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

Long PG-N and Short JNJ-N? Great businesses but because of demand for yield have had huge moves and are trading at multiples that are too high for their growth profile. Not a bad pairs trade, but instead he would short staples ETF and long Cyclicals ETF.

Would silver ever pass by gold in price? It would have to go a long way so he doesn’t see that. Silver is a more leveraged way to play gold. Silver has more demands but gold is more of a currency. Likes gold and silver but has small positions. Every investor should have some small weighting of gold and silver as a hedge. He uses ETFs (GLD or SLV).

Markets. The US will experience pretty decent DGP growth but it will stretch out a little bit further. Relatively low inflation and high unemployment and lot more room for growth. You are starting to see the US economy turn in the right direction. Our economy in Canada will do well as the US does well. If a company in Canada exports to the US they will benefit. Likes good management teams, relatively strong balance sheet with good organic growth potential. Looks for dividend growers.

Markets. May 22 we had a bearish key reversal in US and Canadian markets - an engulfing pattern on an equity index. The Hindenburg Omen indicator also happened - it implies the markets are past a short term peak and are showing extreme volatility. You got a large number of stocks hitting new highs as well as a large number hitting new lows. The death cross occurred also - the 50 day moving average crossed the 200 day moving average. He doesn’t necessarily believe in the death cross but a lot of analysts watch it. He is 77% in cash. He does selective seasonal trades in the summer.

Dow. It recently broke below its 20 day moving average. It broke a short term trading range about a week ago. It is slightly outperforming the S&P, so one of the indicators is actually positive. His downside target is 14,400 for the correction. If Dow goes below its 50 day moving average, look out below.

Gold Stocks. Historically they are building bases at this time of year until mid to end of July and then move significantly higher. Season ends in Oct.

Markets. He looks at tangible book value and cash flow, PE multiples, hidden assets like tax carry forwards. He is a stock picker. It is a bottom up approach. Exploration, production and service companies in oil are favourable. They often trade below tangible book and replacement value. There is a disconnect between investor and market sentiment. No one is talking about the S&P upgrading government debt in the US.

Markets. He is holding about 40% in cash. However, S&P 500 is starting to show support at the 50 day moving average so he might start to deploy the cash. Starting to see some Buy signals. Historically there is some softness until the end of June and then the markets start to pick up. In Canada there has been a major outflow from some of the interest sensitive sectors, which had been the leading sectors over the past few years. However, metals, golds, precious metals are starting to base, i.e., they are not making lower lows. Wouldn’t buy the sectors yet but is waiting for a breakout.

S&P 500. Chart shows a strong upward trend that has formed a channel from late 2011. The top of the channel was hit a short while ago and the S&P has been bouncing off the 50 day moving average. Bounced twice in the past 2 weeks. If the 50 day moving average does not hold over the next week or 2, he suggests that the lowest point they could get to would be in the mid-$1500’s.

Golds. Gold is basing and has found support at around $1350. Typically on a seasonal basis, gold moves sometime between July and the fall and it looks like it is right on schedule to do that again. This is a great play.

Interest Rates. 1.6% is where the 10 year bond landed and the fact that we are now at about 2.2% is actually a good thing. It means that we are finally out of this bunker. There is going to be an adjustment. A lot of stocks may have to have valuations altered somewhat. We are still probably in the low interest-rate environment for a long time, as long as we don’t have global synchronized growth or inflation. Use every bit of weakness to exploit it. There are going to be dividend stocks that get oversold that you are going to want to buy but there are going to be dividend stocks that can really benefit from higher interest rates.

US Markets. Cdn markets have been disappointing but he feels the real correction should be in the US. Even though things are improving there, a lot of the buying activity that we have seen over the last few months was due to the Japanese yen. The yen carry trade is going to be in doubt for a little while as Japan is pausing on their initiatives. US market is probably going to struggle until we start seeing earnings in about a month.

Markets. This has been a challenging time and frustrating when you see the US market up 15% for the year and we are basically flat. Emerging markets have generally been down so far. There had been a feeling that stocks have been overvalued and we’re getting a correction although the recovery is still somewhat uncertain. Recent setbacks are really preventing more opportunities for investors, particularly if you are looking longer-term, 3-5 years, over the next business cycle when he expects many of these commodities will come back.

In the event of a significant market correction, which categories of Cdn large cap stocks will be best able to continue their dividend payments in $ terms? If we had a big correction, the banks would be the place to be. Right now they are trading at around 11X earnings and 10X forward earnings. Payouts are roughly around 50%. They will be able to maintain their dollar dividends fairly substantially. Look for companies that have very strong balance sheets and payout ratios of 50% or less.

Markets. There are a couple of specific things that are needed to get the Cdn market moving again. On the energy side we need a catalyst such as the Keystone XL to get the Americans interested in our stocks again. You also need people to realize that we are not the same as US banks and are probably not going to have a mortgage crash. China is the biggest external thing beyond the US.