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

Is an ADR for a European company a European stock or a US stock for geopolitical risk, etc.? He says it is definitively a European stock. The underlying company is still generating earnings in their own currency. To be an ADR, however, it must meet accounting and audit requirements of the US.

Tapering is not going to take place in the next couple of weeks. Nothing will happen until the end of January and then probably not until March. It is a headwind when it happens.

Energy. Energy is considered a more risky asset class, but she is seeing more “risk-on” days coming versus the past 5 years. Feels generally like the energy sector is working, especially in a lot of countries where you are seeing five-year highs, but not so much in Canada. $4-$4.50 for natural gas is a pretty good price for 2014 but may dip down in pockets of trading. It seems like the coal/gas switching has really tightened up the trading band of where natural gas trades. Crude oil has seen some weakness in the last week or so. It sort of approached the lower end of the trading band, but has improved in the last few days. US numbers on global, GDP growth, etc. that came out this morning will definitely help crude. On the flip side, with all the US production of light oil increasing, it has a lot of people worried, but she does not think crude will crash. The $85-$105 WTI US$ per barrel range is what she has been using for the last couple of years and still feels that is intact.

Cardinal Energy is a new IPO opening up next week. She is not participating in the offering, but it was very close. Chose a different one (See Top Picks). Looks like it is going to set up for a nice dividend paying oil focused company led by a management team that has done this numerous times. Suspects you won’t be in a lot of trouble holding this stock.

Colombia. Not extremely worried but a little worried about the general climate. New president and a little less tough on crime. She got out of all 3 of her Colombian holdings in the last year.

Economy. We have continued, slow economic recovery out of the 2008-2009 downturn. Sluggish but moving forward. Right now there is more momentum than there has been in a long time. Politicians in Washington have been acting like a bunch of little kids for some time and this will probably happen again in February. More and more people are feeling that things are getting better in Europe. This is a pretty good set up for an economic backdrop for 2014. His funds are all about trying to maximize long-term growth of clients’ wealth. Does this by finding really good companies that are going someplace and doing something better than other companies and generating a lot of free cash flow for the long-term. He is only willing to pay when they are trading at a discount.

Markets. Still seeing good earnings growth in the US at about 6%. Also, there is starting to be some stabilization in Europe, albeit at a very modest level. Asia is stabilizing. The Chinese PEI numbers are coming out fairly good. Also, there is a commitment from Central banks globally to keep interest rates very, very low for an extended period of time. US Fed is putting in $85 billion a month and there may be tapering, but 1^st the government is borrowing a lot less money than it used to, 2^nd the government is just not going to stop buying all kinds of bonds, they are just going to reduce the amount they are going to buy and 3^rd they’ve made a commitment to keep rates low, probably well out into 2015. This gives you a fairly clear runway of issues you can see.

Markets. Longer-term, you are going to continue to see a gradual appreciation of wealth in China but there are regional disparities. Anything to do with staples is going to run. Recently announced policy changes are going to be supportive. Going through Hong Kong or some of the US ADRs will give some opportunities to look at. He is seeing big gains in his European portfolios as capital flows to Europe on the back of an expected recovery. The recovery is still very slow. Staying away from South America. Latin America has some big challenges. After a decade of big commodity growth, apart from a couple of isolated markets, you have some government interference and big inflation problems, and once those issues are fully dealt with, there will be some big opportunities, but right now he is definitely staying away.

Oil/Natural Gas. Globally and in the US, things are looking pretty solid. Economic growth will finally get a bit of a kick start from the consumer in the US next year. Businesses will start finally spending the cash that is on their balance sheets. This is good for industrials. It all filters through when you have an economically sensitive commodity like oil or natural gas. This should put a bit into the commodity and, as a result, the stocks. Current price on oil is probably as good as you are probably going to get on a fundamental basis. $85-$100 is where crude is going to trade. To get it through $100 on the upside would take some sort of political supply shock. There is some demand destruction happening in crude because of more natural gas being used for power but, also we are living our lives more efficiently creating less demand in general on crude oil. Feels the spread between WTI and WCS will narrow by Q1 of next year. Mid 2014, Enbridge (ENB-T) will be bringing on another pipeline from Chicago down to Cushing, so there is light at the end of the tunnel. On natural gas, he is definitely seeing a lot of the basins reaching peak production. There is increased demand from coal to gas switching and there are declines in the shale gas wells starting to express themselves. The current quote of about $4 will be the new minimum and $4-$5 might be the quote we look at on NYMEX over the next couple of years, which is very positive for the low cost producers he likes to invest in.

Markets. December is the best month for the Toronto market for the whole year, but it is all happening in the last 2 weeks. One of the reasons is that it is Christmas and people are in a great mood and love to be buyers of stocks. Brokers are coming out with investment reports with positive projections. Analysts are finding that their 2015 estimates are too low and they have to research targets. Also, tax loss selling pressures come off in the latter part of December. People anticipate lots of good news when CEOs release fourth-quarter results. Companies have got a ton of cash on their books and they want to spend that money, so they decide to either expand their operations or do share buybacks. (See Top Picks.)

Silver. The real sweet spot comes in at around the beginning of January, right through until the end of February. Right now is a time when silver has a tendency to reach a fairly important low and starts to recover and level. This is more of an industrial than anything else and everything that is industrial commodity related, have all popped today. There was some real good technical action in the Chinese market yesterday. China bought crude oil, silver, copper, gold and these are the sections that are starting to catch a little bit of action. This usually doesn’t happen until the middle of summer, so they are earlier this year.

Is there a correlation between Technical Analysis and Fundamental Analysis or are they completely separate? These are very closely related. As a seasonality analyst, he looks for annual recurring events and looks to see if these events are happening in the current year. If Yes, then you have a seasonal trade.

Markets. Value is a moving target. He has to look at a lot more stocks to find one to buy right now. Not into the banks. Below tangible book, hidden assets, etc. are what he looks for. People are always looking over their shoulder even though markets have done so well. Better economic news could be a catalyst. Better earnings would be helpful. Lots of M&A. Weakness would be an indicator to buy. It’s a trading market and a stock picking market. Expects Santa Clause rally. The rotation from bonds into equities is happening.

Markets. 2014. Earnings estimates have not been ratcheted up as often happens on top-down analysis. Going into a period where you are looking out 9-12 months, the top-down analysts tend to be a little more buoyant than those looking at it, company by company. As we get closer to the reporting period, the numbers come down. 2014 is not at that point right now. Feels people have their feet on the ground and understand that we are late in the cycle. Earnings have done well, but you have to be realistic about what earnings can do given the economic background. We really haven’t had a normal cycle. Excesses that we normally see in 3, 4 and 5 years of economic growth are just not there. This leads him to think that maybe we are going to have an elongated cycle that will be more tepid. Time will tell. He tries to look at, company by company. Stock market isn’t really overvalued compared to what it has been in these types of environment in the past. Feels healthcare is a sector that has been held back because of the healthcare law that is having so much trouble getting into practice. This creates some opportunity.

Markets. What is the risk that investors take profits before year end? He thinks we do not have to worry about pull backs until January. There was very aggressive selling in TSX and S&P before the close on Friday but this happens about this time of the year. Excitement about Christmas sales occurs this time of year but over the weekend, reports were mediocre on retail sales. XRT is an equal weighted ETF on US retailing. He feels it is fairly fully priced at this point. XWB gets you into banks before earnings are released.