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

Uranium. There are a small number of buyers and that can influence it. From a tech point of view it is right up against resistance. Biggest strong period is now through end of July. If it breaks out then it would be a good buy.

REITs. Typically do well in the summer time. We would not go in now. Prefers other places in the market.

Markets. Most of the lower hanging fruit has been sort of picked off and a lot of that happened at a much faster rate than expected over the course of 2013. The consumer durables, those companies that are tied to the housing market, got a good lift because of the low interest-rate environment as well as the uptick. Now we are probably going to see a little bit more of a movement down towards the mid-cycle companies such as industrials, technology, and to some degree, energy companies because we are starting to see a little bit of that rotation happen and a movement of CapX which was sort of locked up last year. Thinks we have a couple of years to go. Putting it into context, since 2008, $400 billion has escaped the stock market and the great depression was an unprecedented amount of central bank intervention, basically a true test of modern gains in economics. That stretched out the business cycle. Here we are, 6 years after 2008, and a normal business cycle which lasts roughly 5 to 7 years and we still have room to grow and expand in this economic recovery beyond another 12 months. There will be choppiness this year and will probably be the reason you are not going to have the same stellar 30% performance as we did in 2013. However, this choppiness creates a stock picker’s opportunity by being able to choose those companies that are fundamentally sound, but trading at irrational valuations.

Gold. Gold has done quite well this year. He looks for sustainable momentum and wants to make sure a trend is good long-term before he gets into a particular stock. Thinks the current uptrend in gold is short-term. Doesn’t like this sector.

Markets. Expecting some choppiness in the US in the next several months. Economic data has been weak. Housing numbers are not very good. Auto sales have been a little bit weaker. We are kind of back to record levels in the S&P and in order to get that market to move higher, we need to see economic data that confirms we should be paying these types of valuations. The market might just trend sideways until we see these kind of numbers in the next couple of months and what we see coming out of emerging markets. Does not want exposure to certain emerging markets right now. There is a lot of risk right now on the credit side. Has been a lot of growth through credit and that has to unravel. From an economic perspective, emerging markets have inflation and growth problems, which they are combating by putting interest rates up which he feels is a poor policy. Also, doesn’t want to be overweight Europe relative to the US.

Markets. Feels there are a lot more problems out there than they were in 2008. At the same time, we are seeing much more of a recovery in the US and Europe, which is getting a lot more people interested in the market. A lot of people were scared and moved to the sidelines, but are now saying they don’t want their low interest-rated GIC’s and are looking to get back into the market, which will boost it up further. It is more difficult for him to find opportunities as he is looking at deep values. His Stock Watch list 5 years ago had over 350 names and it is now about half of that.

Markets. 2014 will be a more difficult year. Returns will be less than 2013. Also, expects to see more volatility, but all in all, a positive year. Emerging markets created some turmoil a few weeks ago. Not all emerging markets are the same. He is concerned about countries that are running current account deficits, countries that have a lot of US$ debt. The biggest emerging market you have to pay attention to is China. He is concerned about their financial system, wealth management products and will the Central Bank of China step in. Overall, debt level is higher than some of the reports indicate. Environment for dividend stocks is still quite good. You have low interest rates with a gradual economic recovery. Also, the weather has some impact.

Markets. We are seeing a rotation out of stocks that have been working into different areas now where investors are saying, okay this is the next leg. Last year markets were very strong. Looking underneath that, some sectors did very well and others did not, mostly mining. Has been a little bit of change in the last few weeks, with a tendency to take profits from a sector that did well to a sector that did not, and that is what we are seeing right now. Thinks it is going to be a pretty positive year overall. The risk would be if the momentum in the global economy does not continue however, he feels a lot of this is due to the harsh weather we have had in North America. Thinks this year is going to turn out to be a reasonable return year of 8%-10% but sector returns will be much more closely aligned.

Canadian $? Whether the dollar is going up or down is a question that every Canadian would like to know, especially if planning a March break getaway. Cdn$ has had a pretty good run over the last few years and we went to parity with the US$. This created a lot of problems for Canadian manufacturers. However, we have benefited from the whole global commodity boom with exports to China. This is not the case today which has created some weakness. Doesn’t see a lot more downside. Over the median side he can see a range of $0.85-$0.90 because our economy is basically linked to the US economy, and to a lesser point China.

Markets. They’ve been very strong, particularly south of the border and thinks we are looking at the best in 2 years in the US. Economic forecasters are calling for 3%+ probably backend loaded into the 2^nd half of the year in US growth. That translates into 7.5%-8% historical earnings growth and when you put in share buybacks, you are looking at the better part of 9%-10% earnings growth. Also, correlations between stocks and even within markets, is falling so the value of advice and the value of stock picking goes up in that kind of framework. There will be much more differentiation between winners and losers. He is still focusing on cyclicals. While, the defensives (pipelines, REITs, utilities, etc.) have done quite well in the last few weeks, the longer-term play will be in financials, industrials and technology. Towards the back half of the year, he’ll probably start looking at materials and energy.

Markets. It only took 3 or 4 days for the market to retrace 75% of the 5.8% pullback on the S&P. Difficult to time those types of things, but it is certainly a time to buy into that weakness. Emerging markets was really an excuse for the markets to sell off a bit at that point. Also, poor weather made some of the economic data a little bit weaker. Views Q4 in 2013 as the inflection point whereby the European economy is switching from a recession into an expansion. Typically, the best time to get into a market is 6 months before the turnaround. Compared to Canada, the US is fairly valued and is no longer cheap, but it is not expensive either. Thinks this year is going to be an environment whereby it is going to be more about micro or fundamentals rather than looking at the macro picture. He still would like to allocate more towards the US and Europe versus Canada.

Gold. He sees gold breaking out of the 200 day average, but is not sure this is extremely sustainable. We had a really oversold environment in gold and gold stocks last year, but with the US dollar moving up and inflation nowhere to be found, he is not sure that this is going to continue for a long period of time.

What US healthcare ETF would you recommend? Healthcare side has done very well and that is more typically a defensive play. Had some great returns last year. On a “go forward” basis in this area, he would probably be looking more at the growthier sides of healthcare; biotechs rather than pharmas. A biotech ETF that he would consider would be iShares NASDAQ Biotech (IBB-Q).

What ETF would you recommend for a young investor with a long time horizon who only wants about a quarter of their portfolio in bonds? In the equity space, he would probably look into diversifying European ETFs, US ETFs and maybe a bit of Canadian ETFs but he would overweight the US and European side. Likes SPDR Euro STOXX 50 (FEZ-N) on the European side. For the US, you can choose from so many.

Oil/Gas. A lot of companies are shifting to a dividend paying model because of a bunch of negative things that have happened. There was a change in Income Trust rules back in 2006 followed by the new Royalty framework in Alberta in 2007. Also a bunch of things happened in 2008 that scared investors. Feels that people are now saying “show me the cash; I don’t want to talk about growth”. Part of this would be demographics with baby boomers wanting to fund their retirement. As these dividend paying entities churn through their inventory of development to sustain their distribution, they’ll start to look elsewhere to add project inventory. This probably drags into some of the smaller companies that eventually become takeover targets. There is a possibility we could get into a bit of an M&A frenzy as dividend payers need to augment the sustainability of their production and therefore cash flow. We’re not there yet, but it is around the corner.