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

Markets. Getting a little bearish. We’ve had a bull market since March/09 so this puts us into month 50, which is very long in the tooth for a bull market. Also, usually a bull market will end when everything looks fantastic. On the SPDR Financials’ chart, he measured from a financial crisis peak in 2007 and the financial crisis trough in 2009 (the origin of the current bull). Conditions in 2009 were totally reversed from what we have today. This was followed by a long run. You can’t have a bull run without financials. Financials are a key for Fibonacci Retracement which is equal to 38%. It could run up to 50% and then 61% but he thinks it may stop here. Keep an eye on the 50 day and 200 day moving averages.

NASDAQ. NASDAQ Composite Monthly chart shows a “Bearish Rising Wedge” or “Diagonal Triangle”, a very rare pattern which is not seen by a lot of investors. It is extremely bearish. This means that when you get an advance, Buyers come in and then the Sellers come in followed by the Buyers again and so on. This tells him that Sellers are getting more aggressive because the highs are muted.

Markets. We’ve been in a bull market for the last 3 years and Q1 has started the same way. US is definitely rising up. At the end of the RRSP season we might see a bit of a tail off in the normalized way. Europe seems to be all well and good. Japan is in the currency drive to drive the yen down lower. A lot of pockets of uncertainty, but everything right now is good for now.

How do you find out if a company is buying back shares? If you have companies you are interested in, just sign up for their investors/relations sheet. You can also go to www.sec.gov and look up filings. Put in the ticker symbol and it will list the transactions. This is done quarterly in the US.

Do you think shipping will take off. If so would you favour conservative names like Diana Shipping (DSX-N) or also include some high beta names like Dry Ships (DRYS-Q) and Genko (GNK-N)? There is an oversupply and a lot of big ships are coming online in the next 2-3 years. You would need to invest at the right time and if you don’t, you can get a nasty capital loss. His preference would be Orient Overseas Shipping (316-HK) out of Hong Kong, which he has been looking at.

Oil/gas. Even if Keystone got approved tomorrow, the bill time would take it into 2015-2016 before it affects the movement and flow of large volumes. Keystone was built for the amount of new oil that was found in 2010-2012 and there are still a lot of projects on the go. We need a couple of Keystones or Keystone plus the TransCanada route going to the East plus TransCanada expansion plus an oil pipeline going through BC. Right now we are in the best zone for the sector in terms of pricing, which is winter. Historically, prices peak in February/March, and then retreat into the shoulder season. How far they retreat is based on how the inventories are and what excess capacity OPEC has over what is currently demanded. Thinks people should be selling into strength and building up some cash liquidity for a better buying opportunity later this year.

Markets. When fund managers are at their most bullish, it makes her wary because typically that is an indicator that the market is overbought and will probably be very sensitive to any potential negative news. Not chasing anything, but there are times when a stock will pull back allowing her to build a position. Risk in this market is being at little bit too optimistic. We still have the fiscal debt issue in the US, which is the biggest overhang on the market. Economic conditions in Europe are still quite poor.

Markets. The fed has a plan to unwind their balance sheet when the time comes. But what happens to interest rates if they push two trillion back off the balance sheets. That would really hurt the housing recovery. They won’t do this until they are sure the economy can handle it. Earnings are coming back and corporate America is very lean. That is because interest rates are low and margins are at an all time high.

Global Investing Timing. The main considerations are the differences in the currencies. If there is a significant depreciation it hurts your return. If the markets are going to be weak, then the Canadian dollar will fall against other currencies.

Gold. It depends on risk tolerance. Gold stocks are cheap here. Short term vulnerability, but up to two years it is higher than today.

Juniors. Are not his favourite space. You have to know the stories and an insider. He can’t add a lot of value.

Educational Segment. Trends in ETFs. The big buzz is the move into active ETFs. About 4% at present. Active means it is not based on an index. Horizons in Canada (alpha series) is the biggest. An example is one based on seasonality (HAC-T or HAG-T). You have to look at them carefully. You have to know the manager with these types of ETFs. They are expecting more ETFs to shut down than are launched this year because they aren’t successful.

Markets. His new Z-10 has influenced his outlook on the company. He is a bit worried about how to get the magic out of the handheld wars. He thinks Apple has peaked. It is an extraordinary situation with RIM. He is fond of income stocks still. If housing really gets going then banks will find a way to move up mortgage rates and then base rates will get pushed up.

Oil. WTI (West Texas Intermediate) was up $1.30 and natural gas was up but the average Cdn price was down. Interest in the Canadian patch right now is very, very low. Uncertainty surrounding Keystone is extraordinarily high and that is by far the biggest catalyst this year, will there or won’t there be a approval. Expectation now is between June and September, probably more on the September end. He personally thinks it will get approved. US investors have not been in our space, probably for a year. We need US investors to come back. Expects volatility will continue until there is a decision. Fundamentals have improved but stocks have massively underperformed and we have an imminent catalyst coming in the form of Keystone.

Valuating a company. Do you look at proven and probable net present value discounted 10%? 2 schools of thought in evaluating oil/gas companies. Some are Cash Flow and others are Net Asset Value. Prefers the cash flow, where you are concerned about what is the current enterprise value (market cap plus debt) trading at relative to the amount of cash flow. Mid-cap oil producer would be 5.5-6 times. A larger producer that pays a dividend would be around 9 times. On NAV you are looking at not just today’s cash flow value but the value of all production streams for 2013-2017, discounted back 10% usually, under before tax basis. Divide that by the share count, take off debt and you get the NAV. A lot of Canadian companies trading on NAV and a lot of them were too unrealistic on future prices of natural gas.