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

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.

Economy. He is bullish on the markets. We are getting a global scenario where it is coming together again. US is doing fine, Europe has seen the bottom, Japan is getting better. Although people are worried about emerging economies, there is still long-term growth there. Interest rates are going to stay low. Corporate profits are at record levels.

Markets. Constructive on US and Canadian stocks which got off to a little bit of a rough start and data was a little bit weaker than what would have been expected. The weather had an impact. Feels US economy is well on the road to recovery. Looking through 2013, the housing recovery seems to be well underway. Consumers’ confidence is still up. Hiring is not fantastic, but is not terrible either and is moving in the right direction. Looking for a reasonable growth of the US of about 3%-3.5% and this will trickle over into stronger growth in the Canadian economy.

Markets. Thinks that the pullback is now over. You have the Fed tapering, a hard landing in China and some emerging-market issues, but if you look at the emerging markets they had a big swoon in the summertime and this dip is not that big a deal. If you look at earnings reports of S&P 500 companies, 55% have beat expectations. He is going to blame the slow down in US numbers on the weather. Dow is up 90% in the past 5 years and since then we’ve had 18 corrections of 5% or more. It’s just a correction. The whole idea is to Buy low and Sell high. A lot of stocks have come down to 200 day moving averages, have bounced higher in the last couple of days and this is a great buying opportunity.

Markets. There is no secret formula for his 44% returns. He spent years reviewing strategies. If you want to succeed you need to have one style and stick with it, but have a few different tools in your tool kits. 28-28-28. Markets came off a bit in the last few weeks. There have been 28 declines of 10% or more since the late 1950s. We are in month 28 since the last major decline. He is positioned for markets going up and also for markets going down to the same extent. 83% of the time the S&P goes up after a good year for that index, so it may not go down this year.

Markets. This year, everybody was waiting for a correction. When emerging markets started showing a few cracks, we finally found our culprit and started blaming emerging markets. Very orderly selloff. Almost every large, blue chip US company was down, almost in unison of about 50% from their recent highs. It was too orderly to get him worried that it was a macro or an Asian contagion. There are some good things going on out there. He is definitely feeling there is a lot more room to run in this economy. Valuations have come back down to around 15X forward earnings. Gets a little bit worried about what is coming out of China. Growth is still great. You wonder how much they have stockpiled. Canadian investors really have to keep an eye on this. He is heavily underweight in resource stocks. Sitting somewhere around 6%-7% energy, which is vastly underweight the market. Feels the US economy is going to run at a less than optimal level, but we don’t have to worry too much about the market. He is worried about the US market and is particularly worried about the Chinese market and the growth rates of those economies. But we seem to be getting through this.