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

Markets.This year is going to be a lot trickier than last year. In 2015, the key was just to avoid Canada. In the 1^st quarter, there has been a bit of a reaction, and has seen a bounce in both the market and currency. Part of what has gone on in Canada has been some Short covering from the US. The problem really has to do with the resource side, and right now we are in a seasonal plus market. We’ve had a very good run in gold, and a bit of a bounce in energy, but doesn’t think that is going to last. Looking at financial services, we need to see some confidence if the S&P 500 is going to make some traction this year. He is at a loss to understand why the general tone in the US is that somehow there is going to be a recession in 2016. Housing starts, employment, etc. doesn’t indicate that there is going to be a recession. Not very optimistic about Canadian energy.

An ETF for a high, but safe monthly income?The only thing that is ever going to be safe and pay monthly, are GICs. Something you can do on your own for fixed income, is to put half of it in GICs. On the other half you can take it 2 ways. You can start to go into corporate credit. US investment grade corporates are better than Canadian at the moment. He would put the other bit into a US high-yield ETF.

Hedge ETF’s?To him hedging or not hedging is a huge part of his decision. In 2015, he had no hedges on any US exposure, and no Canadian exposure, including in the fixed income area. In a year like this, you have to start to look at where you are. He is looking for $0.70-$0.75, so we are in the top end of that range right now. If you are going outside of Canada, the likelihood is that you don’t want to hedge now. For now, he would say don’t hedge.

Bond ETF’s? To find a bond ETF, you start with the bond index such as iShares DEX Universe Bond (XBB-T). Go to the site and see what it holds. Click on the information part and look for “yield to maturity”. This will give you some idea as to what you are actually going to get out of the bonds. Quality wise this is terrific. In the US, it is iShares Aggregate Bond (AGG-N). You are going to get fluctuations. There is actually more risk in the bond market then you would think, with interest rates being so low.

Canadian ETF that would short the S&P 500 or the NASDAQ? He would suggest that you just Short the stock itself. Why would you pay somebody to Short when you can do it yourself?

Emerging markets? When the topic of emerging markets comes up, he tells clients that if they are really interested, it’s an area that should be actively managed. Emerging markets is not a homogenous category. Latin America is really resource oriented. Asia is manufacturing oriented, etc. etc.

Base Metals. A month ago, it was so bad that he had to force himself to do something. The corollary of that was this incredible melt up that we are having. We are 3 weeks straight up. Base metals and oil are 2 of the brighter areas in the market right now.

Gold. Index, gold company or physical gold? If you have a really good gold company that is well-managed, under levered and methodically finding gold ounces, it is better to own a good gold company than the bullion. You are talking about 5 companies out of a universe of hundreds of companies. Very difficult to do.

Zinc? This should fall into a category of something like copper, in that it can be used in more of a consumer process. He likes the idea of zinc, and in 2 year’s time we are just going to fall off a cliff of a supply of zinc. It could still be coming in a couple of year’s time. Nevsun (NSU-T) seems to be the purest play. It is a copper mine, that in 2 year’s time becomes a zinc mine.

Markets. The US economy is okay. The US $ has pulled back and there were fears of recession, so now we are due for a bit of a rally. It appears the US economy is growing and is healthy. She does not think the Canadian economy is going into recession. January’s trade numbers were encouraging. We are starting to see the benefits of a weak Canadian dollar. We are seeing strength in Ontario and BC. She is focusing on domestic, non-exporting blue chips.

S&P 500.We have had a pretty volatile start with a 14% drawdown in January and the 1^st 2 weeks of February. That was followed by the same on the upside. Looking at the S&P 500 chart for the last 3 years, it shows an upward trend that we had been in since 2009. That uptrend was broken about the middle of 2015. The market hit a new high in May of last year, and has not taken that high out. His definition of an uptrend is 1) higher highs and higher lows, and 2) the market has to be above the 200 day moving average. We have not made higher highs since May 2015, and the 200 day moving average was kind of supporting the market, but then was definitively broken back in January. Now we have a lower low, no new highs, and a break of the 200 day moving average. So for all intents and purposes, we are in an intermediate term bear market., that really began last summer. You can still trade in an intermediate term bear market. The market put in a double bottom in the summer. That broke out and then recently put in another bottom. We are just hitting a point of what he would call technical resistance at the 200 day moving average and at the old support levels of last year of around $2000-$2020. This is going to be a kind of make or break moment on the S&P 500. Historically, the 200 day moving average causes some resistance, so we may see the market correct a bit in the next week or so. Recently oil has been driving the market. It had entered into a downtrend in late 2014. Has had lower highs and lower lows. Since there are no new highs, we are officially in a downtrend. It hasn’t taken out the trend line or the 200 day moving average. Oil is getting into the zone where there is going to be some trouble in breaking the down trend line. The rally in the last number of weeks may or may not be the real thing, so you have to be careful.

Technical analysis?There are no magic elixirs or formulas for technical analysis. He wrote a book called Sideways which might help you. It is really a matter of higher highs and higher lows. Markets are either trending or consolidating. Different indicators work better in trending markets, and other indicators work better in consolidating markets. In a trending market, you want to use things like moving averages. When the market stops making higher highs and higher lows, then you get focused a little more on momentum things such as MACD, RSI, Stochastic, etc.

Canadian Banks? Banks got hit with the oil. Had been in a pretty strong uptrend, but then rolled right over. He ended up selling in early 2015 as they rolled over and started making lower highs. He tried to trade recently, but it is effectively still in a downtrend.

US$. The US$ is in a big secular bull market that is probably going to continue for 7-8 years. When you look out globally, the US is out of sync. They have growth, where the rest of the world is basically slowing down.

Venture Exchange. This exchange is obviously polluted with a lot of questionable companies, but there are the odd gems. He is seeing some very small companies that are profitable, have cash in the bank and are trading, in some cases, at a discount to BV, and some junior mining companies that have a pile of cash that will do very well. Thinks we are starting to see a bit of a bottom. Look for companies that have promise, and have the financial wherewithal to struggle through this epic downturn in small-cap stocks. They will do well if they can survive, if they have good business plans. The biggest mistake the average retail investor can make, is putting too much money in a very risky name. Everything that is small is risky. Even companies on the Venture that have revenues and profits, things can happen quickly without you suspecting it, and they can blow up. If you have the temperament and the capital to take these substantial risks, just put a small amount in each name, maybe to a maximum of 1% of your portfolio.