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

Industrials. These tend to correlate very well with economic and GDP growth. There are early-cycle, mid-cycle and late-cycle industrials, and he feels the early cycle trades have been and gone. Focusing on mid and late cycle non-residential and CapX cycles where there is still tailwind and a positive growth outlook.

Energy Infrastructure. Stretched valuations, but in the midst of a multiyear expansion. Fairly valued, but you know that there is more CapX coming down the line. There’s so much opportunity to deploy capital in this space, that ultimately these businesses are going to be worth more 2 to 5 years out.

Investing. Still finding value in REITs, up 8% year to date. He is seeing dividend vs. Gov’t of Canada rate is a very wide level. So these REITs are not expensive at all. Large Caps attract more of the foreign investment. It had dipped for a while, but the interest is coming back. We average 8%, but it is 18% in the US. He thinks, though, that you will see some of the capital coming back to Canada. If the economy in North America continues to improve then it will be very good for REITs. REITs are a little less sensitive in the past to interest rate spikes.

Markets. Investors seem to be handling the winding down of QE quite well. The market is prepared for it. QE has probably run its course in terms of effectiveness. The market is going to look at guidance from company management and will also concentrate on GDP figures. The Russel 2000 looks a little weaker. Stochastics and RSI are suggesting we are toppy.

Education Segment. VIX – Volatility Index. Markets actually do well in periods of low volatility. The VIX is low right now. There has not been a whole lot of movement lately. Low volatility means low options prices. You should not start selling your stocks because the VIX is low. Now there is a product that shorts the VIX (XIV-N and HVI-T). When the VIX is already starting to go up, this is a time to start using these products.

US Economy. We had a very disappointing first-quarter GDP number, and people became concerned. Then we had what amounted to quite positive employment news for June. Tomorrow we have retail sales and existing home sales, which will give further clues. He feels the US economy started to pick up steam in March, April and May, and we should start to see those results coming through. Everybody knows the US Federal Reserve are going to stop buying bonds by the fall, and it is really just a question after that, as to when they start taking rates back to what they would consider to be a normal level. The uncertainty is not of direction, but is of timing.

Markets. You have to be a stock picker in today’s market. Everybody recognizes that the indices in the US are at all-time highs, and close to all-time highs in Canada. You have to work a little harder and dig a little deeper. If you have strong companies with strong balance sheets, and if the market has a correction you can shrug it off.

What are your reasons for not being a fan of gaming stocks? When buying stocks for his clients, he envisages his name across a factory door, and questions if he would want his name on certain products. These companies pray primarily on the weak of will and the unsophisticated. There are no safeguards such as they have in casinos, for people with gambling problems.

Are “old tech” plays like Oracle and Cisco good investments? All these companies are migrating their operations to the Cloud. Cisco is replacing a lot of its hardware switching with soft switching. Companies like Microsoft have proved to be quite agile. These companies are all at very low multiples, at less than 12X earnings, and generally have very strong balance sheets. Probably less growth, but probably more stability.

Economy. There is inflation in a number of different places that is causing trouble for the consumer to spend on discretionary items. Because of this, there is a fairly lacklustre performance on the discretionary side of things. Inflation is coming mainly from commodities such as food, metals, rents, etc, places where people have to spend. If people have to spend more in these areas, there is going to be less money spent elsewhere. He is now taking a conservative approach by transitioning over to some of the metals, particularly gold.

Gold. Constructive on gold at this time. A very volatile commodity creating very volatile stocks. He is seeing some interesting technical levels being supported as well as some of the macroeconomic factors. In Europe there are more troubled signs of the recovery that will create more easing for money, more printing of money. This is good for gold as a currency. He is a bit more constructive on China as an economy. Looking at the economic growth forecasts that are projected by the Chinese government, there would have to be a pretty healthy pick up in the second half for them to meet their goals. China is the largest consumer of gold.

Silver. If you see an economic recovery globally, particularly in Europe and China, you are going to get a bid from a fundamental perspective. It reacts very much like gold. Fortuna Silver (FVI-T) is a stock that continues to execute well. Also Silver Wheaton (SLW-T) is a solid company.

Copper. He is constructive on China for the back half of the year, which would be good for copper. This has been supported at around the $3 level recently. Given the supply/demand situation, it either consolidates or runs a little higher. Capstone Mining (CS-T) and Lundin Mining (LUN-T) are 2 names he would recommend.

Seasonal Trends. There are some very important things happening right now. Historically markets move up late in June through until the 1^st few trading days in July. This is the Independence Day holiday trade. However, after that, things tend to go wrong. There tends to be a surprising event that always happens. This has happened 6 of the last 7 years. You get a spike in volatility, and markets have a difficult time. It looks like it is going to happen again this year. Seasonally the S&P 500 normally reaches a peak around this time of year. He is currently looking for the markets to be under some pressure. There are signs that the volatility has started to spike again. The Volatility Index (VIX) this week was up 20%, a huge move, implying that once again volatility is coming into the markets.

Gold. This looks very good, and has been up 6 weeks in a row. There was a breakout yesterday when it went above $1335 level, and looks like it is just getting started on a seasonality basis.