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

Markets. The reduction in the differential between oil prices has been one of the powerful positive trends in the Canadian oil and gas sector. LNG is a tremendous business opportunity and to exploit our Nat Gas reserves. But if they don’t go west they can go east or south. Technological changes are bringing down costs. It is exciting times.

Oil Price Spreads. It is all about transportation. We have difficulty shipping our oil to places that really need it. Rail cars started being used over the last couple of years and that made a huge difference to the spread.

Markets. Sees good upside for the markets going into 2015. Canada and emerging markets will improve 12 months out. Pure energy is 20% of the TSX and will do the heavy lifting.

Markets. We are set up for a balanced budget in 2015, which is ahead of most of the other countries in the G7. 2013 was wonderful with US up 30%. 2014 is still positive. Valuations are reasonable in the broad market with a few places where they are too high. There is volatility right now. The sell off today is a buying opportunity. He was carrying a little more cash coming out of 2013 than he usually would. He is considering Valiant as an addition.

Global Growth. Constructive on global growth. Sees signs, in the US in particular, that economic growth is going to be stable and improving. Looking for 4% or higher GDP growth in the US. Seeing signs of improvement in Europe, not just in Germany and some of the stronger regions, but in peripheral regions including Spain and Italy. That should lead to some coordinated growth. A question mark still remains in Asia, both in Japan and China. Japan has introduced a consumption tax increase, which may slow things down there creating all kinds of question marks. Because of the brutally cold winter, he is expecting a lot of pent-up demand in the US, which should drive GDP for a quarter or two.

Markets. Equity markets are looking fatigued. Stocks quite fully valued. Negative seasonal tendencies; Presidential cycle; But thinks at the end of the year we will be higher than we are today. Some growthier cyclical names are being bought. Prefers equities over bonds. Thinks economy will continue to move forward in the US. Industrials, tech, financials, consumer discretionary, cyclical areas, are good. Likes the US and Europe. 10 year bonds are now down to 6% in Greece.

Europe. Recovery is underway. Just like the rest of the world, growth is difficult, but it is at least on the bottom and seeing some positive momentum. Has been underpriced for a little while, which he likes. If things do decelerate a little bit, there is room to provide some quantitative easing. Banks are volatile, but he thinks they will do well. Also, the consumer space should do well as people get more disposable income. Automotive sector and industrials also do well.

China. This is always a difficult picture to properly paint for everyone, given the quality of the data. Things that can’t be hidden are institutions or companies that default on loans, or certain people going bankrupt. He is monitoring that situation to see how tight or how scary that area may be. There is a shadow banking system that is certainly going to impact the way business is done there. That might be unwinding as well. He is cautious because any type of easing, etc. that the government is trying to do; the growth rate is going to normalize and not accelerate. You are going to see slowing growth.

North America. Finds that US growth is tepid. Their financials have been struggling lately. He has been staying more towards the Canadian side. Energy, a late cyclical play, has been working. A lot of energy stocks, in Canada in particular, have been working extremely well. Likes the gas trade a little bit better than oil.

Markets. They are a little tired. Had such a good run, particularly in the US, that he feels it could use a little rest and thinks that is what your are going to see in the US. So far, Canada is starting to show outperformance. We have been outperforming since last July on the TSX. Cdn$ is rising and we are still outperforming. While the US stocks are getting hit, emerging markets are doing well and Europe is holding up okay. One of the things that has got people concerned is Yellen’s speech where she hinted that interest rates could move higher sooner than people were anticipating. He thinks we are seeing rotation out of the US, not only into emerging markets, but also into European securities and possibly even into Canadian which will add to our potential of performance.

Not thrilled about rebalancing bonds with rising interest rates. Where should I park money for the short-term? You are facing the same problem that money managers are facing. His alternative was to buy Bell Canada (BCE-T) and Bell Alliant (BA-T) and companies that have A ratings and go with the dividends. If you want to stay on the bond side and have some risks but not huge ones, go to iShares 1-5yr Ladder Corp Bond Fund (CBO-T).

What makes the Cdn$ rise and fall and what do you predict in the next few months? 1^st of all you have to realize that the Cdn$ is rather thin. It doesn’t take much to move it. We are still very much a peripheral currency. Just short-term fund flows can knock us around. Thinks longer-term projections for the dollar are lower, $0.85 is probably okay. In the short term, we have seen some good numbers out of Canada and we are heading towards a balance. Price of oil is up which is a major export commodity. On the agricultural side, we are still shipping last year’s crop. Every time we sell 1,000,000 bushels to China, that money comes back and gives the dollar a lift. Probably for the next 4-6 months, the dollar could be reasonably firm, but on a longer-term basis, it could drift lower.

Markets. Years ago there were equality weighted indexes as opposed to TSX and S&P and there is evidence that these outperform the TSX and S&P. Smart indexing tools may replace active management in the next decade. Fees are lower than for anything other than market cap. 50 or 75 basis points over your investing lifetime, compounded, are huge. US market seeing new highs yet earnings are not that good. We are in the tenth month of a breadth decay after which history shows us we get a 10-20% correction. The underlying market is weakening, not strengthening as we make new highs.

Educational Segment. He was at a US Technical Analysis Conference. Last week we had a breakout in the S&P and a decent payroll number, but the markets went down. The last corrections were about 5-6% . Chart – divergence of breadth. The natural number of stocks in the S&P making 52 week highs. But in every rally fewer and fewer stocks are making new 52 week highs. In 1988 the average stock was going down, but a few big ones were pushing the markets higher. In the last rally it was less than 20%. Chart – candle stick charges of S&P, last correction was a break of 50 average and not a 10% correction. Over the last month we have two failed tops and he thinks now we are looking for a correction. IWM. It does not follow S&P at the lows. It may show a sign of a 10%er coming up.

Markets. In the Tech sector the valuations came off quite quickly. It is profit taking. It is a correction within a bull market. The sector has strong balance sheets and good earnings. Don’t jump in now, but the fundamentals are good there. He likes value investments. Anything with a yield. He likes value, defensive and yields. He doesn’t get caught up a lot on daily ups and downs. Holds a fair amount of cash (12%). He may pick away during the summertime. This could be a precursor to ‘Sell in May and Go Away’.