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

30% cash. He would not do this but will not stand in the way. A year later the caller might have non-buyer’s remorse.

Take CPP as soon as possible? You can get them as early as age 60, normally 65 or as late as 70 at an enhanced payout, but what if you don’t live that long. If you take it early and invest in your TFSA with the funds then you have a ‘self administered CPP’. This applies only if you don’t need the money to live on. If you live to mid 90s, then you are better to wait until age 70 to collect.

There is no magic number as to how to distribute between stocks and ETFs. He allocates equities equally between Canada/US and the International. If you include emerging markets in International, then make it a quarter Canada, Quarter US, Quarter emerging markets and the last quarter to the rest. Canada has way too much home country bias. He thinks the Canadian dollar has hit its low and bounced and there is not a lot to lose over the next year in currency changes.

ETF Fees. They come out of the fund slowly so you don’t see it. The lowest cost product will outperform on average. The less MER the more you get to keep. Other than MER there is the trading expense, and trading can get you hit with capital gains for tax purposes.

Oil. You have to decide what your entry point will be. He got a lot of unsolicited orders to buy when oil was $45 a barrel. He is of the opinion that oil will be lower for longer. It will be higher in three to five years. People are under estimating how long this can last.

Owning only all the banks: ultra concentration risk. You are taking sector and country risk. Banks around the world have seen better days. They won’t come back to the way they used to do for a generation.

Markets. The US market is holding up a lot better than the rest of the world. The MSCI has shown the rest of the world to be in a bear market. The US indicates have not dropped enough to be considered in a bear market. There could be room for further downside, but it is not a reason to stay out of the US. You should sharpen your pencils. The Fed has concluded the QE program and started the move back to normalized interest rates. We are still operating in the wake of the great recession. Canada is still subject to the huge disequilibrium in the price of oil. We are at the mercy of being price takers in the oil market. It is going to be a challenging environment for Canada to replace energy with manufacturing.

Sector allocation. Canada is very challenged. China is in the process of transformation. Europe is 2 to 3 years behind the US in their process of economic recovery. The US is one of the best poised economies in the world to survive. You want to be diversified across Europe, the US and Canada. Be defensive at the Canadian sector level. Equal weight in Telcom and in the Consumer businesses that can withstand the storm. Utilities, also. Look for business with steady cash flow and an angle for weathering the storm.

Markets. There are 2 opposite views out there. One suggests we are just having a slowdown and an earnings correction. The other is that we are going to have a recession. Those 2 forces are creating all this volatility. She doesn’t think we are going to have a real recession. We might have a lousy quarter, but she is not expecting 2 negative quarters in a row, the definition of a recession. Emerging markets have an issue with the US$ dominated debt. Zero interest rates is another possible issue. Doesn’t think any one of them will necessarily result in a catastrophe.

Sectors you would invest in? Financials would not be her favourite. If the cycle is slowing down, you could see some of the banks start having difficulties. Consumer stocks, especially non-cyclical, is where the market is happiest to be, so that is a good sector. The trick is to find things that are not overvalued. (See Top Picks.)

Markets. There is a strong correlation between recessions and the economy, and if he can be ahead of a recession, then he will be able to preserve capital during a bear market. He is watching the economy very closely, because things have been turning down from the economic indicators that he follows. They are at a very delicate level where if they tip over, they could push the US into a recession. Looking at the price of some European banks, you realize investors are pretty spooked and a little concerned about what the follow-through is going to be, and the effect of lower commodity prices on economies. He is sitting with 40%-50% cash right now. Sentiment has really been pushed negatively. Looking at the AAII numbers, as to where bullish investors are, you are looking at decade lows. He is always watching for what the surprise could be. Has his eye on the US$, and if it should weaken, that will be great for US multinational companies’ earnings. It is also going to be fantastic for all the commodity producers globally.

Market Call information. If you are taking advice of anyone who is on Market Call, you really need to be monitoring and managing your positions. Just because a guest comes on and talks about a stock, you have no insight as to what they are doing with their position. Maybe they rely on Stop Losses or technical levels to get them out of part or all of a position.

Gold? Gold has been holding fairly well. That is a function of a flight to safety. The US$ has been fairly strong, and yet gold has been appreciating, which is not really what you would expect. As a result, gold companies are seeing higher commodity prices and at the same time they are seeing lower costs. He owns Richmont (RIC-T), Claude Resources (CRJ-T) and Guyana Goldfields (GUY-T).

Markets. Yesterday the market bounced off the S&P 500 level of $1950, the kind of marker he is watching out for, and seems to be in a bit of resistance. If we get past that, $2000 is the next level. We are probably going to see a lot of volatility this year. Lots of challenges, whether from global economic growth concerns or the uncertainty of the Fed and their pace of interest rate hikes, as well as the fixation on oil prices. There are some contraction earning estimates in US corporate earnings. There are also some non-traditional US presidential questions as well. If we don’t see a recession economically, we might see a recession in profits. In this environment, we will be range bound, and you want to take advantage of that nimble type of active approach in the marketplace, and choose your stocks, make money, and move out of them. There also seems to be a shift to more defensive areas such as consumer staples, telecom and healthcare. Those areas are starting to outperform on both sides of the border. His cash position has bounced between 10% and 15%.

Canadian Banks? On these, he is at best neutral weight, and probably underweight at this time. He knows of all the concerns around the banks with regards to what oil prices have done. More importantly, it is more of the ripple effects of oil prices falling. These are great cash flow companies, and you are getting a great dividend with some possible dividend increases going forward. In terms of capital growth, at best it is going to be flat lined and volatile for the next little while. Doesn’t see much downside, but not a ton of upside.