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

Educational Segment. Selling out to Cash Because of Possible Correction: We should see a 5-10% correction including seasonality and geopolitical events at present to occur soon. Selling out to cash is risky because if markets go up, then you lose out. It is harder to buy it all back much higher (psychology of investing). If we get a correction, it is normal and mild. We should not be overly concerned about it. Typically in this situation, the Canadian dollar goes south. He would play it by holding US currency or buying US investments that are hedged to the US dollar. Holding US$ during a 10% correction would only lose you 8%. ZWH-T adds a covered call component to reduce that loss to 6% yet when the market goes up you typically gets a 6% yield so if you are wrong and there is no correction you still make money.

Markets. Behavioral Analysis: Technical Analysis is a sub section of Behavior Analysis. It tells you how people behave according to the market. By looking at people’s actions you want to predict up trends and down trends of a stock. A lot of people are now worrying about the market having gone on for 4 years, but there is no law saying the market cannot go on further. A lot of people got out of the market in 2008 and they have not all gotten back in. We are in a major secular bull market. S&P and TSX are more or less working in tandem.

Markets. The first few times the federal reserve ended quantitative easing, the markets didn’t like it at all. Now they are slowly unwinding it, and it is supposed to end in October. You would think that there wouldn’t be a problem, but the market always comes up with some kind of a reaction, so it really depends on whether we have had some kind of a meaningful correction before then. If so, then he thinks we’ll be okay. If we haven’t had anything, it might be an excuse for it to pull back. A little too early to tell. Even with bad news, the market doesn’t seem to want to go down. There is still a lot of cash on the sidelines, so that any meaningful pullback looks like it is going to be bought. Good companies and dividends will still provide positive returns.

Economy. Feels we are in the middle of the economic cycle which has been elongated by central banks. You have the Dow Jones up 3%, S&P up 6% and the TSX up 12%. You are really looking at a continuation of markets chugging along this mid-cycle period, where companies within industrial or technology spaces get the benefit from an increase and a ramp-up in capital expenditure. We are still working in the wake of the great recession, which saw about $400 billion of capital, escape the markets. One of the byproducts of that is that there are companies sitting on $1.7 trillion of cash. That cash is starting to get deployed in the realm of capital expenditure, and you are starting to see a little bit of increase in merger and acquisition activity. An example of a company that would be a beneficiary of the increase in overall infrastructure and industrial buildout would be United Technologies (UTX-N).

Markets. It is difficult to see where anything is going to come out and really hit the markets. There could be an adjustment of 10%-20%, but it is going to be short. The markets are going to come back. You could have volatility, but there is nothing out there that is going to push us into something like we had in 2007-2008. Generally earnings have been great and he thinks that is going to continue. Feels the US recovery is real and is going to continue to carry on.

In a TFSA account, is it better to buy ETFs or individual stocks? Which stocks or sectors would be a smart bet for a long-term hold? He would recommend an ETF, because how many stocks can you buy in a normal sized TFSA account? ETFs gives you diversification, and avoids the risk of an individual stock. Consider XIU for the Canadian and XSP as well as some of the competitor products from Vanguard. As long as they are good, broad-based ETF’s, you’ll be fine.

How would you structure a $60,000 RESP for 2 kids, grade 9 and 6, using ETF’s? You are looking at a 4 to 7 year time horizon. Grade 9 is a relatively short period, so you might go with something with 70% equities and 30% bonds. Consider something like 25% (XIU-T), 25% (XSP-T) along with some bonds in the (XSB-T) with maybe 10% in the (ZWB-T).

Investing. You always have volatility in oil, be it geopolitical, or whatever. We could have $100 or so as the floor for oil for the next few days or so. There is $15 in the oil price for reserves that are off line around the world. It will trade around $100 for a while. Gas is a buying opportunity now that we are trading back at the $4 level. Thinks we will almost get our gas reserves up to where they should be by winter. Our cool summer is bad for Natural Gas, but he thinks we will have another cold winter. There are hot oceans in the Pacific east that are causing rain to keep our temperatures lower. He is predicting a $5-$6 gas price over the next few years.

Markets. Discussed a Zigzag tool, a filter that filters out all the choppy stuff. This tries to pick significant rallies and significant pullbacks. This can be set to look for movements of any percentage you want. He set it for 5% or more, and was looking for how many months there were, on average, between rallies where there would be a 5% or more correction. Since the beginning of the bull market, there are a lot of 4, 5 and 6 month periods that met the criteria. Chart indicates this current rally is a little long in the tooth. Seasonally there tends to be a soft spot between mid-January and around the end of August. Any pullback that we get would be an opportunity to Buy. Currently we are in the midst of a new secular bull market that is right for probably another 10 years, but that is not to say that we can’t get a 20%-25% correction somewhere along the way.

Gold. There is a little bit of a lid of around $1,330 on gold right now. Seasonally there is a lot going for gold over the next couple of months. He thinks it just may break out, but as a conservative trader, he’ll wait for it to breakout before entering.

Stop loss orders. How do you set and adjust the Stop price in an up-trend? Rather than using physical stop losses, use trend lines and support levels. If you see the technical support has been broken, you don’t put in a Stop Loss or a Sell order, execute your trade at that time and give it a couple of days to see if it holds. Make your Stop Loss orders mental rather than physical.

Natural Gas. Very bullish on natural gas and natural gas stocks. Fort St. John, BC is considered the energy capital of BC. Activity levels are quite robust. The buzz on the street is very exciting. It is all centered around LNG projects that are unfolding including pipeline routings, etc. Happily, the LNG world in BC is in much better shape than the transmission of oil. Feels this will be a significant contributor to the outlook towards natural gas moving forward. There will be some projects that will happen prior to the creation of the huge LNG plants. The Bears on natural gas have been right for such a long time that that it is about time the Bulls got a better shake here. US shale gas plays really did upset the supply applecart in North America. For the 1^st time in a long time we are feeling more comfortable with the outlook for natural gas. While the shale plays have been great, the only shale play in the US that is really showing growth is the Marsalis in the US Northeast. Feels we are in a very vulnerable spot if we don’t get storage filled up to where it needs to be by the end of the injection season.

Canadian Energy. 2014 has been very solid so far for Canadian energy stocks, and it was just time for a catch-up. Still thinks there is a lot of room to go. Purchased about 15 stocks in the last week or so, so she doesn’t think this is the end of the energy cycle in Canada. The Canadian energy sector lagged behind even though many investors have seen a great run. Oil/gas stocks have been weak basically since 2008. It was such a prolonged downturn, that she is forecasting the run is going to last longer than many people expect. Has recently seen that a lot of the growth stocks with zero dividends, really were on fire. In addition, in the last couple of weeks, she has seen a lot of really high quality dividend companies come back.

Investing. He tends to do his investing bottom-up. Rates continue to drive a lot of the valuations in utilities and energy infrastructure, so he continues to pay attention to the high-level macro. ECB continues to be monetary easing, and the Fed policy continues to be accommodating. This is all positive from an equity valuation perspective.

Utilities. Have had a pretty good start into the 1^st half which has really been a function of declining bond yields. Feels this caught investors by surprise. Rates will likely back up into the 2^nd half, but at a slow and moderate pace. From that perspective, he feels there is going to be a bit of headwind for utilities, so he is fairly cautious in this area.