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

10-year Government Canada Bond. In 2010 and 2011, economists and much of the mainstream media were saying that rates have to rise but it didn’t happen. This market is where it is because of all the money that has been pushed at it. Risk/reward is really good from here. This could just be a short term play that carries you over into October.

Energy. Feels energy has turned the corner but candidly it is still the same old, same old. There were some big changes in Cdn. domestic oil and natural gas prices but it doesn’t appear to have shown up in the stock market yet. Thinks the winds of change are shifting in favour of the sector. US institutional community essentially abandoned Cdn. energy, which is part of the reason stocks have been so horribly underperforming. Feels Bay Street will react when they see some buying volume coming out of the US. Seems the Keystone issue has the whole market on hold. On 1^st quarter numbers, oil prices don’t look that great relative to where they are today. 2^nd quarter numbers might actually look pretty good on a relative basis. Doesn’t expect to see too much of a change in WTI pricing but thinks the spread between WTI and Cdn. prices will narrow and expects the spread between Cdn, light and heavy oil will continue to narrow. Also, positive on natural gas prices.

Markets. Expects to see this bull market continue for a couple more years. Bull markets tend to follow themselves in serial form for many, many years. Believes the turning point was in March 2009 where sentiment indicators, return indicators, etc. all pointed to all-time record lows in equities. They were hated and had 10-15 years of underperformance. Bonds have not felt the pain yet but they will. There will really be only one place to go and that is into equities. He believes the US is going to lead the rest of the world out of a very negative growth cycle. He likes US financials, technology and industrials.

US banks? He likes US banks. They are still in the midst of recovering their multiples and, on average, still trade at a 30%-40% discount to Canadian banks.

Markets. Expects stocks to be sharply higher over the next 2-3 years. He is bullish on the global economy. Feels that economies are like giant ships, they have momentum in one direction. Feels 2009 was the bottom and we are slowly moving out. Seeing some rotation into more cyclical stocks. Once there is more of a belief that we are getting a more global recovery, money will shift to companies that are still trading at discounts and that are more tied to global economic growth.

iShares Corp Bonds (XCB-T) or iShares Gov’t Bond ETF (XGB-T) or stick with preferred shares? He would stick with preferred shares. He is not a fan of the fixed income side at all. XCB is going to be at risk if rates start to go higher

Markets. Thinks his broad theme of energy, infrastructure and dividend payers for his clients will remain in place. Over the last 3 years, every once in a while, there are little upticks that people thinks points to an acceleration in the economy which gets money slightly rotating to cyclical securities. Every one of those have run out of gas shortly afterwards and you get a reassertion of the dividend trade. There is some money stepping out into US domestic based cyclical exposure, like consumer discretionary and financials. Generally he thinks this continues to be the dominating theme in this market.

Markets. There will be some kind of consolidation – a secular bull market. Doesn’t see that companies can keep pushing earnings higher. He would like to see the fed back away from the market and let it stand on its own legs. It is difficult to determine how robust the economy is underneath the stimulus. He can find names with pretty decent balance sheets and that can grow earnings.

Markets. Doesn’t think the fed is tightening any time soon. They are taking their foot off the accelerator but they are still in easing mode. The run has been 6 months and there has not been a correction. He thinks deflation is a bigger risk than inflation. Thinks there is phenomenal growth in emerging markets over the last few years but now there is some money coming out of those markets.

Preferreds. Doesn’t think interest rates will go up any time soon. Preferreds have a 2-4% premium that would be wiped out if interest rates normalized. But he doesn’t see it in a material way right here. He would consider that when the commons pull back 10-15%, flip out of the preferreds and buy the commons.

Gold. Emerging market countries are starting to acquire gold. If we have another global crisis then maybe gold has another move higher, but he doesn’t see it.

Educational Segment. Have we seen a healthy correction in the US markets? 2 weeks back to back of negative behavior in the S&P. Candle stick charts. The bigger the bar, the bigger the change from opening and closing price. Slide showed the 5 basic patterns. What we see on the S&P in the last couple of weeks, we are getting 1 to 2 months of correction after the recent move. What we are seeing is bearish. Doesn’t think correction will be more than 10% (between 5&10%).

Markets. 2^nd quarter has been a little more positive than what he expected. In the last 3 years, the economic data has rolled over in each of the 2^nd quarters and we have seen negative markets down about 5% on a total return basis in Canada. So far this year, we have been flat in the 2^nd quarter year to date. He continues to be optimistic and feeling pretty good about the dividend growth he is seeing in his holdings.

Interest rates. Since about 2010, he has been looking for interest rates to move higher. It appears that we may be finally seeing the 1^st signs of a sustained move upwards. However, we have been faked out on this before in the last 2 years.

Has the investment community just created a bubble in dividend stocks? He doesn’t agree with this. He understands the logic but the numbers just don’t bear it out. Looking at the dividend yield on the TSX, it is right in the middle of its average range for the past 30 years.