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

An ETF to play rising interest rates for the short and long term? On a short term, you can probably look at something like HBP US 30 year Bond Bear + (HTD-T). In a rising interest rate environment, long-term government bonds will decline in value. When a longer-term, you could look at iShares 1-5yr Laddered Corp Bond Fund (CBO-T). Also, on a short term, iShares CDn Short Term Bond (XSB-T) which pays a 2.6% yield.

Markets. Northern Gateway was a bit of a red herring. There are a lot more hurdles to overcome before it becomes a real pipeline. We have a pipeline in the states that will alleviate bottlenecks in the Illinois area for crude going down into the southern US. It will be a while before we have any resolution on the keystone. A lot of the unrest in Iraq is not close to the key areas for oil. We are in a very supply-driven market. The risk/reward scenario for oil prices is skewed to the upside. The Nat Gas inventory problem is significant for Western Canada. He feels they can’t fill storage levels in Western Canada.

Markets. The RSI indicator on the TSX shows overbought. Price to book levels are above norms. We should watch out for further geopolitical tensions in Iraq. Higher oil prices could slow down economies. Doesn’t think you will see multiple expansion in the second half of this year. Corporate earnings should move up, however. In 12 months he thinks we will see an increase in interest rates for treasuries. He has been moving into cyclicals over the last 18 months. The economy should continue to recover in the second half of this year. International markets are looking more attractive than North American markets. He looks at ADRs as well as stocks traded internationally.

Markets. The market was surprised last week by the strength of retail sales data and the CPI. Now we are seeing some banks and economists deciding the Canadian dollar will not be weaker going forward, as they saw it before. The Canadian dollar should top out at $0.94 for a US$.

Energy ETF Recommendation. XEG-T is market cap weighted exposure to the sector. ZEO-T equally weights them. But ZJO-T is junior oil which you don’t get exposure to enough with XEG-T.

Educational Segment. Trying to spot a pullback. RSI Divergences are a weaker form of divergence. We are now seeing the third bearish divergence. So the current rally is not as strong as it was previously. He thinks we will get a 4-5% pullback over the summer months.

Markets. Recovering economies will drive earnings growth. Thinks in North America, stocks are ahead of earnings because of weather. Southern Europe is starting to recover. Numbers from China this morning were not bad. The market is climbing the wall of worry. Markets do better when people worry. This is a good thing. He thinks the risk is that people are chasing yields lower and lower. Government bonds, even going out, are only 2%.

Banks: He owns BNS because it has the smallest Canadian footprint. He is now looking at a European bank. TD might be another selection for its US exposure. He also likes and owns regional US banks: BB&T and Bank United.

Markets. Individual investors are concerned about the lack of any recent pullback. She focuses on valuations. You can buy into the market. Valuations are fine. Regardless of what happens in the short term, these are compelling valuations. A lot of investment gains are driven by the valuation. As value investors she is patient with her clients’ money. 25 or so stocks and a disciplined approach. It is still a low growth environment. You are seeing more competition. It makes it a little more complicated. Be selective in where you focus so you get some good upside. You’ve had some rotation through the sectors. Financials had a good run, but now they are lagging. Some investment is going back into the yield-type plays.

India. Over the next decade or two it should be a fantastic place. Average age is 28 (US is 48) in their workforce so huge potential for growth. There was a huge devaluation in their currency in the last year or so, but that is built into the markets. (But a couple of companies are a huge part of the market). ZID-T or EPI-N as ETFs to benefit from this country.

Markets. Short-term he is neutral. Intermediate and longer term he is extremely bearish. Using the S&P as an example, the EPS is about $120 a share on a go forward basis. 18-19 times is pushing the higher end on the valuation side, even in the short term. However, that is at peak corporate margins while net margins are somewhere in the 7%-8% range. Historically, over a full cycle, the long-term average is closer to 4%-5%. So if you have more than an average margin, then you are looking at somewhere between 40%-50% downside, just in terms of the current PE ratio. If that P/E ratio also contracts, which is likely if interest rates do rise, you could see even more downside than that. The catalyst for a decline would likely be some sort of rise in interest rates. He would definitely be lightening up on equities over the next few months.

Markets. His analysis goes back to March 2009, and he feels we are only 5 years into this Bull market. Feels this is a secular bull market so therefore it has to be a decade long. From that point, the disparity of returns from equities versus bonds had never been bigger since the Great Depression. Even though it was tremendously bearish, there was only one way to alleviate pressure between bonds and equities, and that was for equities to go up and bonds to go down. Therefore his call is to be Long equities and Short bonds. This year, there has been different parts of the market that have sold off, which gave him opportunities to go a little bit more Long on stuff that he wasn’t expecting to be able to do until after a correction happened. He is about 90% Long. He has about 10% cash waiting for something to happen over the summer.

Markets. Thinks we will be in a trading range for the next while. The economy may accelerate, but it could be a long time. Thinks there is a lot of pent up demand by the US consumer. M&A activity is a positive sign for the economy. There has been all that cash on balance sheets and now they will use that on acquisitions. Energy infrastructure and US housing are two areas he likes. We don’t need much of an uptick in US housing starts to get a jump up in lumber prices.

Companies selling on the news of Northern Gateway could be profit taking and as well there is as concern over the number of conditions and when it will get built.

Railroads. Which will benefit the most from pipelines? They will all benefit, especially CP, CN and Union Pacific.