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

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.

Markets. There is a lack of breadth to underpin these lofty levels. He looks at the percentage of stocks that are making new highs versus lows while the S&P or TSX make new highs. This is what is going to tell him what the underlying strength looks like. He looks at the number of stocks in given indices that are above the 50 day moving average to see if it is a small amount compared to the S&P, which is at record levels. Last Friday, only 23 stocks on the S&P made new highs. There have been only 2 or 3 sectors leading the charge and that is a problem.

GOLD. There is a bit of a rhythm to gold and over the past couple of years, since 2011 when it peaked, it has been in a down trend. On a short term, for a trade, there is a little bit of a pattern where you can usually pick gold up at the end of June or early July. Silver is an even better trade. They tend to bottom and then move up into October.

S&P 500. Broke a little bit out of a base, but not enough to count in the grand scheme of things. On an intermediate term basis, there are a few divergences showing up, intermediate being a bit longer and short-term looks like it is reaccelerating. TSX is doing the same thing. It is that longer term that as we finish the short-term run, that is a bit more in question. If we match that over to some of the economic stuff, such as the GDP on the 1^st quarter coming in basically flat, this necessitates that for the next three quarters we print around 4% for the consensus of 3% full year, to come into play. In order for that to happen, the short-term run that we see, we need to see that change some of those things on the intermediate or the longer-term basis that are starting to show some divergences.

TSX. Looking at the makeup of the market right now, energy has been driving through the spring, sold off a bit, but for the last little bit it has been the financials. Energy should be the big driver, along with financials. You want to be in the right place. Index looks pretty good, but it is going to be driven by those areas.

Copper. When you look at what has happened, especially the Chinese using it as loans over the years, it has lost a little of that predictable quality. Chart shows a steady climb upwards since mid-March. We are going to run into a little bit of resistance at about $3.19, but if we get through there it should be another $.20. Copper is working right now, especially if there is little bit of gold with the companies involved in copper.

(A Top Pick June 6/13. Up 0.20%.) 10-year Government Canada Bond. The yield picture has not changed. We have this 30 year trend in bonds. Every time the rates go up, the bonds get bought. (As an asset allocator, he has to own fixed income.)

Silver. Any time where you have had battles where there have been no clear winners or losers, it’s a great place to go and put your line in the sand. If it just gets above the downward trend line at around the $20 range, it will bring in a lot of people.

US Economy. Feels the 2^nd half is going to be solid. Longer-term he feels the economy is going to be pretty good. The healthcare system they are putting in place, as bad as it is right now, in time will prove to be somewhat similar to what we have in Canada, which means costs certainty for a lot of corporations and a lot of people. That will be good for the economy. Also, something that has not been talked about nearly enough is energy independence, which they are talking about as early as 2015. This is huge for the US economy.

European Economy. The surprise will be if they do a major stimulus program and he thinks that they might. Negative interest rates are not going to help anything. Japan lived through that exercise for 20 years and it didn’t work. The stimulus that Japan put in last year helped, but was a temporary measure. Not a big fan of stimulus for stimulus sake, but this is probably where they are going to have to go in Europe. It would be nice if the ECB took that stand now rather than later. They are already about one year behind the US in terms of stimulating and doing what they need to do for the economy.

TSX. About 400 points away from its all-time high it hit in 2007-2008. If you look at the Canadian market and compare it to the S&P 500 and you overlay a chart, one against the other, the correlation between the 2 markets has been extremely tight for a long time. It drifted apart at the moment QE3 started and when the US market took off. Had thought Canada would play catch up this year. Canadian economy last year played off real economic activity, which was very positive. Thinks Canadian economy will go a long way to catching the US markets this year. Wouldn’t be surprised to see us at record highs sooner than later this year.

Covered writing. Using Goldcorp (G-T) as an example, it is trading at around $26 a share, which isn’t a bad price. You might buy the stock and then write a $20 Call 3 or 6 months out, depending on your time frame. You would get a premium for selling that option. The premium might be $1-$2 a share depending on the strike price and the distance to expiration. That is yours to keep no matter what happens. You still own the stock. If the stock rallies, which he doesn’t really see for any of the gold companies, or gold itself, you will be called away at $28 a share. You are giving up upside for immediate cash flow, that is really all that covered writing is. Taxed as a capital gains which is tax advantage strategy for Canadian investors.

Convertible debentures, 5-year term or less with an attractive interest rate? If these have an attractive interest rate, this is usually telling you that it is a higher risk company and you have to look at the credit quality of the company that is issuing the debentures. Putting that aside, he actually likes convertible debentures. They have been priced more efficiently in the last 20 years, since options have become so popular. If you really think about a convertible debenture, all it really is is a call option on the stock and the fixed income investment in the same company.