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

Canadian$? Chart shows the dollar bottomed in May/June, and subsequently went into an upward trend. There has been a little bit of weakness in the last little while, but nothing significant. Trend is still on the upside. Trading above its 20 day moving average. On a seasonal basis, the dollar is not so good at this time of year. The best time is from March right through until May each year. Right now it tends to be neutral relative to the US$.

(A Top Pick May 9/14.) 90 Day Gov’t of Canada Bond. Wanted to be very conservative at the beginning of May, so only went into select areas.

(A Top Pick May 9/14.) 5 Month Gov’t of Canada Bond. Wanted to be very conservative at the beginning of May, so only went into select areas.

Markets. We should be a little bit concerned about the Portugal banking incident as we don’t want to see contagion happen. Right now it is a one-off, and has a little bit to do with a parent company transferring some debt. Hopefully it is contained. There are definitely still problems in European markets. In Spain and Portugal particularly, as well as Italy things are a little bit volatile. We are going to get periods where we hear this, and then it will quiet down. Doesn’t think it is an endemic problem any more, but if there is a slowdown in the economic peripheral parts of Europe, it will start to bubble up again.

US Markets. Manufacturing data and ISI Truckers survey are telling him that things are strong in the US. The ISI numbers are as strong as they have been in almost 8 years. This deals with things that are manufactured and shipped in the US. Unemployment numbers are starting to look better, and wages are starting to go up. From a top down point of view, the US is looking like the strongest place to invest in.

What is the principal purpose and reason for the existence of American Depository Receipts (ADRs)? What is the advantage of owning a depository receipt versus simply buying a stock directly? He does not buy the ADRs as he has access to markets around the world. ADRs are there to allow retail investors to participate in a non-US name in the US stock market. It adds to an investor’s ability to buy shares, where they don’t have access to Europe, Asia, etc.

Markets. His view is that we are overvalued in North America. Global equities are less and emerging markets are fairly inexpensive. Generally speaking it is the small to mid-cap stocks that are overvalued. Large caps are fair value, if not a little expensive. North America is definitely priced to perfection. S&P is overvalued by 20%, and this could continue for a while. Rates have hit the bottom and could be going up, but it is just a question of when. Stocks are cheap in emerging markets such as China, India somewhat, Japan, but there are potential headwinds there as well. If he had to pick a region, it would be the US, but he is very sector focused. Technology and healthcare in particular and, in Canada, the energy side would be favourites.

Markets. 2014 has been much better than 2013, when the market was focused on tapering. In 2014 fundamentals remain strong, occupancy and returns remain strong. Interest rates were supposed to go higher in 2014, but they pulled back which was good for REITs. This year any rise in rates won’t be a surprise. People try to direct you to economically sensitive lodging because they can grow cash flow rapidly, but all he looks for is free cash flow above average. Investors should be cautious. Returns will be more normalized for the balance of the year. The sector is no longer undervalued, but rather it is fairly valued. He doesn’t see the sector going lower.

Markets. He bets against the trend in stocks, but in terms of the market when it is really going gang busters, it is often best to just believe in what is happening, and try to profit from it. If he had the opportunity he would like to take some money off the table. Even though he is going to go with the trend, that doesn’t mean he is going to fall in love with the trend. Unfortunately, none of the stocks look like they are going to hit his initial Sell targets. It is going to be much harder for him to find contrarian plays. A few years ago, there were over 350 stocks on his Stock Watch list, and now there are only about 180, of which only about 24 are of real interest.

Tobacco stocks? Has decided that he won’t own tobacco stocks any more. He doesn’t want to own something that kills people. This is a personal choice.

Preferred bank shares in volatile times? The beauty of bank preferreds is that they pay better than cash. They got hit creating a pullback in March 2009, and he bought preferreds in 3 Canadian banks. If you own preferred shares, even if they go down in value, you are effectively clipping a coupon. He is a little down on Canadian banks as he feels they should be paying down their debt loads.

Markets. AA-N will kick off earnings season. For all companies, profit growth going forward is the most important. She thinks earnings will grow over 6%. Earnings should pick up going forward (10%). We are seeing stronger data out of the US, housing starts, manufacturing data. Global economy is stabilizing as well as China. PEs has expanded in the last couple of earnings. We are at the historical medium. She is pretty fully invested. We might get a 5% dip, but a geopolitical risk could push it lower. She is concerned about the middle east. If crude prices rise enough for a recession then it is not good. If inflation rises, then the Fed can’t be as accommodating.

Markets. The summer correction is when all the traders go on holidays July 1^st so it is like a buyers’ strike. Seasonality kicks in. It has felt rather weak over the last few days possibly for this reason. Everyone thinks there is going to be a correction which probably means there won’t be, yet we have had such a good run that we do need to have a correction. He expects a 5-7% pullback over the next 5-7 weeks. He is more fundamental and less technical, but it looks like the market is toppish and rolling over, even though company earnings are strong. Global growth is humming around 4% and North America is recovering nicely from the winter. Interest rates have hit the lows of the last 30 years. It’s hard to impress the bond market. The emergency lending has started to wrap up and rates should go up next spring. Rates will still remain relatively low, however, on a historical basis.

The US housing market is going sideways. There are supply issues. Banks would not lend to many consumers so it was people from other countries going into Florida and buying up properties for cash. Thinks it will go up 5-7% later in the year.

REIT Prospects. REITs got hurt when rates increased a while back. If rates go up again, REITs will certainly be hurt. However, their payout ratios are now lower and they are locking in all this long term funding. So interest rates are becoming less of an issue.