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

Markets. Commodities have been in a relentless decline. A small number of stable companies are leading the way and everything else is under a lot of pressure. We are down over 35% from a year and a half ago. He goes for the liquid names. They need very stable underlying business characteristic. He is not interested in volatile, speculative companies. The FANG stocks have been leading the US market. Breadth has been declining. A lot of bad news and volatility is baked into the prices of stocks. He thinks it will be very volatile for the next 6 to 12 months. He does not think the Fed will raise rates again soon, just one or two small hikes over the next 12 months.

Markets. This is a silly market. In the last 4 days we have been up 200 and down 200. Hasn’t seen this type of volatility since 2011 when we were nervous about every single European country going bankrupt. Volatility makes you lose sight of what investing is all about. He is a long-term investor and he plans, when buying companies, to hold them for several years. Remember to keep your focus on the long-term. Sees a lot of opportunities with this volatility. To make sense of the market and to rationalize it on a day-to-day basis, is a complete waste of time. He is not doing a lot of trading. For the most part, there is no reason to make any dramatic moves. Fully invested and does not believe in sitting on cash.

Markets. We have not seen energy commodities leading the commodity space. That means there is more to work out. Oil is up $26 to $31 and he would like to see the stocks rebound this much. You haven’t seen a whole host of assets turn up so this is not the end of this.

US equities and currency exchange. The bulk of the US/Cad$ trade is done. There is precedence for the US$ falling rather than rising since it has already been pre-traded. You have to be cautious. He thinks it is much better investing in the US. There are US hedged ETFs.

US Housing Market. Wage inflation is coming through. Home builders are at lows right now. HD-N is not as torqued and he prefers it. Stay away from the home builders.

Healthcare. There is more volatility here. He took his healthcare exposure back to market weight in September because technicals broke down. Since the lows in Aug/Sep, there has been good performance. It has been a risk off environment.

Markets. The Fed gave the market exactly what it wanted. The market did not do much and then took a dive. Interest rate hikes are still on the table, as early as March. You have to manage your portfolio according to the guidelines that you have set up with respect to asset allocation, for example. This is very different from ’08. We had levels in the market that we had never seen before and will probably never see again. The financial system was on the verge of collapse. We are not seeing signs that we are heading into a recession this time. We have seen slowness in the reinvestment side in commodities. But we still have employment growth in the US, great housing numbers came out today. Canada is different because of our reliance on commodities, but North America is healthy.

S&P 500. Feels we are not in a bear market, but we are in a correction. After a 10%-12% correction this year, there is a whole lot of focus on whether this is the time to get back into the market again, but he thinks not. When he came into the business in 1965, every other year for the 1^st 17 years, had a bear market correction of 20% or more. Then in the 80’s Alan Greenspan, who was dedicated to not having volatility, came along. To some extent, he exceeded brilliantly. However, as time goes on, the efficacy of the federal reserve board is sort of oozing away, and furthermore decided last year to start raising interest rates. He wonders if we are going to get another 10% downside from here, which is his target. That only takes us back to 2X adjusted book value for the S&P. That was the same as the bottom for 2002, which was a wonderful time to buy stocks. Doesn’t think that the market is finished yet. In the past year, every rally has been a sucker’s rally. We need to get a nice solid bottom, and then it will be safe to buy.

Market. Oil is not behaving very great and Asian markets are down. This morning, just as Europe was starting to close, oil started to rebound. This sort of domino effect around the world is going to continue. It is very evident that this has very much to do with what is going on with oil. Until that correlation breaks, the market is not going to look at any of the fundamentals that are out there. There were clues in December as to what was happening. The Santa Claus rally did not show up and some of the sectors underneath the market have been correcting for quite a while. He has been raising cash in some of his portfolios and has been a little bit slow in deploying cash, but it is still not enough. It is pretty hard to avoid what has happened this month. It is going to be more of a “wait and see” situation. He is going to watch the earnings. A concern is that the US banks are not leading the charge. He thinks they are going to have to if we want to get to a next leg higher.

ETF’s for a young investor with about $5000? He is not a huge fan of the broad market. There is nothing wrong with the SPDR S&P 500 ETF (SPY-N), or for the lowest cost, the Vanguard would have a couple of Cdn$ dominated ETF’s with exposure to the US. Also, the Horizon’s Seasonal Rotation (HAC-T) has delivered through all sorts of different environments.

An ETF that represents Dow Jones averages? A problem with the Dow Jones is that it is a price-weighted index, so the higher priced stock, the higher the weighting in the index. There are just 30 stocks. You have to decide what you believe is going to happen to the currency, and that will give you the answer. Diamonds DJIA (DIA-A) is the biggest ETF in the US, and in Canada you have the BMO DJ Industrial Avg hedged to Cdn$ (ZDJ-T).

Markets. The biggest ETF conference in the world is on this week in Florida. 2200 attendees this year breaks a record. The head of OPEC called for a team effort to reduce production. There is a Million to a Million and a half barrels of excess production. If every producer cut back a half percent we would be fine. Last week looked like a short term bottom and will build over the next month or two. This overall market volatility will continue, especially in the second half of the year. S&P earnings with 73 companies reporting are down 3.5%. Earnings are beating on average. There is an increasing lack of earnings growth potential in the world. Don’t look for US markets to make new highs through the first half of this year if not into 2017.

Resource stocks. He has been suggesting that Canada is 3-4% of the world for years and you should not overweight it. He is now looking for trading rallies in this sector and you should only lighten up now when these rallies are on. He expects oil to recover slowly.

VIX – is it safe to hold an ETF for the VIX for more than a few days? The smartest people in this marketplace have trouble trading volatility issues. It is extremely difficult to do. When underlying stocks cut their dividends it gets passed right through to the shareholders.

Hedging non-US$ currency. Some ETFs hedge other currencies. You have to look into what the ETF holds and how they hedge it. Look at the CAD$ /US Pound or Euro hedges and exchange rates. He is fully hedged in these currencies. He expects to take more currency risk on with these later this year when the US$ peaks.