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

Gold. It was a tough year last year, but we started off strong this year, and gave a little bit back lately. The success in other assets has caused investors to sell gold and precious metals and move into other asset classes. Also, ETFs came in at a time when India, the 2^nd largest consumer of gold, was forced to step away from the market when gold imports were banned in order to shore up their trade account. Also, there has been seasonal weakness with a weakness in the 2^nd quarter. He sees a strong Indian wedding season giving a strong uptick in gold demand if the new Indian government relaxes the ban. Currently we are seeing a supply deficit on precious metals. Demand has come off, but supply has dried up from ETF sales and there is mine supply that is struggling to stay constant at spot gold.

Silver. Has not been as constructive on silver as he has been on gold, mostly because of the growth that is coming into the silver sector. There is strong fundamental growth out of mine supply, running at about 5% year. If investment demand and ultimate end demand can’t keep up, you could see a situation where the silver price weakens, which it has done year to date. Silver is a bit of a unique metal in that it has the investment demand, but also has a link to industrial demand. A main things that is in silver’s way, is that people are not weighing in, on an investment demand standpoint.

Markets. S&P 500 and Dow Jones Industrials are at all time highs. Markets are correlated to earnings, and as corporations do well, he would expect that the prices of those corporations would do well. Looking back 10 years ago, earnings of the S&P 500 were about $60 a share. This year we are looking for about $120 a share. Interestingly, the S&P was about half of what it is now. When markets get overvalued, it is not because of absolute price, it is because of relative price against what they are pricing at as earnings. P/E ratio of the S&P is now 17, but P/Es are not something you can look at in isolation, you have to look at them in the environment you are in. The competitive asset class, being bonds, don’t give people much in the way of absolute return. Interest rates as an input to earnings are quite additive because corporations can borrow money at very cheap rates, and utilize that money to produce, so you would expect PE’s would be a little higher in lower interest rate environments.

US Economy. Shrank for the 1^st time in 3 years, and we shrugged that off. Most people are blaming the weather. About 45% of the commentaries included the word “weather”. You have to take it on a company by company, basis to make your assertion.. Certainly weather was an input and you have to expect that most economists expect a pretty good snap back in the 2^nd quarter to give us a 2%-2.5% run rate in terms of growth of the economy. There are sectors that he thinks are well-positioned, both from an economic standpoint and price standpoint. He would put industrials, technology and health care in that group.

How would you invest in Aging Population Stocks? There are different areas that could be selected such as aging, mobility, healthcare, recreation. 50% of discretionary spending in the US is done by people born between 1945 and 1962. Even more alarming is that 75% of the drug expenditures are done by people that were baby boomers. There are some obvious ideas and things that come to mind, but you have to look at each company individually. You can’t just throw some money at the drug companies because there is an aging population. You have to look at it much more closely.

US. This is a secular bull market on the US$, and is probably in the 1^st or 2^nd inning. Anything related to the US$, such as real estate, equities, etc. he would certainly get long. There are so many good things happening to the dollar. For the last 40 years, US has been paying for their energy, and US$ have been literally going all around the world, and those countries have been sellers of US$. As the US transitioned to an energy exporter, all those dollars get to be kept at home, and the sellers dry up. The 2^nd major thing, probably in 2016 or 2017, the Chinese are going to liberalize their capital account. For the 1^st time, they are going to let citizens go outside the country. Once the floodgates release, he feels that all asset prices will go up. His clients are 40% US invested, and expects this will go up.

Markets. Very positive on stocks. Thought there would be a pullback in this seasonally weak period. There has been a little bit of that in certain sectors, but not in the overall markets. Still looking for a little bit of a pull back in the next little while, but he would be a Buyer at that time. The vast majority of the market is not excessively overvalued. He would avoid social media stocks which are highly overvalued. Biotech companies have had an incredible year, and have pulled back. These kinds of stocks are absolutely great investments for certain types of people, but you have to understand they are going to be highly volatile.

Markets. Seeing positive indicators including the 2:1 advance/decline over a 10 day period. There was a signal in February which was the 6^th time it has been seen in 30 years, which is always very positive for the markets. The recent indicator is the “Eurodollar commitment of Traders”. This is actual deposits that have been put into the Eurodollar deposit, so it is not a currency swap, but actual US$ deposits in European banks. If you take this from a year ago and set it forward by 52 weeks, it is basically showing a bottom sometime in the month of May, and he sees that going forward into 2015. Quite constructive for the markets. While most people are thinking of “Sell in May and go away”, that might be the surprise that it doesn’t happen this year. Looking at the long term for this, they look that they are mirroring one another and working lock step with one another. One thing that concerns him is that new Highs have started to drop off a bit. While the US is making new highs from an index perspective, we haven’t seen that from a number of stocks, and he would like to see that in the breadth. When we see the breadth drying out, we tend to see the market Top and start to roll over. We’ll have to wait and see more numbers from that breadth on the new highs.

Stock Selection. Seeing fantastic opportunities. For some time now we have been talking about earnings numbers and the fact that the bottom line was good, but the top line really wasn’t. That was a function of cost control. We are now starting to see getting revenue growth which is also bottom line growth. As that revenue growth is there, they are getting better earnings per share numbers as well. He is seeing a lot of instances, and that is exciting, especially given that the market is not at a huge multiple right now.

Markets. A while back he was saying that the markets look tired, and they still do look tired. Despite the fact that many people are negative with the Ukraine situation and other things, the markets have continued to go up. Even after the tapering started and interest rates fell the bond market has done very well. There is a lot of money out there that is looking to be invested. On the institutional side, there is significant money in terms of rebalancing portfolios. Thinks that money just keeps filtering into the market, and we are going to need something fairly dramatic to turn this over.

Interest Rates. Feels people have come to the conclusion that the Fed is going to keep interest rates relatively low for the foreseeable future. The deleveraging in the Great Depression took 10 years so we have another 3-4 years to go. Until we see some inflation coming back, he thinks interest rates are going to be low.

Grocery sector? Doesn’t like this sector. If you are out grocery shopping go into Wal-Mart (WMT-N), and see how many people are there. There is such tremendous competition in this area, and margins are thin as can be. They are trying to build the business by having sales, etc., but it all comes off the bottom line. A tough way to make a living.

Canadian energy sector. He is surprised when he hears a lot of negative comments on energy stocks. Feels people are just ignoring what he thinks is obvious. Corporate profits in the last quarter were up 7.4%. 12.3% year-over-year. Out of that, only 13 out of 22 sectors posted a quarter to quarter growth. However, the energy sector posted a 47% increase in profits. They are there because the spreads on heavy oil, which were down to $50, were at $86 per barrel. For the lighter oil they are getting even better. Export licenses have been given to Canadian companies to export oil out to the US. Theoretically you can ship down to the Gulf.

REITs. He was not big in REITs so he sort of missed the sell off. That problem is over, and with relatively low rates ahead, it helps REITs. If they are mortgaging their properties, they get relatively low rates. Thinks this area will continue to improve. Banks have had a pretty good run, and he thinks that most of the REITs have the yields that are somewhat higher than the banks. If you own, consider Holding.

Markets. We need to see good economic data consistently and better earnings, to justify the levels that stocks are at right now. We are back to old time highs, where we were in 2007 or 2000, but it has been largely multiple expansion. Earnings growth, at least in North America, has not been particularly impressive. There have been some sectors such as Canadian banks and resource side where we are starting to see some decent earnings growth. Feels stock picking is a little more important, and at the same time, there have also been some things, whether small cap stocks or value stocks, which have actually done a lot better than the main line index itself. It is encouraging to see that actions governments took in the financial crisis 5 years ago have worked. All that does is take us back to where we were before the crisis, and it is looking a little stretched. Investors should be a little careful about being too complacent on geopolitical risks.