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

Markets. Feels that 2013 will end higher than what it is today. He is looking for deep value plays, stocks trading below NAV and low cash flow multiples. Finding a lot of these in the US. There are trillions of dollars sitting in bank accounts in the US.

Markets. The positive action earlier this week and last week, was really about short covering. On a broad basis, it looks like the indexes are in a Topping phase. Year-over-year the markets have probably had their best run but selectively there are still some great parts to be invested in such as healthcare, biotech, pharma and consumer staples.

Markets. Thinks there will be a lot of headwinds. He was bullish but now he is tempering. He doesn’t know what is going to cause markets to move higher. Bad news with timed deadlines, it never materializes and never causes any grief. The debt ceiling is not worth worrying about.

Stop Losses: Putting it on a white board doesn’t work because you think twice when it is triggered. When setting it you have to look at charts. You can’t just use a percentage. The objective is to keep moving the stop higher as the stock goes up. He is in the dividend camp. It is all about dividend payers and growers.

Markets. He has felt over the last little while that there would be a slight pullback and so increased his cash position to about 7% and also added Government of Canada Bonds. This is a shorter term thing and an opportunity to buy stocks that he likes cheaper (5-7%). He is bullish otherwise. US economy is healing itself and Europe is stabilizing. The ECB has put a line in the sand and that has really helped out. The world is looking slightly better. The world can grow at 2-3% and we can chug along. Companies are in great shape from a balance sheet perspective and can increase dividends. You can own really great companies at reasonable prices and they pay you a nice yield.

Banks. Doesn’t see why banks would not split their stocks again. But it doesn’t affect anything. It just makes it more affordable to retail investors. That may happen if they go any higher from here.

Oil. Expects share prices to rise through 2013. In the 1^st half of this year there are going to be some very volatile differentials for both WTI to the Brent benchmark, (increasingly being viewed as the global standard for oil prices) and between heavy oils and WTI. A lot of issues to do with congestion and pipelines are going to pick up some of the slack followed by a narrowing of differentials. If nothing else changes, the cash flow profile should get better for companies going into 2014 and feels the shares will rise accordingly. A big piece of the puzzle is going to be the increasing tendency of producers to use rail.

Natural gas. Has been down and out and he has been negative on it for a couple of years. In April 2012, it was less than $2 for the NYMEX quote and this marked the bottom for the commodity for him. Still not jumping into the natural gas names but feels more constructive on the space.

Oil/Gas Services. Feels services companies thematically are going to do quite well. Have been some misses but feels there is reason to be optimistic on activity levels in Western Canada and it will be going up in years to come, particularly with a lot of joint venture dollars and the M&A that has happened in the space.

Markets. It’s a funny market. Seems to rush in one direction and then another. Some days he can’t figure out why it’s doing what it is doing. Canada lags the US because our big areas, commodities, are under pressure. There are still more questions to be asked about the mining stocks. Gold had a little flip but whether it has bottomed or not is a question. People are fed up with their mining stocks. How do we get a reasonable price on our oil? Most of our fixed income stocks such as pipelines, utilities and other yielding stocks were doing okay.

Markets. A lot of commentators say the market is still cheap based on S&P maybe earning $105 and trading around $1500. That’s not outrageous but that is on peak margins. Historically net profit margins are in the 6% range and we are nearly double that now. If margins were to revert back to a historical mean, or what you typically get over a full cycle, then you would be looking at a very expensive stock market.

GOLD. Risk in the near-term is whether or not the US decides to pull the plug on QE 3 or scale it back. Relatively positive on the sector and it is so oversold and sentiment in the gold sector is so negative relative to such positive sentiment on equities in general. Going forward he feels gold will outperform broader equity markets. When underlying stocks tend to outperform the commodity, i.e. gold takes another leg down but underlying equities don’t fall, this will be his signal to get much longer. When this happens, this company will probably be his favourite vehicle to do so because it has such tremendous growth profile.

China. He is bearish on the global recession recovery in China. There has been a nice bounce in the sector but thinks it is going to be pretty short lived. The secular move within China, from an export driven economy to a domestic driven economy, is still the big push there. Demand for commodities out of China has flat lined and will continue to be so.

Markets. Thinks we are in the beginning stages of an upswing in the market that could last several years. People are finally getting the point that the risk of doing nothing, which they have been doing for a while, is now the risk that they have to do something and are starting to put their cash to work. There is a tremendous amount of cash sitting on the sidelines. Also, there is a lack of supply of equity issues. We haven’t seen good quality IPOs, and IPOs that are coming due are not being well received. Meanwhile there is a tremendous amount of stock buybacks from good quality companies. Finally, the valuations for equities are quite undemanding given that we have low interest rates, reasonable valuations and rising dividend yields.

Thoughts on share buybacks versus dividends? Dividend paying stocks have outperformed any other type of stock over the long term. Companies that pay increased dividends regularity, outperform companies that pay dividends. In theory, a dividend versus a share buyback is the exact same thing, in one the money is returned to you and in the other lowers the share count but markets seem to reward dividends.

Any undervalued forest product companies that you can recommend? He believes lumber prices will probably go higher and that the US housing market is under serviced and under built for many, many years which should be good for lumber prices. His 2 favourite ideas are Acadian Timber (AND-T) and Hardwoods Distribution (HWD-T). The latter is a pure play on distribution of lumber into the US. Very small so use caution.