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

Markets. For the last 2 months, she has thought the markets were somewhat overbought so she has some cash on the sidelines to take advantage of any weakness. Finding a large majority of the stocks she is interested in buying, particularly in the US, are too expensive for her right now.

Income investments. Has been negative on bonds for the last few years and doesn’t hold very much in the way of actual bonds. What she does hold are very short term bonds that she ladders so that they mature every 6 months and she doesn’t go out beyond 2 years. For clients that need fixed income, she has gone to the preferred shares market and they have been hurt somewhat by the rising interest rates and have corrected by about 5%. For those clients that need cash flow, she has gone to the REITs and high-yielding products such as pipelines, etc.

Economics. Data is actually improving. US recovery is happening although it is slow. Apparently now the Euro zone is actually out of the recession, which means that on the margin it is not going to detract from earnings, maybe stabilize and add to earnings. This gives the Fed some leeway to perhaps pull back a bit.

Energy stocks. Are improvement in prices a seasonal move or are we seeing something bigger than that? It is encouraging that we have seen WTI prices move up to about $107. Part of that has been political unrest and potential turmoil in the East. Also, there were infrastructure issues in the beginning of the year and they are still there but there are plans to increase world capacity by 700,000 barrels per day by 2015. Still thinks the pipelines will be needed. Crude could pull back by maybe $10 but it is encouraging that it has moved up.

Interest Rates. Thinks the Federal Reserve has lost control of interest rates. Had expected interest rates to come down a lot more than what they did. They can’t build homes if interest rates are going up, which is why housing stocks are coming down. There are 3 forces that are coming together. 1) Rise in interest rates 2) physical rise in gold/silver and 3) geopolitics. These are all interconnected through the paradigm shift between currencies. Debt problem is being solved with more and more debt. Japanese and Europeans are over debted. The federal government cannot taper. The reason why the bond market and stock market are getting nailed is because $85 billion is not enough. The only way to control interest rates is to buy the debt so they have to print more. They’ve lost control. Bond market has taken over. Bond managers’ fiduciary duties are to pensioners. They are selling their debt because they think the economic plan of the fed is not going to work.

Gold. Thinks that the “go forward” rates are signalling that somebody is almost running out. J.P. Morgan has 100,000 ounces left in its vault. The Comex is below 1 million. It was reported that the Bank of England had 500,000 ounces at the beginning of last year and are now down to 4300. There is more and more physical leaving and going to Asia. This is having massive strains on the physical. For every ounce on the Comex right now there are 50 paper contracts against them. We are pretty close to a massive problem in the physical gold market, which will be very bullish for the producers.

If the US Republicans should refuse to increase the US debt ceiling this autumn and put the country into default, what would the ramifications likely be for gold, silver, US and Cdn $’s? He doesn’t see any difference between the parties. To him it is all noise. The only thing the government can do is accelerate money printing so debts have to increase. Countries never default. All they do is print money. Killing the dollar is the only way you are going to pay back the debt. Feels this is also going to be solved if what is happening within the G 20 nations, which is looking to set up a new monetary system.

Markets. QE ending is one thing but what you have to focus on is how banks around the world are focused on keeping bond rates low. Don’t expect mortgage rates to spike higher. Europe is coming out of the recession. They are two years behind the US, who are not growing as fast as everyone expects them to do. This cycle could be 5-10 years. For energy stocks and most commodities, you need positive GDP growth and growing global demand. But the world is becoming more efficient at burning oil. A lot of the money he manages has a dividend mandate. He is not moving away from them. He has moved a little down market cap, though.

Interest rates. Wasn’t shocked that there was a shift out of interest-rate sensitive stocks but the effect on the shares was very significant. Thinks people have backed off that to some extent and the fed has come out mellower than they were with the 1^st statement. It is inevitable that rates are going to go up from a very low level. Even if they go up 100 basis points, the dividend yields are still very competitive versus 10 year Canada bonds. Thinks dividend stocks for his clients are #1 and expect them to earn 8%-10% longer-term. If he can have portfolios that produce a 4% yield and the yield gets compounded year after year plus dividend growth year after year, you can get half your performance just from dividend growth.

Markets. TSX is still in a trading range of $11,500-$13,500 and he doesn’t see what gets us out of this range. It’s a slow growth environment with low inflation. Corporate earnings are starting to slow because the top line is starting to slow. Most corporations have done the capital cost cuts that they can do, so they really need revenue growth to have earnings grow double digits.

What are some subtle signs that a company will both sustain and increase dividends? Basically he starts at the top line looking at revenue growth and then seeing how efficiently they can grow their revenue and keep the costs down. That goes into cash flow and cash flow goes into free cash flow and earnings, so if you can see a trend of earnings rising and free cash flow rising, he hopes that management will give it back to the shareholders

Economy. Was very excited when Europe just announced that they had finally gotten out of a recession after a 2 year slowdown. Also, US economy is motoring ahead both with housing sales at a five-year high and good auto sales. That bodes well for the global economy. China, on the other hand, has dictated to the market that it is more comfortable with a 7% to 8% growth, even though that is down from their high of 10% before. Therefore, world economies are doing well, which justifies the move there has been in the market.

Resources. It is time to take a bit of risk and dip your toes in. Economies are doing well and therefore this will require a lot more energy to run the economies and a lot more base metals to construct houses, manufacture autos, etc. The materials sector, year to date, is down a whopping 28%-30%. Energy sector is basically flat. He sees investors shifting into the more cyclical plays. Even in the past 2 weeks, the TSX has outperformed the Dow and S&P, which is a reflection that investors are looking at the energy sector and materials sector. Best opportunities are found in companies that have a global scale. For example, Mexico is looking to expand their oil/gas operations. Companies with a global platform are able to put their money’s into different countries to capitalize on the opportunities.

Markets. We have seen Europe come out of recession today and some good numbers coming out of China. The US seems to be moving along at good speed economically. Inside that big picture, you have all kinds of great little stories playing out. It’s a fun time to be an investor. Thinks that the tepid growth is going to be long and slow, but it is going to be growth just the same. Fundamentally, he thinks valuations in US are a little stretched and we may be better off owning some Canadian securities at this time. He is tapering out of the US and moving into Canada.

Uranium? He doesn’t own any. It is still a Japanese issue. We know that uranium is probably the power of the future, but right now it is dead. If you are going to buy a uranium stock, you have to buy Cameco (CCO-T).