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

Economy. Companies have very low debt levels and have lots of cash on their balance sheets. The trouble is, debt was shifted to households and governments. Government debts are at a very high level which means there is going to be constant fiscal restraint in the US and globally, which will keep a cap on inflation. This also adds to slower growth globally. When a government is restrained like this, you have slower growth and higher unemployment for an extended period of time. With this, you have to think of the implications for the stock markets and the bond markets. As a sector, the US banking sector is a great place to be. The economy is improving, housing is getting better, the consumer is getting better, etc.

Global Markets. He is expecting global stocks to outperform over the next few years. If you are looking for above average returns over the next few years, stocks are the place to be. Believes that the commodity headwinds we have been seeing, will not affect those kinds of stocks because, when you look at the global marketplace, the commodity portion of those indexes is much smaller relative to Canada, Australia, etc. He would advise investors to reduce weightings in commodities. This industry will be challenged for the next couple of years.

Markets. US is obviously the most favoured nation in terms of flows. It is attracting inflows like a magnet right now, much more so than the rest of the world. There are very good reasons for that. You have household that are spending money again, home prices are improving, auto sales are improving, businesses are spending money and investing in hiring people and banks are lending again. Emerging markets will ultimately be considered as stocks on sale, but currently is still a falling knife. There are dark clouds gathering over emerging markets because of slowing growth and falling commodity prices.

Energy. Have been some positive developments on the macro side. Price of oil has moved significantly since May. Differential has shrunk quite a bit, partly because of refinery turnarounds as well as crude by rail. Crude by rail has been up 30% quarter over quarter which has helped alleviate the differential. Regarding the Syrian situation, there seems to always be a headline every so often resulting in a price increase premium in crude. However, oil has been trading up quite constructively in the last few months. She feels it could go to $130.

Canadian Drillers. Drilling activity in Canada is up year-over-year and we are seeing data points that are positive. Still down in the US. BC drilling activity is up 50% year-over-year. She is positively constructive on the drillers. We are entering the strong season, Q3 and Q4, for the drillers when the ground is harder and there is no flooding.

Markets. Thinks for the next 2 or 3 months, the market will go sideways. There are too many uncertainties in the short-term, such as what happens in Syria which could possibly result in the closing of the Suez Canal, driving up the cost of international shipping. Also, there is the outlook for interest rates. Feels we have seen the worst of the rise for the time being.

REITs. H&R, Artis, Chartwell and Riocan peaked about April 29/13 and declined quite a bit. As an example, the yield on H&R was 5.36% and is now 6.45%, an increase of 117 basis points and somewhat similar for the other 3. Looking at the 10 year Canada’s, they are only up about 95 basis points. He doesn’t think higher interest rates necessarily hurt the REITs, providing rates go up in the moderate fashion. This is a great time to own them.

Markets. Syria is creating problems. There always seems to be something in the Middle East that is affecting oil prices, stocks and confidence in the market. For something like this, he just sits on the sideline. Doesn’t jump in aggressively. He’ll wait until this shakes out. His theme is expected growth in the US. Avoiding sectors that will be a value trap. His portfolio has become very un-Canadian, not very resource heavy other than the lumber stocks which are more exposed to the US.

Markets. It is multiples that people are willing to pay, not earnings. With the announcement of QE, multiples started to expand. Discussions of when it will taper may have an impact if earnings are just sluggish at best. The key thing is what will allow you to sleep at night when structuring a portfolio. He uses bonds now even though interest rates are going up. Stocks may fall in the next little while.

[Caller asked about Fedex, Disney and Amex, which one?] Fedex has some growth profile but not in the next 3-5 years. Potentially some more growth in Disney, but he is cautious. AMEX may be the best bet for the next few years.

[Which Canadian Telecom stock against Verizon?] If they come in and compete, T-T may be the biggest beneficiary and may get a take-over attempt, not that the government would allow it.

Educational Segment. Protecting against volatility. A Sleep at night portfolio. List of tickers:

He will tilt the portfolio over the next 3 months. Understanding this for most people will be very, very important.

Markets. Maybe it is time to be a little contrarian to being defensive. We have been in an uptrend in earning indicators. Looks like rates will spike up. Sept 18/19 we get news about potential tapering and then there are German elections. There is still a lot of cash out there but there is a separation between correlations in stocks. If you can pick the right stocks you could do well. He has a US bias over Canada. Dividend payers and safety names and broader names in cyclicals. Likes technology and industrials as well as financials.

Markets. A little bit of weakness in the US, particularly near the end of the day, but seasonal. Historically September has been a relatively poor month. Overall, he remains pretty constructive medium to longer term. He is probably carrying a little bit more cash than he normally would about 6% compared to his normal 3%-4%.

P/E valuations? P/E depends on the sector and the growth rate of the company. It is important to look at this but the more important thing is the PEG ratio. If you understand the business model and you can see steady, consistent growth, at whatever rate that might be, you relate this back to the P/E and come to the PEG ratio. Ideally he would like to buy it at 1 or below, but more realistically at anything under 1.5 as a reasonable entry point.