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

Market. Fully believes in the US market at the moment, with these highly profitable, high growing Internet companies. The shift in the economy occurs occasionally, and we are in the middle of one. There is $200 billion in advertising still to move from TV to the Internet. Google (GOOGL-Q) and Facebook (FB-Q) are going to get 99% of that. His portfolio right now has about 70% US, 10% largely Britain, but with some Germany and 20% Canadian.

Cdn$ outlook for the next 3 months? Our trade is tied to oil, and the outlook for oil is weak to flat, at best. The Cdn$ has been in a big roll, recovering from $.72 at the bottom of the mortgage crisis. Expects that is because of Short covering from US investors. Thinks the Cdn$ is heading back to the mid-$.70.

Market. We are in a kind of Goldilocks environment in that there is slow economic growth. The one problem is that central banks are inclined to be raising rates. It has been a while since we have had a correction, and that could be the catalyst for our first 5% correction for some time. The US and Chinese economies are growing probably as strong as they have for a year or 2. That gives central banks the ability to start to slowly taper back to a tighter monetary policy. There are certain areas of the market that are being left behind because of the craze over ETF’s that are flooding their market into a smaller and smaller cadre of really big large cap companies that are leading the market. There is a lot of stuff getting left behind, and there is a lot of value there. It shows up in terms of takeover activity.

Markets. The earnings season has been pretty impressive so far. To the degree there is financial engineering and the pricing off of proforma earnings, he is concerned. The true value investors do not see a lot of value here. This is a momentum and growth market. He thinks valuations are high and we are at a risk of correction, as he has been saying for half a year now. He is impressed with what corporations are doing here, however. We saw the Fed talk about unwinding QE. The bank of Japan is talking about not being as simulative and well as the bank of England. We have seen a dramatic 10% move in the Canadian dollar.

Inverse Market ETFs. It depends on your overall portfolio and risk tolerance. Since November the markets have gone straight up. HIU-T is an example. He is still net short the US market, but it is hard to make money. You can make money hedging the currency, however. It is always important to diversify even if that one thing is not working today. At some point we will get a little bit of a dip. Seasonality-wise this is not the time to cover shorts. It will happen sometime through October. You might write a call on top of the ETF to enhance returns over time. He has no fundamental objection to single inverse ETFs, but he does to the leveraged ones. The singles do not eat way into the NAV.

Gold should always be a part of everyone’s portfolios. It does not produce any income, but some ETFs give you some income. At this level he likes gold, but does not love it. The high might be $1350 in 6 months. 5% is a good holding right now in your portfolio.

Educational Segment. How to Play the Canadian Dollar in Coming Months. People are paying more and more attention to currencies. In early 2015 Canada surprised us by lowering interest rates. Now they have raised them. It has had a meaningful impact on the Canadian dollar. There are three factors for currency decisions: (a) Oil prices (inverse); (b) Interest rate differential between CAD and US 2 year rate; (c) Net speculative positions in the Canadian dollar. Oil could potentially move us up if it went up, but there are only a couple of months of potential increases left in this year. We have probably seen the high end of the Canadian dollar last week. It should settle into $.77. He is playing it as a being in a new trading range.

Markets. We went through a terrible bear market in the resources. We are getting a recovery from an oversold condition. This is the start of a bull market. Either the commodity price rises or the commodity becomes unavailable to the society and that portents higher commodity prices. You need to both invest and speculate in a portfolio. Being in the biggest and best early in the cycle is a necessity. The better pop is in the juniors, however. It has been a dry run for the juniors and this will benefit them now. There are 3000 junior resource stocks in the world and 2500 are valueless. The determinate between them is the people. There are those that are serially successful.

Cobalt. He is attractive to it. If you were to increase the supply you could also increase the price. It is constrained by availability. It is an extraordinary place to be for the next 5 years. Cobalt that can be produced in large quantity is limited to marginal deposits in The Congo and Russia except in Canada. But Cobalt is only found with other resources in Canada.

Market. US markets are at near record highs, and it is not a screamingly cheap market. All the metrics are expensive. His concern is that we are in a richly valued market and we are entering the period that happens to be the 2 worst historically performance months of the year, Aug and Sept, back to back. We have to have a bit of a concern here. The Canadian market is not a place to hide. In the fall, the S&P 500 has historically out performed the TSX Composite. You want to be in more of the conservative sectors of the market, such as healthcare, utilities, telecoms.

Energy. We’ve had a $5-$6 rally in the last 2-3 weeks, but we have had 4 or 5 rallies since the beginning of the year. Oil was $54-$55 in January, came down to $48 in March, ran up to $54 and then down to $46. Getting to $50 was based on Saudi Arabia saying they were going to cut back by 600,000 barrels a day. There were 2 military events in the Middle East, an Iranian ship came close to an American warship in Yemen, Iran supporting one side of the insurgents against the Saudi supported insurgents, and they fired a missile towards the energy producing areas of Saudi Arabia. We are near the end of this bounce and are going to come down. Once we get through the summer driving season, ending in the 1^st week of September, we will probably see a bust to a $42 low. We are going to bust $40 because demand starts to fall off in September by about 1 million barrels a day from the summer peak driving season.

Pipelines? You have a good dividend yield with all the companies. For income oriented investors, the big issue for them is the regulatory environment. Is Kinder Morgan (KML-T) going to be able to get the pipeline built, which they want to start by the end of the year. The BC government is an issue. TransCanada (TRP-T), regarding the XL line, is now asking if shippers want to take the space and firm up their commitment. There is also the reversal of the line in the US with Enbridge (ENB-T). The whole service sector related to the infrastructure is now a political football.

Natural gas? Currently the price is $2.95US and $2Cdn, which is a big gap. Once we get past the summer air conditioning season, the price of natural gas falters, and there will be days where it will be under $1. This probably won’t get out of the doghouse until just before winter. If there is a cold winter, we might see $3 again. He would hold off. There will be some great buys at some point.

Economy. Numbers blew past expectations today, which says that the Cdn$ possibly has a little more firepower, which is probably catching a lot of people offside. The economies are recovering in the US, Canada and globally. At the same time, you have a growing forest of very skilled investors who are afraid of where markets are at. Valuation relative to strength index has sort of gone up the board. People are really calling for some protection in Puts or gold, and he thinks they are wrong. The market is still a very good deal relative to most other investments.

Cdn$? Thinks the US$ got too strong against all currencies. If you look at Canada’s growth rate today, versus the US GDP growth, we are still outperforming. People are still not positioned properly for the fact that the currency is going to drive a little bit higher. He feels we are going to be at $.84 in a year’s time.