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

Stop-losses at 10% below the 20 day moving average. How current is this? Stop losses as a concept simply means that you should have a risk budget. We all make mistakes so you want to limit the downside. He uses point and figure charts, which are a little bit more complicated. You could use a moving average. For a shorter-term investor, you might use a 20 day smooth moving average. A little bit longer, you might use a 50 day or for very long you might use a 200 day moving average.

Markets. Rising dividends lead to increasing stock values so don’t focus on stock prices. He is watching for a correction but does not hold a lot of cash. He opportunistically reinvests dividends when there are pullbacks. Markets steadily rise over time so look at the beginning point and the end point and don’t worry about what happens in between. Average holding time is in excess of 10 years.

Markets. We are always wondering how the US will shrink the debt by $2 Trillion. Their policy is to monetize debt. The world is fixed and everything is ok if central banks can back away from their artificial support.

Education Segment. Evaluating Risk relative to Returns. People look at mutual funds and say ‘how much can I make’. ETF XME in the US averaged 14% a year over the last 10 years, but that holds the most volatile sector out there. It could go down 70% or up 100% in any given year. Canadian utilities, for example, have significantly less volatility yet good returns.

Interest Rates. Low rates, attractive looking dividends, etc. Nothing has really changed and looking forward it doesn’t look like it is about to change anytime soon. Whether it’s Bank of Canada, the Fed or Bank of England, it looks like rates in developed countries are pretty much on hold. This just increases the attractiveness of dividends and distribution paying companies. Challenge now is that it has become a stock picker’s market in that you really have to sift out those companies that have the ability to grow cash flow and subsequently growing dividends versus those that are just harvesting cash flow and are winding down.

Markets. Sees a lot of good value still in the Canadian equity space and he is building a portfolio of stocks that are trading at less than 10X earnings at an aggregate level and have a pretty healthy level of ROE as well at over 20%. Thinks the US is going to really pick up steam and you have to focus on US sectors that are exposed to that. Feels that energy and material stocks will continue to do poorly in the months ahead.

Market Call Tonight is a repeat of the previous program by John Stephenson.

Markets. Equities look very inexpensive especially in comparison to other asset classes. We are in a positive credit cycle. Commercial banks are now making loans in the US and money is now going to get put to work. We may go through a couple of quarters of scaling back of GDP growth. In a year or so we will see more signs of inflation and that will push up the curve. This could be the year that every waits for the correction that doesn’t come. He sees a long bull cycle.

Markets. Largely a liquidity driven market. Investors are sick and tired of not making money in bank deposits and US treasuries so are coming to stocks, especially dividend paying ones. We’ll probably see this going for quite a while but there might be some corrections here and there. Fundamentals of the economy have been pretty weak. Growth is positive which is good and he thinks it is going to get better. Gains we are seeing are more than what he expected. There are long-term challenges which we should not ignore. The market favours larger cap, growth oriented, blue chip dividend playing stocks and this is how he is positioning himself.

What is your view on US banks versus Canadian and do you have a favourite U.S. Bank? On valuations, clearly the US banks are a lot cheaper, but for good reasons. Our economy had performed better and regulations had been more stringent. Canadian banks continue to be good plays. However, for better upside, you probably want to be in some of the US banks. J.P. Morgan (JPM-N) and Wells Fargo (WFC-N) would be 2 of the names that he would go to.

Markets. Dow is moving to all time highs due to corporate earnings and Asian markets. We are seeing more flows into the equity markets. Rallies should continue and corporate earnings are higher now than when the highs were set two years ago. Can’t understand why the resource sector is not participating in this rally. China needs both energy and base metals. He cut back his gold projection from $2013 in 2013. He paired it back to the $1850 level. $1525 is the support and once it hits that it will trade up to $1850.

When do we see the turnaround for the juniors? Start first with the seniors. $60 billion in write downs and firing of 20 CEOs. There is pressure for companies as to carefully decide which projects they invest in. Short term there will be a cleansing of the juniors. Those that can generate cash flows will survive.

PDAC. Hubbub was about juniors’ inability to raise capital. They resorted to high yield debt, royalties, and joint ventures. TSX venture was down 50% from two years ago. They are hanging in.

Venture Stocks. Feels about 30% of these stocks will disappear and it will turn into a slaughter unless there is a major shift in sentiment. People are not putting money into this risky sector. About 70% of companies trading on the Venture Exchange have only $1 million or less in the bank. If they account for 30% of the total valuation of the venture exchange, which is $40 billion, companies with $1 million or less cannot survive very long. Right now, the opportunity exists to acquire some really quality companies, quality management and quality deposits at a discount to what they are worth. You have to be very, very careful and do your due diligence because there is no more dumb money to bail us out. As a potential investor, one of the first things he’d be looking for is, do they have enough money to not only survive but to do some meaningful work. Secondly he’d be looking at the projects that offer potential of a major economic deposit that would interest somebody else as an acquisition. Thirdly he would look at management. There are a lot of quality people in this industry. If you get these 3 things right, you will do fantastic in this market.

Is it true that market sentiment is not very positive towards the Yukon and, if so, why not? 2-3 years ago, the Yukon was the place to be. There was something like 160 companies that were picking up projects and doing stuff up there. Out of this, there was one discovery that kicked it off that was followed up by another major discovery. Yukon has too much gold, which is a problem. The geology is such that most of the gold that is being shed into streams is coming from small structures, small veins. Difficult to find a large deposit, and if you do you face the problem of infrastructure CapX costs to develop it.