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

Energy seasonality. There are 2 seasonality factors in the Canadian energy patch. #1 the general stock market will dictate how equities perform. The general market seems to use the “sell in May and go away” but typically some years it starts a little bit earlier. Who knows? Usually in March, April and May there is some sloppiness with increased volatility. On the oil/gas side of things in Canada, we have spring break up in a lot of Alberta in a lot of the producing regions, where the ground is thawing and they don’t like to move the drilling rigs through softer ground for environmental reasons. There is essentially a month or so where activity slows down. This often leads to less news releases out of companies and a bit of a lull. You are probably getting a good entry point over the next month or so where there is a bit of weakness. The tailwinds on energy stocks this year will be a lower Cdn$.

Markets. There are certain sectors where the time for seasonality is pushed back a little bit, probably 2-3 weeks. That means you can focus on those sectors as they become available. One example is First Trust NASDAQ Global ETF (CARZ-Q). It is the time of year when people are buying new cars and car stocks go higher. The best time to Sell in the springtime, on average, is the 1^st week in May. That can vary. In a US midterm election year, it tends to be little bit earlier, around the 3^rd week in April. Political rhetoric can cause a lot of uncertainty, which causes stock prices to come down, from the middle of April right through until the beginning of October. The great thing is that the bottom of the 4-year cycle occurs in the 1^st week of October and after that, markets got significantly higher.

Markets. An interesting market. The market we have today is kind of caught between 2 conundrums. 1.) What does tomorrow look like for the US market given how well we’ve done in 2013 and 2,) what do we do with these resources, basic material stocks in the Canadian market that have done so poorly over the last 2.5 years and will they recover. Banks have done well, have good dividends and moderate growth. Also, likes pipeline companies and the possible growth potential behind the pipelines. He can see 5%-7% dividend growth 3 to 7 years down the road.

Uranium. With the Japanese announcements of rethinking their views on shutting down nuclear reactors, he feels sentiment is going to swing back in favour of uranium. However, positive sentiment does not necessarily mean that uranium stocks are going to be racing back to the moon. We still have abundant mining capacity so the question is, what is going to be able to make money on a consistent basis over that long period of time.

Markets. Canadian market is outperforming the US and other markets. Not only are prices higher, but volume is up, financing is something like 4X what they were last year. This is partly due to last year’s underperformance but also the makeup of our market. Late cycle energy, gold has had a bit of a rebound and, as well, he is hearing that US investors are buying Canadian banks and Canadian energy stocks. Thinks the market can keep going.

Gas. A little more optimistic on the longer-term outlook for oil than he is for natural gas. Gas has benefited from the weather which has been remarkably cold, and as a result we have burned much more gas this year than we did last year, which has led to very low storage levels. US is going to be about 850-900 billion cubic feet deficit. Alberta storage is at the lowest since 2004, which is creating a lot of short-term price strength for natural gas. His concern in the near-term is at we are now entering a period where the peak demand for natural gas calms because we don’t have to heat our homes as much. At that point, we can now revert to more coal fuelled power generation and right now, because gas has been so strong and the price of coal has been so weak, he feels we could see some very material switching that the market is not appreciating. Looking out to the fall, we’ll probably see another strengthening of natural gas but a little cautious over the next 3-4 months.

Oil. Price of oil has been high and will remain high. For the first time in quite a while, we are now seeing a repatriation of funds out of the US into Canada. Especially if you consider the impact of a depreciating loonie, the price of oil in Canada now sells for more than it does in the US. Yet over the past 2 years, Canadian oil companies have greatly lagged its US peers. We are starting to see a catch-up occur and this is what excites him the most. Prefers the producers over the services.

His model is to hold around 20 stocks, unless they go to cash. 1/2 the stocks are 3 to 6 months holds, the other half is things like Microsoft which are longer term trades.

Watching people of the false sentiment indicators (dumb money indicators) is trying to see what the retail investor is thinking. Try to measure the extreme levels of bullish and bearish. Want to do the opposite of the retail investor. However, currently there is a low level of bearishness and a high level of neutrality in the market. It could be a leading indicator of a month or two down the road of a correction... a sign of caution in his mind.

A good website is sentimate trader.com

If there is a sell off this summer (and he thinks it will), then the year will end very strong.

Base Metals. A lot of eyes are on China right now, “are they growing”, “are they not going to be able to reach their targets”, so there were some sloppy trade numbers over the weekend. Imports for iron ore for China have been falling for the last couple of years. If you overlay that and the price of copper with the Chinese domestic market indexes, from 2010, all the indexes have rolled over. Copper has been in jeopardy of breaching the $3 support area for about 3 years now. If it does, that could accelerate some negativeness in the materials sector of base metal stocks. He thinks it is going to happen this time around.

Markets. Looking at the NASDAQ as it relates to the McClellan Oscillator of the NASDAQ, when we get a spike in the Oscillator to a high point and it starts to roll over, the markets may be making slight highs, but the number of stocks participating in the rally is starting to fade. That usually means we are going to go into a consolidation or have some kind of a correction. NASDAQ has been the leader for about 6 months now and it’s rolling over, so we have to watch. We used to watch Apple (AAPL-Q) but now we watch Google (GOOG-Q) and it hasn’t made a new high in March and is starting to roll over. If that plays out, then we are in for 3%, 4% or 5% correction in the next little while. He was a buyer in late January, early February for his clients when we had the last 5%-6% dip and he thinks another one is coming. This last week was the five-year anniversary from the bottom. We’ve had 29 months now of a rally in the S&P 500 without a 10% correction. That is the 2^nd longest in the history of the markets so we are due for a 10%-20% so we have to watch things carefully as these divergences play out.

Markets. TSX has lagged its US counterparts, mostly because of resources. In that 5 year period, the oil sector, gold sector, silver sector and base metals have all underperformed. They are such an important part of the TSX that, when they do lousy, the TSX does lousy. They far outweigh their peers in the American indices. Doesn’t see this changing. We are not seeing any kind of inflation or upward price pressure on the commodities with the sporadic exception of oil at around $100. There is no global shortage developing in the important metals. Statistics out of China today certainly indicate that if we are expecting China to drive the resource sector forward, it is a little disappointing. With this, it is difficult to see commodity companies making great strides forwards.

Financials. Canadian financial services is a terrific industry as a group. We have an oligopoly and when you have this, they do not compete as hard as they might and everybody makes lots of money. In the most recent quarter, all the capital ratios and profit margins are very strong. We now have the best IPO season that we’ve had for 10 years and all of them are going to make a lot of money on investment banking. He likes the technology sector in the US as it is so difficult to find these in Canada. He does own 2 US banks, J.P. Morgan (JPM-N) and Goldman Sachs (GS-N), both of which are going to benefit tremendously from this big IPO boom.

Technology. He owns technology companies in the US, simply because it is so difficult to invest in that sector in Canada. He owns companies like Qualcomm (QCOM-Q), Apple (AAPL-Q) and Microsoft (MSFT-Q). There are no equivalents in Canada.

REITs. What we saw last May when the “taper caper” started and everybody was panicking about interest rates, the REITs also fell off very sharply, mostly around 15%. While some of the utilities and pipelines and other interest sensitives came back, we haven’t seen the REITs come back. They are still at the discounted price from last summer. Buy them now and you get the great yield plus probably capital appreciation.