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

Markets. We are seeing the defensive sectors outperforming the S&P 500 and the cyclicals. Usually this is a time when the cyclicals outperform. Jan, Feb and March, cyclicals have done really well and that is not normal. When that happens, that is a signal that the market is getting weak. For the defensives to rotate into cyclicals at the beginning of May, when the market tends to peak a little bit here, is not typical at all. Expects that we are in for something similar to what we have seen in the last couple of years, a weak market. Also, oil didn’t do well this year when it typically does well which means that the underlying strength of the market is not there. Everything is pointing to some weakening conditions ahead. He is 45% cash right now.

Moving averages, Simple and Exponential. What do the professionals use? It all depends on what you are trying to do, how long your average trade is and when you are expecting to get in or get out. The standard is 50 day simple moving average and 200 day moving average. The exponential is time weighted, more sensitive and more recent values. He has seen everything on the street being used.

Industrial stocks. When is the best time to buy these? The industrial sector tends to be like the S&P 500. It outperforms starting October 28 really broadly until May 5th and tends to do quite well through that time period. The other 6 months it does not tend to do well.

Gold. Had a major support level at $1,563. Chart shows a descending triangle from mid-2011 to mid 2012. That was the beginning for gold in 2012. Even though the descending triangle was a bearish pattern, they tend to resolve on the upside when you are in the seasonal pattern. The end of it was right at the beginning of October. Had another descending triangle from that point until early 2013 when it took another major drop. It was primed to actually fall down.

Energy. In Canada we have a disconnect on several of our different grades of oil, not only against the WTI but also a large difference between the Brent oil. We’ve had some differences with our light oil being quite a bit less than both the US and world prices. Then we also have the medium and heavy grades of crude which have had some transportation bottlenecks, which allow that differential to blow out. This is probably the genesis for why we have had the tremendous selling taking place in Canadian energy stocks. The difference between the heavy and light oil has been narrowed from about $40 a barrel to about $15 at the current time. Transportation by rail has also had a huge impact on been able to get around the bottlenecks. Natural gas is at a five-year low on storage.

Markets. Europe. Worst is definitely over for the financial services sector, which has taken a beating over the last few years. Most companies have recapitalized themselves but they are not yet getting credit for that from the markets. Earnings have started to rebound. Insurance sector is a big sector and the banking sector has valuations way below where they are in North America. All the bad loans are slowly working their way out of the books. Every new loan over the last couple of years has been excellent with high margins, low risks. Loan books have become very, very strong. Earnings are poised to rise even though the economy is still flat lining in a slight recession. Japan. There is still massive value here. Market is up but it is still a fraction of the valuation you will find anywhere else in the developed world as well as emerging markets. Canada. Still sees this as a market that could very well possibly continue to flat line or slight decline. Still somewhat negative on metals and mining. Doesn’t see much upside in the oil/gas sector. With home prices poised to soften here, he is somewhat negative on Cdn banks.

Markets. Spanish bond yields are dropping so investors are more confident in them. This is usually a sign that things are getting better, not that you’d know by the economic data there. Things are not fixed because we have an Italian government. Their long term debt problems are not addressed. Yields are not that far off 2008/9. Thinks we will get a market correction any time, the sell-in-May-and-go-away thing. Doesn’t think there will be a major uptrend, just a snap back from a correction.

Gold. Flag-pattern move. A consolidation after a long trend up. The bottom of the pattern broke down. It could go down to $1150, worst case. But thinks we are most likely to just bounce around for 6 months.

Nat Gas. Is it support or breakdown? There is a lot of supply over the next few years. The move below $2 was an extreme. It will now trade within a range for 3-5 years. FCG is a way to play it in the US. He has been nibbling at ECA.

Educational Segment. Is it time to sell-in-May-and-go-away? Year to date chart on the Dow. It crossed it’s 50 day average to start the year. It has been straight up generally but now we have a pause. Next chart has 7 Dow stocks and some have started to break down. IBM had a major break down recently. 3M – lower lows and lower highs. GE is starting to roll over now. At a market peak, the stocks start to roll over one by one. There’s lots of other signals, but this has been going into play for a couple of months. We are starting to see more and more of a decay. Go away, but where are we going down to? He is looking for a relatively minor correction – 5-10%. If the trend line from 2009 breaks then it will be different and we get a more significant correction.

Markets. Revenue growth is missing. Margin growth is expanding but can that continue. What is positive is that 70% of companies beat estimates. Stocks are not extremely expensive if you think the global economy is recovering. If top line comes in as it should you would see a lot of momentum. Materials are overweight. Recovering housing in the US and earnings momentum are catalysts. Seeing a little bit of risk-on but is it sustainable? What is happening to China? Can they support he materials and what they are producing? He is positive on gold and there was a bounce in copper prices. He is less cautious on the copper front but positive on gold.

Markets. The underlying economic data has continued to decelerate. Manufacturing, income and survey data in the US has all been weak as we have come out of the 1^st quarter and head into the 2^nd quarter. Earnings, by any measures, were not spectacular. He focuses on free cash flow in companies.

Markets. We are in a very, very slow measured recovery and people are justly worried about how sustainable it is. US is growing, housing prices are firming up and employment is creeping back, numbers in the US appear to be going in the right direction. There have been some major corrections in materials and energy and longer-term investors should be starting to pick away at these.

Insurance companies versus big banks? He owns a little bit in both sectors. Insurance companies were very hard hit during the financial crisis and have gone a long way in mitigating their exposure to the markets. Have revamped their business lines to a great extent and are now selling more profitable, less front-end load products. In a diversified portfolio, there is no reason why you can’t have a little bit of both.

Gold. A lot of central banks have leased out their gold. For governments and individuals to get their physical gold, it will take years because it has been leased out. In the last 2 days, the equivalent of 27,000 tons of physical gold was sold in the paper market. As we get to the end game, there is going to be a spread between the paper market and the physical market. To him the paper market is worthless. Price of gold might have come down, but the gold price hasn’t. To him, you have to own the producers. Nothing else matters.