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

Sell in May and Go Away. It is effective 60-65% of the time, however, we don’t know ahead of time if this is a year when it will work and we couldn’t possibly. If we look at fundamentals and how long since a 10% percent correction, he thinks it might be coming now. Also, if you look at year 2 of a presidential cycle, it would seem this could be a weak summer. Maybe now ‘Sell in May…’ is 80% likely to apply.

Markets. The last few times in the show, he has been neutral, kind of a push and pull, between the big deleveraging credit bubble. Over the last 5 years, when you get acceleration in the feds balance sheet, you get an increase in risk asset values. When that balance sheet starts to decelerate its growth, then you get a decline in asset value. Thinks this correlation is likely to hold true. While valuations in the markets seem reasonable on a short-term basis, when you factor in the earnings numbers base, i.e., near record profit margins the market looks quite expensive. There could be a pretty good drop once the QE ends.

Markets. Fundamentals have been exceptional for a while now, but it is about the US investors who are now interested. Due to rail, we have ample take away capacity. The valuation between oil and gas stocks between Canada and US is narrowing. The first quarter of this year is the best quarter in 11 years for his fund. The gas picture is all due to weather. We ate away a ton of storage. The storage situation in Alberta is at a critical level. Demand for Canadian gas is very, very high, but the availability is very low. Thinks Gateway will not get approved. We have the first Canadian company shipping out of the Gulf of Mexico.

Markets. TSX is outperforming and he sees this continuing for the rest of the year. There has been an underperformance since 2012 against world markets, but more specifically against the S&P 500. When you look at what is going on this year, it seems to be turning around. It is up about 6% compared to a mostly flat US market. Also, if you look at the international markets, it is the same sort of thing as the US, really lagging behind the Canadian market. This is mostly a resource led game. The XEG index is up about 15% so far this year and the same thing with the gold XGD. These are the 2 leaders and together they make up about 45% of the markets.

Markets. We’ve had almost a 5-year rally since the bottom. About 2 months ago he started trimming positions and raising his cash levels from fully invested to about 15%-20% in cash, looking for a correction. However, there is a real resistance recently to the market trying to go down. When it went down, the NASDAQ went down but the S&P and Dow didn’t follow. Comparing it to the 1987 market, everybody thought the 1987 market was exhausted and would roll over. It went sideways for 6 months and then took off on the upside. We are in a long-term secular bull market that will last decades, not months. Corrections give you opportunities to Buy.

Do oil stocks still have legs? The good news in energy is pretty well here with $104 in the oil and about $4.50 in natural gas. He would probably make a switch towards more natural gas. He has reduced his energy component in the last little while. Owns Crescent Point (CPG-T) for the yield.

Markets. Looking at the overall markets in the US and Canada, they are trading at about 15 or 16 times this year’s EPS, which is slightly above the historical average of 14+ so they’re not expensive and he is finding them reasonably valued. What is interesting is that there are some sectors that are clearly overvalued. The US tech sector is one example. He is a bottom up investor and likes markets like this because it really appeals to stock pickers.

Markets. It is very difficult to predict the path the market will take. She is a bottom up analyst. You hope the companies come out and execute quickly and that the market recognizes it. You want to be focused and there are a lot of aspects of the market that you want to avoid. She is still able to find 25 stocks that are attractive in this environment. Focuses on strong management teams and how they invest capital on behalf of shareholders. Most gains in the market are multiple driven. She looks for companies that are going through a tough time and you don’t want to own them.

Markets. Sentimental indicators have been flashing caution, plus volatility has been picking up. Started selling a couple of weeks ago and raising cash. The Volatility Index over the last 1-1.5 years has been hanging out around the mid-to low teens. A higher volatility level would be in the 35-40 and we haven’t seen that in a while, so he thinks we are kind of due. We are starting to see some return of volatility now and expect it will pick up over the summer, which is perfectly natural and normal. In spite of this, he is bullish on the market and comparing this year to 2011, there is a similar background where you had a low volatility period for about the 12 months preceding the April high of 2011. To play the volatility you always raise some cash, and you can always focus your portfolio on forward beta positions i.e. lower volatility positions.

Markets. They were originally looking for 4 or 5 % increase in earnings quarter over quarter and now it is down to 2%. What we saw last week was the beginning of the 10% correction he was looking for. It will play out for the next month or two. This is a correction in a bull market. If the S&P falls 10, the NASDAQ could fall 20. Let’s look at this dip in the market as an opportunity to do some buying. Most people believe things are recovering.

The sell off that we are in now is specifically linked to the over valuation of the NASDAQ. The momentum money is coming out of the market.

Educational Segment. Why Earnings Estimates Are So Low. Warnings are a big game for the market. They put out guidance that they know they can beat just before releasing them. Telecoms and utilities are improving guidance slightly. We need to pay attention to materials and financials. He thinks the gains are going to be mitigated by slow earnings over the next couple of years. These corrections will be buying opportunities.

Markets. Iraq increased production in February. They still have more to bring online. We needed the extra capacity during those winter months, but now that we are in the shoulder season they need to cut back or there will be a glut. He is predicting a price decline. We have not yet seen a correction in the WTI yet. Nat Gas: now there is too little inventory. We should get through a normal winter with $5 gas, but if we have another cold winter, we could see spikes to $7-$8 in Nat Gas. Buy Nat Gas stocks in Q4 this year.

Nat. Gas Service Companies. There is going to be a better buying opportunity in the third quarter in this sector. In 2016/17 we will see the industry running at record rates.

Markets. Concentrates on the best picks on the long side and then pairs them on the companies that won’t grow as rapidly. He had a negative view on the Canadian dollar and shorted it and that worked out well. The high flying concept stocks were short and it worked out pretty well. The things he owns keep working out really, really well. It’s one of those perfect storms. He is not so much contrarian, but he wants to make sure he is thinking hard about why he is investing in things.