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

The Budget. Lack of help for Alberta – just training and EI, but that does not help the oil industry. By putting up roadblocks to pipelines, they are just slowing it down. The same goes for LNG in BC. The problem is future growth. The oil we produce gets to market at present, however.

Canadian Banks. He only owns BNS-T because it is the most international with the smallest Canadian footprint. He sees a lot of headwinds such as the oil patch. You are only now getting people defaulting on debt due to the oil price problem. He prefers US banks where there is a more certain economy and loan growth. He sees Latin American and Asia as the future growth area for banks.

Merger of CP-T and CNR-T. He does not see this being allowed. CP-T have not solved the ‘Chicago’ problem, either. What bothers him about CP-T is a hedge fund having a huge position in it and that fund had to liquidate positions in the past for margin calls.

Educational Segment. Why Raising Retirement Age is a Good Idea. A Lawyer and an Actuary penned an article about why it was a bad idea to roll back OAS from 67 to 65. We are all living longer. OAS started in the 1950s and life expectancy was 80. Now if you live to 65 you are likely to live to 85. We will be at 16% young people going forward, but the number of old people will be going up dramatically (16-24%). Governments are inept at dealing with people living longer. The kids are going to pay. Each one owes $38k right now. The US will be out of OAS by 2039 if they don’t change policy.

Foreign Exchange. He was hedged when investing in the US. He started buying US exposure recently because he thinks oil will peak around the low 40s. This is a technical trade rather than a revaluation. He is positioning with some US exposure while expecting the US$ to drift lower.

ETF to Track Toronto and Vancouver Real Estate Market in expectation of a bubble. It does not exist. There is not enough of a demand. The closest is within REITs in Canada, but they are varied. There is no way to short Canadian housing except maybe the Canadian Banks.

8% REITs? Not so bad, but at 30% they would all seem to go up and down at the same time. He has 2% REITs at present and he does not see relative value. If you need the yield then REITs are okay. See ZRE-T.

Markets. It has been a tough 3 or 4 months. A neighbour of his was busy pouring cement for home builds until January and then it just stopped. He thinks this is as bad as it gets right now. In ‘08/09 when the Saudis cut production, Western Canada never laid off employees. Right now it seems like they are doing double the amount of layoffs they should have. April and May will be the inflection point with bankruptcies or acquisitions. You should find companies that trade with debt to cash flow of 3 or lower and cheap multiples are candidates. Acquirers will just get saddled with the debt of others. The market usually prices things in 6 months in advance.

Green energy. The outlook is good, but most business models don’t work well without government subsidies. The best way to invest in green energy is those that do a number of things. Then you are diversified.

Emerging Markets / Multinationals like RDS.A-N and TOT-N. Not too much country specific risk. He has PXT in Columbia.

Markets. He is taking a very cautious view, especially with the big rise we have had on the February lows. Feels the markets are probably a little overvalued. His call was for the S&P 500 to be right around where it is now at the end of the year, so we have a long way to go. This really relates to looking at the macro economic picture, both in the US and globally. Right now we are still getting very mixed messages. What has been powering the economy over the last few years has been the recovery in the housing sector, and that looks like it is kind of sputtering. Today’s existing home sales numbers were a bit disappointing because they were well below consensus. The market doesn’t seem to be too worried about it, and that is a frustrating part for a lot of people. His current cash position is around 75%. Doesn’t believe in “buy and hold” currently, but believes you need to focus on good quality companies. When they get really stretched valuations, you need to take some money off the table and protect your cash.

Favourite US bank? His favourite is Bank of America (BA-N). It is much, much cheaper. Wells Fargo(WFC-N), J.P. Morgan (JPM-N) and US Bank Corp are kind of the 3 sisters that people love to go to, because they are very high quality banks. Have the fewest hairs in terms of companies, so people gravitate to them and give them richer valuations. (See Top Picks.)

Market. If you take the FANG stocks (Facebook, Amazon, Netflix, Google) out of the market, you actually had a bear market in the US. More than half the stocks are down more than 20%. There are certainly some good value opportunities. Now that the Fed has made it plain that they are not going to raise rates as much as people had thought, they are taking their foot off the brake. At the same time the European Central Bank has come back with another billion euros each month to buy things like corporate bonds and with more negative interest rates, liquidity is there. Emerging markets are now as cheap as they have been in 2 decades.

Playing rails ex-North America? A good play would be Kansas City Southern (KSU-N), which has a big Mexican operation. Also, you could look at one or 2 of the UK rail operations, such as First Great Western or Govia. They don’t make much of a return, but will give you some exposure.

Canadian Banks. Sell now and buy back at a lower price? Canadian banks have really done pretty well. There are going to be higher loan losses. Also, housing prices could be off slightly in the prairies, but the majority of the property market is looking pretty good. Stick with the Canadian banks and don’t try and time it.