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

Gold ETFs? It would not surprise him to see gold down around $800-$900.

Markets. Good news on the US on the jobs front, but the 10 year bond says we are spooked. The market has been spooked for a while. The Ukraine, Europe (debt to GDP ratio). And today, for some reason no one is buying. The Euro is an issue but not a major one. 10 year treasuries being flat is more a case the Fed taking money out of the system. Interest rates in the short term will be pretty well contained. The fed wants a controlled, sustained recovery with steady interest rates. Credit quality becomes an issue as you move down the credit quality spectrum. Triple ‘C’ credit spreads have traded from 500 to 3500 and are at 550 so are as tight as they have ever been. You can see how expensive they have been and how expensive they are now. They are not cheap. Thinks we are at risk of an interest rate spike. You should be selling triple ‘C’ for something with a better risk adjusted return such as triple ‘B’. This is the spot where you can earn a reasonable return with a reasonable risk. This should be comfortable for 12 months.

Preferred Shares vs. Bonds in Rising Interest Rates: Both have interest rate exposure. Use inflation protected funds that protect against rising interest rates. Preferreds are equities, but sold to investors like they are bonds. If they go into default you don’t get any money back. Bonds give you most of your money back. Preferreds have call features that are to the advantage of the corporation. If preferred and common have the same yield, then go with the equity. Perpetual fixed for life have the most impact from interest rates.

REITs. Are pretty well valued. REIT companies are very sensitive to interest rates (negatively). Valuations are really high. However, in Canada, REITs are not bad. Prefers office or commercial properties.

Sweet Spot in Duration of Corporate Bonds: The cross over is a function of investor’s tolerance for losses. If you can earn 5% over 10 years then that is fine. But if you can’t handle -15% then you need to focus on shorter duration.

Fidelity American High Yield Currency Mutual Fund. Fund has performed well over the last two to three years. He doesn’t recommend Canadians getting into US$ bonds and funds. Find yourself a fund that hedges out interest rate exposure and move up to double ‘B’ credits.

Markets. There are 2 markets he is staying away from. Japanese, which he thinks is just a financial engineering trade and at some point the Japanese government will think about it appropriately and restructure the economy and you will have the mother of all trades. Right now they’re just engineering the currency laws. Latin America is still slowing down. Commodities are hitting lower levels. This is affecting across the economy and causing inflation, etc. However, he is seeing some signs that Latin America is starting to heal, or at least hit the bottom. Likes emerging markets and developed Asia. Last year money ran very aggressively into the large developed regions such as the US. US bank stocks were up 77% last year. They are only grinding out 1% gain year-over-year in growth.

Bond Fund Recommendation. It is possible bonds go lower in the very short term. You make more money if you use a longer duration. Look for an ETF holding longer bonds.

Markets. Q1 was sluggish. The weather was particularly bad in quite a bit of North America. When there is a blizzard outside, you don’t rush out to buy a car or a new house. Feels that a lot of spending has been deferred from Q1 to Q2. Expects a very strong Q2, which will put the year back on track where the optimists thought it would be, as opposed to the pessimists.

Energy. So many of the stocks are seemingly at very lofty levels, but feels this is still a good entry point. There is a couple hundred billion dollars of investments going into energy infrastructure. A lot of these companies have bigger CapX programs ahead of them than they have ever had. If we are in an inning, it is probably more like the 3^rd inning in the story of western infrastructure spend.

Consumer Discretionary. Thinks we are going to see some pent-up demand on the spending side. As job numbers continue to be strong across North America, that is putting money in people’s pockets. Their confidence is coming back. The American consumer is under leveraged and they love to spend. Once they know their job is secure, they are going to be buying the new home, the new car, etc.

Markets. BNS looking to sell off stake in CI Financial after it was thought they would buy them out. CI has been the darling of asset management. BNS probably saw they could get a good dollar for it and evaluated how it fitted in with their strategy. S&P is at an all time high, but there are concerns. VIX's low meaning investors are complacent. Small caps have been underperforming while the broad market has been setting highs. Small caps usually lead. Market usually gets softer at this time of year. This big divergence between small and large concerns him so he is cautious. We are at a major support level for the Russell 2000. This is when the big drops occur in the market. You have to be more defensive right now.

Combinations of technical indicators to decide on selling stocks. Every investor is different. There is no one set indicator. He has target dates to get into and out of a sector. Looks at moving averages and short term momentum indicators. Stochastics, RSI, etc.

Gold bullion is July 12 until beginning of Oct, seasonally. And end of Sept for gold stocks. The trade has worked quite well in recent years. He would start looking at gold a month earlier.

Markets. We always hear that there is a market correction coming, but it would be awfully nice to know “when” this correction was coming. Consensus seems to be that “it is happening”. He is looking at market internals to see on the short term where these internals are pointing to when it comes to market direction. On the S&P 500, the options for the put/call ratio, which usually trades between .6 and .86, closed on Friday at .72. It needs many days below .6 to point to a market top. Also, looked at Total Ticks and on Friday the closing Ticks was about 147. We need 700 to point to a market top. Intraday on the plus side, Ticks were at about 1100 and it needs to be at 1500 to be at a market top. All these things plus others are saying we are nowhere near a top. Indicators are telling you not to be afraid to buy something. Bear in mind that these are very short term indicators. You can use these indicators to trade the S&P 500 as well.