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

Emerging Markets. Thinks they have all turned in the last quarter. One after another, starting in February, they started to put bottoms in, and started to look better. This is sort of a stealth Bull, because everybody is focused on the S&P and Dow making new highs, and now the TSE has made a new high. These emerging markets turned the corner, and nobody cared, and that is always the best time to be participating in them.

India. India has done a 180° turn, from “impossible to get anything done”, to the new president saying “he would do everything to make sure things get done.” This changes money managers views on everything. India has been underweight in a lot of portfolios, so he thinks money is going to flow back in to that market. Had a relatively bad year, and yet still grew at 5%, double the North American growth rate.

Markets. If you are looking for a 2008 correction, you are mistaken. There would have to be some kind of real financial excess that would get us into real trouble such as housing, high-tech boom, etc. Things are reasonable enough that he thinks we can plow forward. As an investor, you need to be looking for opportunities. There are some good opportunities out there, but not across the board. There is a general expectation, where people think that sooner or later interest rates are going to rise and central banks are going to throttle down on things. Feels we are not going to have 3% growth out of the US. For investing you have to look into cheap sectors of the market, such as Energy. There are still good opportunities in the Financial sector including banks and REITs. The Materials sector is really cheap.

Economy. She is seeing a shift to a mid cycle. Instead of the latest and greatest app getting funded, it is actually industrial CapX and the broadening out of the business cycle, which is why energy is moving. It’s commodities (energy first and precious metals) in the 2^nd half. Had been favouring US over Canada, but now has Canada outperforming the US. However the US will continue its bull market. Currently prefers Value Stocks over Growth Stocks.

Markets. It’s Oliver’s call today! He was upset when Flaherty went into the banks to talk interest rates. When governments get involved, that is when the system starts not to work so he is glad the finance minster is taking a back off approach. Canada’s fiscal situation is amongst the best in the G20.

Gold Rates. Forecasting anything is really difficult. Anyone who is really good gets it right only 2/3rds of the time. No one knows the future. Thinks gold goes below $1200 before going above $1400. He might be right or wrong.

Educational Segment. ETFs: Equity Weightings and Returns. ZRE-T is equally weighted. Don’t get a single stock risk. New series has a quality type index. They have a European ETF with lower risk and higher returns: ZEQ-T. Canadians are often overweight Financials and Energy and this mitigates the risk of being in just those.

Markets. He is a stock picker and it is getting more and more difficult. He wouldn’t be surprised to see a bit of a correction. He is accumulating reserves on the side to take advantage of setbacks. The TSX is doing a bit of a catch up, but Energy is leading it. Materials are up almost 10%, but with lackluster performance in primary materials. It is a confused market. Investors should concentrate on at what price they are comfortable buying a stock and to watch for it.

Is it profitable to still be thinking of buying TOU-T and its peers? This has been the strongest sector of the TSX. It is difficult to find things that are you think have a sufficient margin of safety here. He has CPG-T and is thinking of taking some off the table at these levels. TOU-T he does not own, but does own PD-T.

Markets. Thinks the economic backdrop for equities looks pretty good. You almost have to take a look at the overall economy before you make your judgment as to what the market is going to do. We have a continuation of mixed signals from different areas, but the overall thrust of the global economy is forward. These days, it is being driven mostly out of the US. He is seeing some undervaluation, and it is most pronounced in small cap areas, but the general market has done phenomenally well for the last 5 years. A lot of stocks to reflect that, but a lot of them have been backed up by good strong earnings and cash flow progression in rising stock prices. However, some stocks are definitely getting a little pricier now. There is a certain momentum behind certain stocks while others continue to be left alone and ignored. If you are willing to dig in and find those opportunities, it’s great.

REITs. Some of the popular REITs have run, but there are still some hidden treasures that can be found. In the REIT market you are really looking at the relative valuation, and understanding what the value of the properties are. The real run that has happened now has really been focused on those largest real estate investment trusts, and a lot of the smaller and mid-caps have been left behind. He has had a preference to the US, however they are up 16% to date, so you have to be a little more cautious now.

Markets. Investors have got to stop trying to call a Top. Experts say “We are due for a crash” again and again. Investors should just get invested and stay invested. Since 1970 we have had 4 crashes. ’73-’74, 1987, 2000 and then the financial crisis. In each case, every time we’ve had a nasty so-called crash, the markets still ended up higher. If we have a 10 year time horizon, stop worrying if we are going to have a crash. We’ll have corrections, 3%, 4%, 5%, but that’s meaningless. Buy good stocks and use Market Rotation. In our own markets, financials and telecoms lead and then you have the middle of the market where you have consumer, technology and then at the tail end of the market you have the materials, mines and metals. That is a normal rotation. We are running into a sort of Global Rotation now. The early part of the bull, following the crash, was led by North American markets. They are now starting to lose momentum and the cash is going into the back end of the market, emerging markets, South America, etc.

Markets. It is like the ‘90s. It didn’t end so well. There was a great time when investors were able to make lots of money because of the Fed, and growth wasn’t too hot, or too cold. It is like that now. Where are people with cash going to go? Dividend stocks with rising cash flows and 3-5% dividends. We are in the half disbelief phase. Own quality and practice asset allocation. No one knows when things will change. If you have some kind of Leman event, you have to have a switch you click off to protect yourself and that is with futures. Energy trade looks attractive but it is stock specific. If a stock is not accurately discounting future cash flows, it is a buy.

Markets. There are periods where there is a lot of change and transitions, and then you go through periods where there is some fairly steady leadership. For about a year now we have had very steady improvement and breadth in the market, meaning more and more stocks are slowly participating. He sees a very healthy environment. Alternatives would be a 2.5% treasury bond or an average stock in the S&P with an earnings yield of somewhere north of 7%. This means you get paid very well to take equity risks today. Unless you think rates are about to shoot higher, equities are probably the place to be focused, and there are some very clear themes in the market.

Energy. His exposure has been going up through the year. For about 4 years now he has been focused on energy infrastructure, but in the last 6 months he has really extended his exposure to producers and service companies. It is not so much a story of the price of oil, but just a boom in volumes and falling costs in finding and lifting new reserves. The cost to find and lift new reserves has fallen about 12% a year for the last 4 years. They are mass manufacturing energy in the US right now, and a lot of companies are benefiting. His equity portfolios are above 40% in energy across a broad spectrum of different themes. Natural gas companies are doing a lot better for the first time in a long time so that is a newer theme for him. The net of this is that the cash flow generation is growing, and the costs to bring on new reserves have come down to such a level that this is just a good margin business.