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

Markets. Feels this bull market is pretty long in the tooth. His models are telling him that it is about 30% overvalued from here. Has primarily been driven by low interest rates, central banks flooding the system with money and a forced movement into equities, based on where yields are and what bonds are paying. Until governments and banks stop doing this, you will see the market continue going forward. At a certain point people are going to say that there is a certain price that they will pay, but if valuations keep going this could impede them going forward. This bull market corrects a little, consolidates and then goes higher again. He takes advantage of these corrections.

Markets. S&P has been lagging compared to Dow. But what we have seen is small caps leading large caps. 2013 has been largely about multiple expansion and we have had that now. Thinks we will get a rotation into 2014 into the large caps. Canadian financials are on fire this morning. If we look back two years, we had a peak in 2008. We are still 10% below the peaks. The energy sector is not making new all time highs. Same for mining sector. When energy is rebounding beyond the next couple of years, the TSX will lead the world. And the commodity story is range bound. China needs major restructuring. They are easing up on the one child policy.

Gold. It is tough right now. In the next few years we should get a new rally. Tapering on tap for 2014 and that means less liquidity. There is not a case for gold. We need inflation. Gold will be a range trader. Big base patterns are building in the gold stocks. If gold gets above 1500 then it means the market is pricing in inflation.

Canadian banks. Looks at it by ETFs. ZEB is equally weighted. You aren`t early on the banks. 5% yield with some upside potential and upside protection from the covered call option. ZUB is US banks but 1.5% dividend. US Banks could be better over the long term.

Educational Segment. Excess reserves are bad for the economy. The Fed has been buying bonds and created excessive reserves in the system. 2.4 Trillion in excess reserves have accumulated. That money is not getting put into the system. GDP does not get created unless that money gets lent out. That is the velocity of money. The fed will stimulate the economy if they stop paying interest on the excess reserves. The current velocity of money is the lowest since world war two. This is the Fed`s last bullet. So they will stop buying more bonds and stop paying interest on the reserves. This could cause a shoot up in the markets, but that is artificial and not real.

Markets. Resources continue to underperform. This is a reflection of the general economy. Low interest rates should filter down to the resources and have a beneficial effect. Europe is coming back from a two year slow down. Was positive one quarter ago. It will bounce around here for a bit, but lowering of interest rates should bode well, so it has bottomed. $100 plus for oil one year plus.

Silver. Thinks it will be challenged here. Investment demand is the key driver of demand and it is declining. Industrial demand is picking up. Longer term it should go up to $22-24, however. Be careful in this space short term.

Markets. This is the most wonderful time of the year. Stocks tend to go higher from now until the end of the year. Over the 6.5 weeks that are left in the remaining of the year, the S&P 500 tends to go 2.4% higher on average over the past 35 years. TSX tends to go 3.3% higher.

Oil. Tends to find a bottom at this time, but is seasonably weak from now until about the middle of December. He is actually Short oil. You don’t want to play this until the seasonal strength begins, which happens typically into January and February.

Cyclicals. This includes materials, technology, industrials and consumer discretionary. Retail does well up until the US Thanksgiving and then you want to rotate back into the broad sector. Everything cyclical tends to do well and is basically surrounding 2 key events 1) US Thanksgiving and 2) the Santa Claus rally, which is notorious from Dec 15 to Jan 3^rd.

Copper. Has a period of seasonal strength from January into March. However, the charts are not too favourable. At the moment. Intermediate trend is negative. He shows support at $3.04 for the spot price of copper. If it can actually find a higher low than the June low of $2.98, this could potentially give a reverse head and shoulders pattern. Average gains during the January-March period are about 10%, a phenomenal trade coming up in the 1^st quarter. However, you want to see the bottom and a higher low.

Technology. (including electronics) Has a period of seasonal strength from October 9 all the way to January 17, the Consumer Electronics Show. (CES in Vegas.) Right now we have good technology strength that is starting to outperform the market with higher highs and higher lows. Take advantage of the broad technology sector. There is generally a soft spot right around Christmas time.

Oil. If crude oil falls to about $80 US on WTI, that could have a significant impact on Canada. Right now differentials are pretty wide. His concern is that North American growth in supply for 2013 and again in 2014, is greater than the total world demand growth in 2013-2014 and OPEC is losing market share. OPEC has countries that are not producing as much as they can produce. Right now. OPEC has about 3.5 million of excess capacity. These countries need revenues. Not so much Saudi Arabia, but countries like Iraq, Nigeria, Venezuela, and Iran have large populations and a lot of subsidized food and energy, so they need revenues for day-to-day expenses. Libya, which is only producing 400,000, is losing $4 billion a month in revenue. If they bring up production, we will end up having a glut of oil. Right now, world demand is about 90 million. OPEC is producing 30-31 million. OPEC’s demand is about 29 million, so if they keep on producing more and then all this new capacity comes on, we could see prices retreat, maybe to the $70s, so people should be a bit cautious here. There is a 10% to 20% downside risk over the next couple of quarters.

The 1^st leg of the Keystone pipeline was to be opened in mid-December. Is this pipeline still a go and what effect will this have on North American oil prices? The pipeline that is coming from Cushing down to Texas is in the process of being completed and opening up which should knock differentials down. The politics of XL, the Canadian line going down to Cushing, is really the battle line. Obama is more to the environmentalists right now, so we’ll have to wait and see how that goes. In a worst-case scenario, he believes it will go through but it may take into the next administration in 2016.

Markets. He is expecting to see multiple expansion. Stocks are well supported here. Federal Reserve is in no rush to taper. Stocks are still trading cheaper than 10 year bonds. Money managers are tempted to chase performance. The overall macro picture tends to be bright in a staircase manner. Markets are not cheap, but are not expensive. The money world tends to follow the US, which is coming a lot closer to solving 2 of their long-term problems, energy independence in 2020 and healthcare costs. Interest rates are still incredibly low and the great rotation has not played out. The natural home for a lot of people that have been in cash or REITs or preferred shares is still the conservative dividend paying stocks.