings would look good. In the US he is finding large cap industrials and mid cap industrials in Canada. It’s not all about the dividend.

Markets. Expects 2013 markets will be Up. Feels that China is turning the corner. Thinks Europe will stumble along but it won’t represent the psychological drag that it has in the past. One entity for supervising European banks should be very helpful. Feels the US housing boom is going to continue and that creates a lot of new jobs. Expects prices to go up which will favourably impact the American psyche, both at the corporate level and the consumer.

Gold. The long-term thesis was that with governments botching the value of paper, it was expected gold would be higher. There are so many speculators that it is hard to get in their minds. Especially around year-end with tax selling, it is difficult to call anything. He is fully in the camp of $2000 or more next year.

Uranium. Sees uranium much higher in 3-5 years. The election in Japan on the weekend put a higher spin on the potential use of uranium in Japan. China, Russia and India are going full tilt at the nuclear power plants.

Energy. US is really producing oil now and it’s like they have flipped a switch and suddenly there is oil coming out of everywhere. Apparently Enbridge (ENB-T) had to cut some orders from the pipeline because there is not enough capacity. Expect we will see lower oil prices in the next few years.

Where should a person invest in financials with the fiscal cliff, etc. situation? Feels Canadian banks have some headwinds. Consumers are stretched. They make a lot of money on mortgages but the housing market is cooling off. US banks are kind of interesting. Thinks you could pick away at them as some of them are starting to look attractive.

Markets. He has shifted gears in the last 6 months. He thinks the risk is not being in the market rather than not being in it. He thinks we will have a melt up rather than a meltdown in the market. It has been 13 years in the bear market and the focus has been on the negativity. In the past few month the market has been taking bad news and not going down. It is saying this are not going to be as bad in eight months as it is now. The bond market is forming a big top, but it is open for debate. As far as bonds are, how much better can they be? They have been in a bull market since 1982. Bull markets come to an end. We are near the end of the bear market in equities and a bull in bonds. The catalysts are still to appear. He looks for the same in international companies as in Canada. Because ADRs are listed in New York they have to succumb to the same rules as North American stocks. They have to meet the US regulations.