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

Markets. Getting a little more rational and a little less panicky. Gold seems to have stabilized and oil was up a bit. He will continue to try and get dividend income stocks into his clients’ portfolios. You have to be concerned that the dividends you get are relatively safe.

Markets. Lots of earnings coming out: big names in technology. Looking for top line growth this quarter. In general the computer services market has had challenges to grow this. She focuses on those names that she thinks will do better in this very competitive market. She does a lot of bottom up research and thinks this will be the key to success. She took some cash off the table because some companies have different earnings schedules. Valuations are fair market but if you don’t have good earnings you get punished. She sees a buying opportunity. She would still be buying into this market and sees a rotation into a little more tolerance of risk.

Markets. Current situation could be a seasonal thing. Think we saw the same type of rough patch last year, where everybody got concerned. There is no question that the data is not going to be hugely robust but it is a recovery so it will be in fits and starts but it is heading in the right direction. Pretty much every new stock he has added to his portfolio has been US. Has gone from 0% weighting in late 2011 to 25% allocation. Likes companies that are paying dividends and/or buying back shares and with extremely low valuations. Very excited about buying US companies that he can’t find in Canada. Feels the drop in the price of gold is good news. It tells us that inflation is not a concern. He is still positive on productive commodity assets such as copper (for the long-term), oil, natural gas, lumber, etc.

Healthcare. Overall, this is a space you have to be in. He has trimmed back his healthcare allocation because valuations have gone too high and he is waiting for a pullback.

Markets. Has been having trouble finding things in Canada to buy. US has a lot more stocks to potentially buy and this was the area where his bids ended up landing. He rarely buys stocks at this time of the year. Most of the time he does his buying in November and December when tax loss season is on. At this time of year, he was always looking for more to sell, either the big gainers or if he has something that would make a good tax loss.

Energy. There is only one data point he can put his finger on to explain the weakness in oil and that was the Chinese GDP number that came out and missed. It was supposed to grow by 8% but only growing by 7.7%. Beyond that, for oil to fall 5.5% this week and 11% this month, he can’t find a fundamental reason. This has been a frustrating thing for almost 2 years now. Many of the companies, both in Canada and the US, have been very strong but, because of the leaning towards income investments, fund managers have been in a net redemption mode for about 1 to 1.5 years. Right now, the oil/gas sector is massively, massively out of favour. Market will probably be volatile for the next 3-4 months.

Energy. Looking for late blooming cyclicals in the energy sector. Going back to the beginning of 2012, he noticed things that were happening in other parts of the Canadian market that led him to believe that energy is probably going to have its day. Some of the segments in Canada that have done well, financials and consumer discretionary, are typical indicators of economic recovery. Thinks the next phase for this attraction to energy will not necessarily be in the yield names. Instead, names that offer good growth at a reasonable multiple of cash flow without over levered balance sheets will be where the market goes. Although he is not abandoning yield names as this is a necessary component of getting the right exposure to energy companies looking forward.

Markets. In the last week or so, Canadian market has been a little bit rocky but generally over the midterm he is positive on equities. More biased towards US than Canadian equities. A lot of good things going on in the US with an improving situation, particularly with the housing market which is driving a lot of change. Has been moving capital out of Canada and into the US, particularly into things like automotive and housing. Near-term there have been big moves in the US market and a little bit of concern about the short-term divergences with emerging markets and commodities not performing well and yet US markets still near their highs. Even in the US we could be in for a short-term underperformance over the next few months. A 5%-10% pullback would be healthy for the market. He has 30% in cash in the funds that he manages.

Gold. After a historic drop like gold has had, the biggest in 33 years, he would just stand back and wait to see what is going to happen. Has a very small position in gold in his funds. When you see that dramatic a drop, it is hard to understand what all the unintended consequences might be, whether it is margin calls, liquidation in gold funds, redemptions of managers who owned too many gold stocks, etc.

Markets. Chinese growth still 7.7%. China slowing down is not a new story. It is probably going to grow in the 5-7% range. We are entering a bit of a panic phase in gold. We are right at the bottom of the low end of the recent channel. We are looking at a new range of low 1300s to 1500s. We hit the low end of the channel today. We don’t know what the low will be. It could be today, but we don’t know. Below $1300 for gold he thinks 30% of global production just stops. Suspects there is another up cycle to gold at some point.

Educational Segment. How much Equity Exposure Should I have. Old rule was age is percent of equities. He thinks this is nonsense. You need to know your tolerance for risk, your need for income. Means – do you have enough? That helps you define how much risk you have to take. It is not about age. With interest rates at 2-3%, you need to get 15% on stocks and 3% on bonds to get you the rate of return you need. XBB shows Canadian Bond Market has done well with much less volatility.

ETF Risk And Return:

Markets. Gold has been on the bullion side for the last three days. It has been the start of the profit taking on the equity side. It blew right through the Fibonacci level of $1450 into 13 and change. Looking at Energy, look out the window, you are using it every day. Gold had different uses (or lack thereof) compared to energy, which is the biggest industry in the world when you include petrochemicals. Most projects require $65 oil but marginal projects require $80 oil, but this is his view of the downside of oil. When it is down at $80 he tends to go and buy oil stocks. Late spring has helped the price of gas.

Gold. Gold had the biggest drop since 1980. If any asset goes down 10% in one day, it is not fundamentals driving it. It probably happened because gold had gone through $1500, which triggered a lot of selling from technically driven trading programs, margin calls being triggered, etc. It is still the best performing asset class even after today’s $140 selloff. Precious metal assets are likely to provide good performance over time, as long as central banks continue to print money.

Markets. Equities are still the place to be this year. In terms of yield and valuation this is probably the roughest patch we are going to have. Once we get through this we are likely to see, as we have seen in the last couple of years, a bit of a move up in the 2^nd half of the year.

Markets. He likes to buy companies that he can understand and what drives that business. Gold companies have been littered with issues such as cost overruns, etc. He doesn’t see a bottom in sight for gold yet. Still very constructive on certain sectors, outside of materials and energy in the short term as well as. There are a lot of technology companies that he likes as well as the telecom space, which represent decent value for dividend paying companies.