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

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.

Resources. Natural gas is almost 5 years being down, heavy oil stocks haven’t gone anywhere for a long time and even in mining, there hasn’t been a single good story. However, today the world of resource investing is kind of okay. On gold, he has no idea where it is going, but you normally get a bottom in the summer which ended up at the end of June rather than the beginning this year. Looks like there has been a real technical bounce, which should last until the end of the year. On copper we are in the summer and it seems awful, but if you get a tick up, it is into the fall which is where you will actually get a rise on these things. If you need to be in this, it has to be in the summer. China just has to turn up a bit, which is a probable scenario.

Markets. He has been holding about 40% cash this summer and just raised another 8%. There are some bargains already starting to appear, especially in the interest sensitive things. There are some values in some of the higher dividend stocks but the truly interest sensitive stuff like REITs, they are a 100% cash flow oriented security, there is no reinvestment. You can see the sector rotation out of this type of thing and into some of the former ugly ducklings like gold. His target for the S&P 500 would be around mid-1500, which is right around the 200 day moving average. This would be a level of support.

Markets. Looking for a possible double digit correction. Over the past few days, there has been some weakness in the S&P 500, which broke through a key level of support at the 50 day moving average. Also, it was a horizontal level of resistance back in June that we cracked at 1655. We are now bumping up against this today and are due for a bit of a bounce as we are oversold. Seasonably, equity markets are the weakest come September/October as well as being the most volatile. The NYC Advance/Decline Line has distinctly stopped and formed a double top. This gives indication that the breadth is waning, we are seeing fewer and fewer stocks making new highs, momentum is fading which leads to a typical correction of double digit percentages. Also, the percentage of stocks that trade above their 200 day moving averages is rolling over too. When you see this rollover, the average decline in equity markets is about 12% and you can expect the same this time. This gives you opportunity to get in, in the fall.