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

Gold. A lot of volatility in gold recently. He doesn’t worry too much about short term day-to-day volatility. Over the long term he wants to have a holding and is now low at 3%. ETFs weight toward the large caps and that is the way to go. Trying to bet on one particular company is very difficult.

Markets. September, seasonally, is by far the worst time of the year. 60% of September months are negative and you are looking at an average return of negative .05 over the last 7 years and .07 over the last 20. In addition, there are tensions in the Middle East so there are bumps ahead. He has about 20% in cash at this time and is dipping into certain areas that look interesting. Favouring the US over Canada right now. Canadian index is filled with either interest rate sensitive stocks or resources. On resources, China is moving away from the infrastructure story to the consumption story.

What is the best way to play the housing recovery? Housing stocks or lumber stocks? Names like Louisiana Pacific (LPX-N) will be much, much higher beta than a Home Depot (HD-N). Between those 2 you are looking at homebuilders and those types of names. Another way to play it is to look at some ETFs such as iShares US Home Construction (ITB-N) or SPDR Homebuilders (XHB-N). The lumber stocks are going to be a lot more volatile.

Markets. The remaining months of 2013 are going to be fairly uncertain for investors. There is escalating conflict in the Middle East together with the apparent slow down of emerging economies (affecting Canadian commodities). In the US we have the debt ceiling and the change of guard at the Federal Reserve. All of this is uncertainty and investors do not like uncertainty. If you follow your discipline, you are going to be looking for those opportunities to jump in. Underpinning everything else, the US is seeing signs of a recovery, slow but progressing. Even though the emerging economies are slowing down, they are still growing at twice the rate of the developed economies and there will be more and more demand for commodities. You want to pay close attention to balance sheets because, for whatever reason the economy does falter, you want to have companies that can wade through a period of slower growth.

Markets. Looking at the overall global economy, things continue to progress forward. Not rapidly. A very slow recovery out of the recession of 2008-2009. We’re just starting to get back to the point where we were in 2007 before the downturn. Banks are doing all the right things in terms of easy money to keep the economy going forward. Especially if you look at the US, there is a lot more self-confidence in consumers. This coming year you are going to see the US lead the globe forward. We saw very slight pullbacks on “the end of quantitative easing” and when this happens, that will be an opportunity.

Markets. Very positive long-term and thinks the US economy is recovering very nicely and rising interest rates on bonds are telling him that. Feels Europe has now bottomed and is starting to come back and this will more than offset any potential weakness in China. However, he feels that China is in the process of going from more of an exporting market to developing their own internal, which is also long-term positive. We are going into a typically seasonally weak period. Historically September and October can be weak months. If you have money to invest, use this weakness to buy your stocks.

US or Canadian banks and which is your favourite? He would be buying US banks rather than Canadian. Canadian banks have headwinds going forward whereas US banks have a lot more upside potential because of the growing economy and real estate markets. A steepening yield curve is also very good for US banks. He would look at Bank United (BKU-N) and BB&T Corp (BBT-N). He prefers regional banks. (See Top Picks.)

Commodities. Thinks these are perfectly all right. They’ve had a deep correction. Gold is hanging in at these extraordinary levels. There has been a winnowing of funding of assets but the good ones are there.

Precious metals. How would this be affected by a US military strike on Syria as well as the US tapering? We seemed to have passed the days when crises made a huge impact on gold. Gold is moving and gold stocks are quite solid at their retreated price. Gold is getting more difficult to find at any grade so it is a good thing to hold. Doesn’t think quantitative easing has anything to do with gold.

Markets. Favourable towards the energy sector right now. Just bought iUnits S&P/TSX Capped Energy ETF (XEG-T) for newer clients in June. Nothing was happening to clarify how oil was going to be getting to market but this has now become a lot clearer. Also, likes because it is Obtionable. September can be a very volatile month and there could be opportunities. Still very bullish on the US and if he sees a significant pullback he’ll be in. He insulates himself from volatility through asset allocation. You have to have something in the market that is not in equities. He has bonds, even though the yields are awful.

An ETF for income? First thing he would say is ”never trust yield”. When you see a quoted yield, don’t believe it. You have to look at what the yield to maturity is, not the distribution yield. He likes the iShares DEX Short-Term Bond (XSB-T). They handle the issue of premium bonds very well. He also likes the BMO Covered Call Cdn Banks ETF (ZWB-T). Right now he is being quite cautious on the income bond side. See Top (Picks.)

On large-cap dividend paying stocks, would you recommend selling “deep in money” Calls? Wouldn’t do this unless you want to lose the stocks. The trouble is, you’re not getting any time premium and that is what you want in Options. If you’ve got a stock that is $50 and you Sell a $45 $5 deep in the money Option, you are only going to get $0.50 in time value.

Do you have a REIT ETF that you would recommend? He has basically gotten out of his REITs, basically because of his concerns on interest rates. However, there is no reason to dismiss any from your portfolio. Just keep a smaller portion of them.

Markets. Expects improvements in the US economy to continue. Age demographics in the US favour buying a house and putting stuff in it rather than having already bought it. You should see an acceleration in home ownership levels which are the lowest since 1995. You want consumer, industrials, technology and financial sectors to be overweight. Any attack on Syria will have a short lived effect on the markets, with any effect being a buying opportunity.

Markets. There are a lot of potential bumps down the road. Will the Fed taper in September? The debt ceiling is approaching and they have a bad track record. The issue with Syria. Stress in the emerging markets related to the tapering threat. His view is that he errs on the side of not losing money so there are risks and he is protecting capital until things clear up. He holds cash – over 30%. It is dry powder for him if the market is going to go higher. He likes large caps, North American free cash flow companies. There are industries that have transformed themselves through the crisis and have potential to be much better than before. He stays away from money center banks. Prefers US regional banks. He likes automotive as it runs off a bottom, being transformed off bankruptcy. Tech is popular but he will not get into high multiples but rather those with more predictable cash flows. He also likes airlines.