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

Pipelines. This issue is not going away quickly. Keystone XL has the southern leg built and who knows on the northern leg? Also, other projects inside of Canada such as the Eastern project that is going to drive crude oil East. These issues are not going to be resolved quickly. In the meantime, the producers have responded with CBRs (crude by rail) to get their product to market. This doesn’t work in all cases. Sometimes crude can be very volatile, some of the lighter blends in particular, but for heavy oil producers, the volatility is not there. Thinks crude by rail will be a big benefit to industry, without the pipelines even being built.

Gas. A pretty safe bet that gas prices will behave differently this summer than they did last summer. This is because of the spiky nature in what happened in Alberta in this past week with gas prices hitting the stratosphere. Gas storage inventories in the US are going to be at all-time lows. The injection season could prove pretty beneficial to gas producers.

Markets. Markets tend to go down in January and then go up from February through April and then we go into a corrective phase from the middle of April right through until the beginning of October. From the bottom of September into early October, markets reach a four-year cycle of lows and move higher right through until the end of the year.

Oil. Crude oil broke out of the chart today and looks fascinating going forward. Seasonal strength is from now right through until around the 3^rd week of April. Continues after that, but that is the sweet spot. Another reason it is happening has to do with weather. It is really cold this year and as a result people are using oil for heating more but also, as you get past the heating season, you get into the typically rebound in the spring where people are buying refrigerators, cars, etc. This year, there will be a slingshot effect. Economy is still now, but it is going to really recover as we get into springtime. That will drive crude oil prices even higher.

Gold. Completed a reverse head and shoulders pattern earlier this week so it is finally getting into gear. Gold stocks are actually outperforming gold itself. That is a good sign for both. Chart indicates that gold could reach $1350 or so in the next couple of months.

Markets. If you look at the disappointing payroll numbers from non-farm payroll, the household job numbers may be better and some prefer these. We had a record amount of wealth created last year. Markets are reacting favorably to US fed talk. Emerging markets he thinks will not slow down due to tapering. Most of the governors are focused on getting of the QE program. Money from the US may want to come back and that puts a little pressure on the emerging markets. He doesn’t think there are any big events in the emerging markets. He is split equally between Canadian and US markets. Canadian growth projections are lower than US and he thinks they may be a little high at that. He likes Europe a lot where businesses are growing. CGI announced a big contract today in Europe and he thinks you will see more of that. He also likes the consumer discretionary space in the US.

Canadian banks are a popular asset class. Have been great except for ‘08/’09. Banks in the US are levered to underlying economy. BNS is more internationally levered than the others but TD is pretty well exposed, especially in the northern US. He doesn’t own any. Economic growth is not what you think. He has City Group in the US. He has no European banks because of the issues with the banking system.

Markets. Markets rallied after the fed chairwoman Yellin spoke as a reaffirmation that it is steady as she goes. There were no surprises. Reconfirmation that tapering was going to happen but the world is not ending. US economy is growing. The private sector growth is growing, not like gangbusters, but is growing. This helps underpin the equity market. As to bonds, he has always been in the camp that interest rates would probably stay low and that deflation is more of a concern than inflation. Because of this, looking at the bond yield curve, he exited out of emergency lending issues in 08-09 and started normalizing the interest rate curve.

REITs. The whole sector has had a real shift. Less on growth and more on sustainability. The real estate sector, over the last 2 years, has really lowered their payout ratios to a much safer level which is really good for the sector. Wouldn’t be surprised in the next year or 2 to see some distribution increases.

Markets. There is a lot of market chatter about the market backing off on tapering. They are saying if the pace does not continue in the labour market then they will not be as aggressive on tapering. Feb 27 is the drop dead date for the debt ceiling. Doubts they will shut down the government. Thinks the markets will grind higher and last week the markets corrected so there is a leg upward to come. If you lost your job right now at 50+ and looked around for a year and found nothing then you would likely retire. It is a demographic change that policy can’t control. People are choosing to retire early if they have the means.

VIX. ETFs track the VIX futures and have a forward price premium in them. The ones with leverage in them cannot be used for a long time because of rebalancing. Nothing really tracks the spot VIX very well.

Oil. Short term, anything goes for oil. There could be a pipeline issue somewhere. There could be a short term supply issue or some money flowing into a hedge. It will probably trade in this range for the next 5 years. You want to add money at the bottom and take it out at the top. When pipelines are built, Canadian energy stocks should take off. There is no immediate catalyst to change the range bound nature of oil.

Educational Segment. Dow in 1929 and Today. Chart showing that crashes have a similar pattern. 29 vs. 87. The difference is that the 87 crash was actually the low. Current vs. 29 shows we have one more leg up before a crash. A lot of people are concerned about this right now. The fact is that we don’t know if history will repeat itself. He then showed a chart of percentages and showed we are nowhere near the extremes of 1929. If you believe a crash will happen then take money off the table every time the market goes up a couple more percent. Then put the money into long bonds. The sleep-at-night factor. How much do you take off the table? He is focusing on this on his speaking tour. Don’t lose sleep but learn how to navigate your portfolio.

Markets. Markets are taking a bit of a breather. 2013 was great. Now some of the economic data is soft and the weather plays a factor. It is realistic that buying and building go on a pause. Quality of earnings this year is really going to matter. Now it is about margins and cash flow. Industrials in the US are the best bet for 2014. Incremental margins are going to be quite high. Banks are repairing themselves. The challenge in a balanced fund is having the right mix of growth and bonds. He has mostly high yield bonds and he is overweight equities vs. bonds.

Dupont Performance Coatings 7-3/8, 2021 Bond. (Top Pick Feb 04’13, Up 13.70%) Dupont spun out their coatings or paint business. Dupont Performance Coatings was bought and the bond was re-named. He use to own the high yield bonds but now has sold.