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

Markets. Fed has indicated that rates are expected to go up in 6 months. Market has been very volatile and the yield curve is starting to flatten a little bit, which concerns some of the growth names, which is why they corrected. We are also between earnings seasons. Also, the Russian situation is going on. As usual, when people are very nervous in the market, they don’t take advantage of the fear and don’t pick up the names they have been watching for a long time. He is sitting a little bit higher than normal on cash. Last quarter was really nothing to talk about. The biggest surprise was that the long bonds were up 7%-8%. In the short term, anything can happen, but you have to really have an articulated, solid group of companies in your portfolio.

REITs? He has favourite ones. In the big names he likes H&R (HR.UN-T) and RioCan (REI.UN-T) because of their size and the weight they throw around in the business. Very well managed. Also, owns Allied Property (AP.UN-T), basically brick and beam with the majority of properties owned in the GTA. Retrocom (RMM.UN-T) which is a pretty healthy 9% yield. Had owned Artis REIT (AX.UN-T) in a big way, but was a little bit worried about office space out West so peeled that back a little. Also, owns CAP REIT (CAR.UN-T), the largest landlord in Canada.

Markets. Feels that a lot of people still have incredibly heavy bond portfolios and are still defensive, because everybody remembers what happened in 2008. Because of this, they missed a pretty good market last year. Thinks this good market will continue. You have this taper and eventually we will have higher rates, perhaps earlier than the market has anticipated. It may not be phenomenal for the stock market, but it is a lot worse for the bond market. On a relative basis, she thinks that people will still have to look at owning part of the equities, as opposed to being in fixed income, which really has no upside. Over the next 2-3 weeks, she would like to see some basing.

Markets. More comfortable with US and Canadian stocks. Companies here are more comfortable spending over the next 3 to 4 years. Dividend payers are appreciating more than non-dividend payers. REITs are an asset class, apart from traditional equities. Steady income year in and year out. He thinks we are in a lower and for longer time interest rate cycle. In an increasing rate environment you can increase rents and occupancy without paying raising interest rates.

Markets. He is finding lots of good ideas and lots of opportunities. Wishes he had more cash. He really doesn’t look at the market; he looks at individual companies and tries to pay less than what they are worth. Market is not as cheap as it was, but you can make data fit it any way you want. At the end of the day, he is a capital allocator and he has to take his clients’ money and either put it in cash, fixed income or stocks. Cash and fixed income are not attractive to him. If a client came in with $1 million to be invested, he would probably put 30% into the US and 70% into Canadian stocks.

Markets. We are just in the early innings of a US$ bull. There have been 2 bull markets in the US$, one in the Reagan administration and one in the Clinton administration. The one in the Reagan’s administration almost doubled against a basket of securities. The Clinton administration’s only went up about 40%-50%. He sees a bull market coming that is more along the lines of the Reagan’s administration. Energy independence will be a huge topic. Thinks the US is going to get their act in gear after 10 years of misadventure abroad and foreign-policy. They will economically lead the world again. He has a skew towards larger cap stocks. The top 100 in the S&P 500 are undervalued. Following the 1990-1991 recession, we saw money flows over the world coming into the S&P 500. There was a large cap rally from about 1992-1993 to about 1999.

Model Prices. For Brian’s model prices go to Google and type in “model price guy” and you’ll get his blog. His Facebook has 2000 companies listed where he gives his model price calculation (Fair Market Value) along with parallel lines which are called EBV (Economic Book Value) lines. These come straight from the balance sheet. Whenever there is a positive transit of these lines, it means the fundamentals are improving. A negative transit means fundamentals are getting negative. Usually the market responds before the fundamentals are known to the analysts or to the Street.

Markets. Very comfortable that stocks are going to go up over the next little while. There is always going to be a pullback or something like that and his view is that you should look to buy those things over the next little while. Doesn’t see interest rates going up dramatically. You had margins get to peak levels which people were worried about, but you also had P multiples expand. In order for stocks to go higher, you need to see more revenue growth. He thinks you will because there will be more capital expenditure down the road as people feel a lot more secure about where the economy is going, not only in the US, but in Europe as well. That will lead to some capital expenditure. Most of these companies, because of what happened in 2007-2009 have very good cost structures so he expects to see very reasonable margins go higher as you see capital expenditures and some top line revenue growth.

Gold. Reached a Golden Cross technically in the last few days. These can be short-lived, but hopefully this will stay around for a while and mean that the next phase will be the new bull market. He is very encouraged by it. Starting to see interest from the US, the generalists seem to be coming back and we are seeing interest out of Asia. He sees 2 things at work. 1.) Money printing. They may increase quantitative easing, but right now they are decreasing it, but printing is going to go on for the foreseeable future as we run these big budget deficits. 2.) Believes the Chinese are going to continue to buy gold. They have been taking physical delivery of gold in record amounts.

Russia’s invasion of the Ukraine. How will this affect gold? There are 2 sorts of situations. In times of crisis, gold typically does well because, when people are not sure about outcomes, they feel gold will protect them. However, when people feel fear of situations, they sell everything and put it into the US$, which is ironic because the 2008 banking crisis which was falling apart with too much debt and yet the US$ rallied. Thinks you have to see how it plays out. There will be certain periods where the US$ will go up and expects there will be certain periods where gold will go up.

Markets. Thinks we are going to see a normalization of markets, which usually speaks to a 10% drawdown in the market. Feels that a lot of the smart money believes that, and they don’t want to get sucked into highfliers. Because of this, we are seeing the highfliers lose momentum and really pull back hard. This is probably the 1^st step in this correction process. A lot of value stocks that he was buying in November, December and even in January, that were completely forgotten, he is seeing a very good bid to those. It tells him that money is moving around and is looking for better opportunities, but doesn’t want to chase momentum. He wants to see money change from weak hands to strong hands. In order for strong hands to get involved, there has to be a discount, a value bias to whatever people are looking at.

US banking. Regional banks or large caps? He holds large caps. J.P. Morgan and Wells Fargo are in his portfolio. Likes them because they have critical mass to them and he doesn’t think they will ever be in a position where the rug will be pulled out from under them. They can take advantage of technology and scale it across their platform. However, he feels there is a very good argument for going smaller to Regions Financial (RF-N), etc. There are a ton of them out there.

Markets. China’s activity in factories has dropped for the 5^th straight month. DSUM continues to drop also. The government is challenged with some fiscal constraints and cannot stimulate. China’s growth dropping could be the next financial contagion. US factory numbers have bounced around quite a bit, but today’s number was a little weaker than expected. There is still risk of us going into a weaker period. It is not a good sign for the markets that we did into make a new high Friday and are selling off again today.

Bonds will always attract a flow of funds if stocks are weak. This year is probably the 10-20% correction in equities. The challenge is where the money going into bonds goes into the bond market in terms of term. You are better off with a laddered bond portfolio or ETF.

Educational Segment. Deals that might be too good to be true. Avoid fraud, identify theft and scams. His guest would have been duped by Madoff too. The rates were attainable and reasonable. Thought other people than her would have done her due diligence. The key was the lack of volatility. He would not tell people exactly how the option strategy worked. In the case of Earl Jones, he was not licensed. You need to make sure they have errors and omissions insurance.