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

Energy. Gas. Prices have rebounded off of their lows, and have probably moved faster than they should in Canada. He hasn’t been positive on natural gas for some time. However, natural gas production in the US has rolled over. Extremely low, almost generationally low, rig counts right now. Also, we have a hot summer. We are seeing switching from dirtier coal plants to natural gas. Mexican exports are on the rise. There is a pretty good picture taking shape. On top of it, we came through an El Niño winter very warm, and that usually gets followed up by an Al Nina winter which is extremely cold. Stars seem to be aligning for natural gas. His concern has been on excessive capacity in Western Canada, and how they will actually get the gas out. Storage are still heading towards a full condition, which will probably happen towards August. There is risk that the basis differential, the pricing difference between Alberta and US benchmarks, could widen.

Oil. Thinks February 11 $26.05 was the low on oil prices and we are not going to see that again. Seasonally he thinks we are due for a bit of a pullback, and wouldn’t be surprised to see it go through $40. He was in Calgary recently and was starting to see green shoots of optimism about the commodity. There have been more transactions happening.

Markets. Markets have been moving up quite a bit in the last month or so, and he has decided to build a little cash. Trimming some of the names that he thinks has been a little more overvalued. He’ll redeploy it when the market comes off. Has about 9% cash right now, which typically is about 4%-5%. As the market continues to move up, he will probably continue taking some money off the table in the short term.

Markets. We are not actually sure that negative interest rates stimulate the economy. People have to save more for retirement because they get a very low return on their money. If you are actually saving more than you would otherwise, you are not spending it. It is not getting results, so she is not sure that it is working. Investing in this environment is tough. The market overreacts to any idea of rates going higher or lower. It is really disruptive. She is not going to thrash around with the market, because that is counterproductive.

Precious metals? Beginning in August the seasonality is good for both silver and gold. Today there was a fairly meaningful correction for some of the stocks. Over the next week might be a good opportunity to add to your positions. A strong US$ is negative for gold and silver.

Markets. This is one of the most unloved advances we have seen in a long time, which is why he thinks the markets are a pretty decent place to be investing in right now. You have this very contentious US presidential election, we’ve had the big BREXIT scare, there are lots of geopolitical issues going on, etc. We’ve had a little bit of an earnings decline for the last five quarters. Historically, 70% of the time the market is up in a declining earnings period going forward, and this is because the market is forward-looking. On this huge wall of worry, the foundation keeps getting stronger and stronger. His 2 big concerns are European banks and the lack of performance in the US banks.

Canadian Banks? It has been a while since we have been able to say that Canadian banks have been at their 52 week high. He’s been underweight banks, and currently owns Bank of Nova Scotia (BNS-T) and the Royal (RY-T). At the end of the day, the 5 Canadian banks are in a horserace. CIBC (CM-T) and Bank of Montréal (BMO-T) tend to lag. Feels the US banks are much cheaper right now, but is not sure where we are going to see a catalyst.

Markets. We have just gone through the 1^st significant correction of a new bull market that started in 2013, when the S&P exceeded its all-time high. The US market has really chopped its way sideways since 2000. There are lots of people who have become very sceptical, nervous and bearish. A new bull market is always borne out of skepticism and a difficult environment. We have now made a new high. There is all kinds of money that is trapped on the sidelines, which is going to have to find its way back into the market. Not to mention that $200 billion that came out of equity mutual funds in the last 2 years, and chased things like bonds at 1000 year lows in interest rates. He has been fully invested since the 2^nd week in February. Markets look exceedingly good, and people will be very surprised at the next 2 years as the US economy slowly recovers.

REITs? There has been a focus on things that pay a predictable income. There is always a concern for any income investment that rates could go higher. However, looking at the history of REITs, when you had periods of months when rates went higher, they tended to do better than other sort of bond proxies. This is because of the possibility of rising rents and rising distributions. He would be more likely to focus on US REITs.

Markets. The Markets have been very calm in the light of the coup attempt in Turkey. The S&P sold off quite hard on the futures at first. People were making moves at first. There were more moves on the currency market, though. Country Specific ETFs: TUR is the ETF for Turkey. When you go into a country that is emerging, you have to ask if it makes sense on a risk adjusted basis. The currency risk defines much more of the risk than anything else. He thinks the Turkish currency will wipe out any country returns. The initial polls regarding the US election indicate Trump may not have made the best choice. The republican party is fracturing. For all the negative that Hillary has gone through, she is still fairly far ahead in the polling and that tells you that people really don’t like Trump. As long as the polls stay close it is a negative headwind for the markets.

Equity or Bond ETF for new money. Bond yields will probably stay low for possibly decades. He does not like what has happened to the long end of the yield curve. He would look at short term corporate bonds, and wait for a correction in the equity markets to get back in to equities.

Long Term Income ETF. It has to be diversified, have high yielding dividend stocks, and corporate bonds. FIE-T holds Canadian banks and preferred. It is somewhat diversified.

Educational Segment. Crisis for Savers. In Europe in asset classes, there will be negative real returns. They expect 4.3% in emerging markets. The buy and hold world is going to be challenged for the next number of years. Fixed income and treasuries are looking negative. Small caps are looking like zero returns. Higher volatility investments will have higher returns. Most returns come from the currency of the country.

Markets. With negative rates in some countries and zero % rates in North America, 3-4% income rates are attractive. In the developed world, there is little demographic growth. Without immigration in North America it would be half a percent. If the population is not growing then economic growth over the long run is impossible. Governments are pushing money into the economy, but taxes are going up, compliance is more expensive and these things inhibit growth. Lack of growth is why people are moving towards income. Interest rates will be low for a very long time. People will be looking for safe income plays for a long time.

Hunt Company Bond 9.625% due March 2021. (Top Pick Dec 3/15, Up 1.00% plus 9.625% interest) They have some exposure to Texas. They manage assets for investors who want exposure to real estate. This is a high yield bond, not investment grade. The balance sheet is very manageable. It is almost 10% yield and is up 1% on the capital.

Bank rate reset preferred share at 5.5%. These new products are capital that the banks issue and are more easily convertible. He owns a lot of these. They are higher up on the balance sheet. It will not reset into a yield substantially lower than 5%, regardless of where interest rates are. If interest rates rise, they should continue to have almost a 5% spread over rates.