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

Resources. Feels the bear market in resources has a ways to go. Right now he is about zero weighted in metal and very lightly weighted in energy.

Investment ethics. What are the fundamental ethical principles that an investor should pay most attention to in making investment decisions? For him it is pretty simple. When he is buying stocks for his clients, he thinks of himself as an owner of the company. He tells his clients and partners that unless they would be happy to have their names in big letters over the doors, probably they shouldn’t own the company. He is not going to buy a company that he thinks is doing things that he would not want to do under his name. He is not interested in tobacco, gambling or handgun manufacturing.

US market versus Canadian market? Do we need to be worried about another fiscal cliff type crisis with the debt ceiling problems? Anything is possible with the American Congress. As far as he can tell, the Republican Party exists solely to thwart the will of the president and they seem to be unconcerned about collateral damage. US deficit has come down, not only fast, but much faster than anybody believed possible. The debt ceiling, an artificial device, was played by the Republicans before and it didn’t work out very well. He doesn’t see them doing it again.

Markets. Market will typically rally into earnings season because investors are optimistic. Usually about the 18^th of July is when earnings really start getting underway and the feedback starts coming in. The rally can occur up to that point and then after that it is iffy. The market tends not to do well after July 18th until October. Now is the time that people should be quite conservative. Thinks the Fed will give more tapering, less tapering, rinse and then repeat. It is basically going to be as clear as mud. You need to have a plan in place and, from his perspective, we are coming to a spot in the market where it is going to be a little bit iffy.

Energy. Seasonally, from July 27 into September is usually a good time for energy.

Pharma stocks. The best time seasonally for these is from August 15 into the beginning of October. These are defensive. They pay high dividends and are cash cows and are not driven by the economy so people are more interested in going to the defensive sectors in the summertime just to play it safe.

Investing strategy. The 1^st screen he looks at for his funds is the Seasonal one. He wants to see when the best time is to get into a particular sector. After that, he looks at technical charts and after that, he will consider fundamentals.

Telecom stocks. This is part of the defensive sector. The best season for these is from September 3 to October 3. September is the most negative month of the year so people looking for high dividends tend to rush into this.

Natural gas. Seasonality for natural gas is September 6 to December 21. This is because we are coming off a) the hurricane season and b) the spike into the heating season.

Gold Stocks. Seasonality for “gold stocks” is from July 27 to September 25. Trades in this have worked out very well over the last few years. If there is any time that gold or gold stocks are going to do well, this would be the time of year.

Gold. Seasonality is from July 12 to September 25. Trades in this have worked out very well over the last few years. If there is any time that gold or gold stocks are going to do well, this would be the time of year.

Consumer Discretionary and Consumer Staples. He uses SPDR Consumer Discretionary ETF (XLY-N) and SPDR Consumer Staples ETF (XLP-N). For the average investor on an unhedged basis, you just rotate, 6 months of the year and switch back from one to the other. Discretionary (XLY-N) is from October 28 into April 22 which is when the market tends to be very strong.

Markets. Not so concerned as to where we are today, because he knows what got us here. What he is concerned about is where we are going to be 6 months down the road, which is a yet to be determined factor for him. Canadians have a very strong home bias. He would guess that there is no more than 15% allocation to US equities in a normal portfolio. There are things that you just simply can’t get in Canada such as technology, healthcare, large industrial companies that operate on a global basis. The diversity of the US system, based on the S&P 500 is a global index and you derive upwards of 42% of revenue outside of North America. It is a better benchmark to look at globally then just representing North American markets. Currently he likes multi-industrials, healthcare, large cap pharmas, technology in the US markets. Sectors he would avoid are the materials sector and some of the US telecom sectors and utilities.

Markets. There are some really good values out there. He is looking for lower earnings and lower multiples – a GARP approach. Likes sound balance sheet so they don’t have to manage their debt. A lot of US investors left Canada as gold came down. There are specific companies that are doing very well. He looks at track record and past performance. He looks for previous execution by management. Energy was hit pretty hard in Canada and he thinks US managers are starting to come back in to nibble. You want to find companies that are growing rapidly and increasing reserves. He is a little bit surprised at the price of oil. It spiked higher than he predicted. Thinks oil is a little bit ahead of itself.

Small caps over the long run outperform. Greatest amount of alpha is through great stock picking. Russell 2000 is hitting new highs. Breadth of market is getting broader. Some small caps are acquired at very high multiples. We are at the point where money on the sidelines is being deployed and has worked through large and mid caps and is now going into small caps.