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

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.

Gold. This is a very seasonal product. You want to buy gold and gold stocks around the middle of July and play it right through until around the end of September. You should not be in gold at this time of year.

Markets. Seasonality occurs because of a series of recurring events. Markets tend to go up from November right through until the end of April. Has done it again this year. A couple of things to watch. First of all, you have 1^st quarter earnings reports. You also have economic reports coming out. Next week, economic data is not going to be so great either. First-quarter results on the S&P 500 and TSX 60 companies are expected to be zero on a year-over-year basis. TSX 60 stocks have started to hibernate. TSE composite’s had a double top pattern on the downside that was completed about 3 weeks ago. Stay away from the Toronto market.

He was on the show in May 11/12. For the next 6 weeks, the S&P 500 dropped 10.5% so it was a good time to be in cash or cash equivalents. The same thing happened with the TSX which had a 9.4% drop. It was a good time to hide. He went 100% cash. He has the same recommendations this year in his 2 Top Picks.

Buy 90 day treasury bills. Doesn’t stay in this all the time. Last year he went into fertilizer stocks around the end of June and went into gold equities around the beginning of July. Those 2 sectors have very strong seasonality at that time.

Markets. Currently, he has the most favourable outlook on Nat. Gas. Last year it bottomed at $2 and is at $4 now with considerable upside from here. There are vast amounts out there but it is a question of at what price is it economically viable to extract it. Recently, US Nat Gas companies have been performing better so for the time being he would look at the Canadian companies. Gold – he subscribes to the longer term thesis that with central banks racing to debase currencies it will result in inflation which drives gold. There was some talk in the fed speech of withdrawing QE.

Markets. In real terms, we are only back to 1997 levels. Although we are back to 1997 in real terms, inflation-adjusted, earnings have risen 45%, so we have much better value today than we had in 1997. Feels there is a lot more pessimism in this rally compared to the late 90s. Gets more worried when things are going really well because he sees opportunities when things aren’t going well. Investors should be very, very careful. Some of the safe/conservative investments are getting to levels that are outside their normalized valuation ranges. They are there because people are looking for a place to hide or gain an advantage in income or yield and they think their capital is absolutely safe. Some of these investments might be ahead of themselves in terms of capital depreciation.

Markets. Have been having some kind of a correction. Hitting new highs but has paused in the last few weeks and we are now, hopefully, into our 3^rd day in a row Up in US markets. Had thought a correction was overdue and he has some cash so on a decent correction, he would like to spend a little more. Has started to reduce his bond positions. They were 30% and he will bring it down to about 20% over the year. Risk/reward in bonds is too high and the outlook for stocks is much better.

Markets. Thinks we should believe in the US bull market but should believe that it will go up at the rate it has been, without an air pocket. Starting to see cracks in the US employment report which suggest that the effects of the payroll tax holiday and the sequester may be starting to kick in. If we have a couple of more data points like that, and you combine that with the ongoing problems in Europe, there might be a bit of a stall at least to this bull market. He would be adding on weakness. Japan is becoming a more attractive place to invest right now if you can do it in a currency hedged way.

Markets. Equity markets are driven by earnings on one side and monetary policy has an impact as well. We have been in a market that has been driven by monetary policy because the most economically sensitive group is just not really participating. We got another big boost as yield investors when the Bank of Japan publicly came out to say they were going to basically double money supply. In effect what they have said is that they were going to make bond purchases in excess of twice what the US Fed is doing. This basically means you are buying in bonds and creating liquidity in the system. 97% of bonds are owned by Japanese insurance companies. They have historically scoured the earth for yield so they are readily selling those bonds at .4 of 1% returns and turning around and looking around the globe at REITs, midstream energy assets, things that generate cash flow as a proxy on bonds and we are a big beneficiary of this in North America. He is more pro-US markets than Canadian at this point.

Markets. Economic recovery in the US is chugging along. Going forward, the profit growth scenario is very important so she is really looking this earnings season to see what the companies are saying and if they still think the outlook remains unchanged or if there is a negative bias. Earnings are expected to grow this quarter. Not very much, just 1.5%, a slower pace. The year as a whole of around 8% might be a little more positive given the strength of the US$.