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

Should retail investors buy stocks that are heavily shorted or stay away? How do you find out how heavily a stock is shorted? Sometimes it is an indication that someone knows something that you don’t but on the other hand, once a stock has been heavily shorted, that weight of bad news has been priced into things. Key thing is not whether something has been heavily shorted or not but whether you know the company well enough to know that you have a strong handle on where their earnings are going to be. A case in point would be Home Capital (HCG-T) which is heavily shorted right now with a lot of people talking about its imminent demise and yet they keep raising their dividends and their profits keep going up. Most people predicting the demise have never met with the management and don’t really understand the model as far as being a low loan-to-value lender. This is one that he is very happy being Long on.

Tax Loss Selling. Around 15 Nov, astute fund managers who know the fundamentals on certain companies that have had a bad quarter but are not bad companies, will say “What’s being oversold?”, “What’s being chucked out the door?” for tax loss reasons. Once the tax loss sellers are gone, they can pick these up. A couple of names are Poseidon (PSN-T) and Data Group (DGI-T) which just cut its dividend but still has a yield of 15%. These are not ones where you back the truck up. You buy little bit of them.

Markets. As we get closer to the fiscal cliff, for income investors there is a little push as they protect their returns from the market selloff. No one knows if taxes are going to increase in the US and uncertainty is not liked in the markets. A variety of sectors have dividend growth. REITs are a good place to hide for protection. REITs should not be as impacted as much if US taxes increase. Stick with safe names that you know. There is so much uncertainty that there won’t be a Santa Claus rally.

Markets. His outlook has not changed since the last time he was on the show and that is with the amount of sovereign debt, global economies can’t grow. He feels you have a low growth environment around the world. Europe is in a mess and US is not growing and Canada is slowing down. You need good dividend yields and great balance sheets. Interest rates will be low for an extended period of time and inflation will be benign. There has been a real flow into dividend-yielding stocks. If companies can increase dividend-yielding stocks you will be safer than growth stocks. He is up 8.5% this year and with much lower volatility than the markets. His portfolio has mostly dividend paying stocks. The fiscal cliff is so well known that nothing will happen.

Markets. There may be an asset rally. You should always adhere to the asset mix you have established in your financial plan. Thinks the US market is a great place to be, especially tech and health care. HP and Dell are on their backs. But Apple, Google and Qualcom are good. What the market hates is uncertainty. We know where we are going with Health and Obama care. There are 7 of 10 sectors that are not well covered in Canada but are in the US.

Markets. For the rest of the year there may be more downward pressure, rather than a Santa Claus rally. Where good quality companies get down in price you will see some buying and that might give some relief to the markets. People will be waiting for the results of Black Friday on Monday and if it is good news it may put some buoyancy behind the markets. He has a larger than normal position in cash (15%). If he sees stocks on his watch list at a compelling price he may buy. There is some longer term compelling value in the energy sector. The problem with this recovery is that it is so slow that it doesn’t feel like a recovery. Over the next 3-5 years we should see positive returns as economies recover. Financial side has more value that REITs right now. Dividends are king right now, however.

Markets. He is waiting to see some price discounting in Europe particularly in blue chip but that is not occurring. It is affected by the noise coming out of the bond buying programs. Thinks we will see some growth out of China. In North America earnings are quarter to quarter but in Europe it can be every 6 months so places like Germany are only starting to see the recession. Balance sheets don’t show the recession.

Markets. The fiscal cliff is like Y2k. The clock strikes midnight and nothing changes. There is not much news in the markets with an actual date. There has been so much made about this being a cliff and something catastrophic happens at the stroke of midnight. Y2K came and went and was so well prepared for. You have to look past Washington because there are some really interesting things out there. He is cautious until we get some clarity out there. He has large cash weightings in all his portfolios. He likes to use stop losses. He is in as much cash as he is due to stop loss triggering. He is not seeing signs he wants for a constructive market. If we suddenly have a resolution you get an idea of what we could see on the upside.

Corporate debt. There has been a general pullback because of the threat of increased tax in the US. Suggests waiting to get into corporate debt until January. Canadian ETFs for corporate debt have pulled back too.

Markets. There has been a real spike up in bearish sentiment recently. The percentage of bears got to the highest level this year (45%) Maybe they do a deal on the fiscal year and maybe they don’t, but the problems in Spain have not been fixed. If you get Spanish bonds above 6% then they start to get into trouble. Unemployment is over 50% for youth under 25.

Stocks one by one are starting to roll over which is indicative of the top of a bull market. We are 42 months into the bull market cycle.

Oil. Double leverage ones are not good for long-term holding. He says that almost every week on the show. XEG couple bounce back to 16 -1/4 area. Oil shouldn’t go a lot higher unless something terrible happens in the middle east.

Educational Segment. What is your favorite indicator. He has no one favourite indicator that makes it easy for everyone. There are lots of them. Some work 50% of the time and others work the other 50% of the time. You have trend, momentum, seasonal and cycles, breath, sentiment, chart patterns and volume indicators. He likes to take one from each area; MC Oscillator is one he likes. It looks at breadth of market – those going up vs those going down and looks at momentum. It always lines up with market bottoms and turning points. It says the market is so oversold that the potential for a turn is indicated. It does not say how far or how long the market will go up.

Santa Claus Rally. They are going to do a deal and raise taxes on the rich a little. They need major structural and tax reform. He doesn’t see those reforms being made. We get sideways at best 2013. Thinks there is an earnings shock coming.

Markets. Triple-digit gain today. Since he was last on, we are down from 5 overhangs to 3. Europe is in an official recession, Fiscal Cliff and China’s reduced economic growth.

There are ways to play the fiscal cliff positive commentary. It is worth being fully invested at this point but in a risk adjusted way. For China, it is a very reasonable rate of growth. The infrastructure build that is happening will help out some of the multinationals.

Companies with exposure to Europe have come off and you can get better valuations.