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

Markets. There is not much to be hopeful for in the short term. A lot of the data points that are coming out just don’t look that great. There is no reason to be fully invested or leveraged long here in this environment. He looks at 3 key things for his Canadian equity fund. 1.) Market trends, which are all broken quite badly on a technical basis. 2.) Volatility, which is spiking up. 3.) Credit Spreads which are also spiking up. The economic data is backing that data up, and we are seeing ISMs trailing down, which usually leads GDP. Earnings growth is lacklustre; we are in an earnings recession, which we should see in Q4 in the US. Has been taking some Short positions, hedging, Buying Put options, and raising some cash. Not expecting a huge dump, but is expecting some great opportunities to buy some great stocks on sale. Last year his fund was up 12.7% while the TSX was down by about 10%. His strategy is to go where the momentum is, but also find undervalued names.

Gold. Has no picks, but you could potentially be thinking about increasing your gold exposure. Canada is in the quadrant where inflation is potentially increasing in an environment and growth is decreasing. In that kind of environment, monetary policy is handcuffed, and you want assets like gold that will do well. To get exposure, he would be buying the SPDR Gold ETF (GLD-N).

Canadian Banks? Sees a lot of risks on the horizon and doesn’t think they are going to be the outperformers next year; the way they were this year. There could be some kind of earnings decline to the tune of 5%-10%. If your holdings are over 25%-30% in bank stocks, you might have some kind of risk over the horizon. Trim your holdings down a little, to at least 30%.

Markets. It is the start of the year and everyone should sit back and think about what they are going to do this year. He is not a trader, doesn’t worry about moving averages or death crosses. The biggest battle long term is between your emotions and your brain. He does not know what the stock market is going to do. In the short term, movements in the market affect returns, but he looks for good quality companies. Buy at a good price and hold them for the long term. The market is inefficient in the short term. Value gets recognized over the long term. Over time over half your return comes from dividends. The world is changing so that now you are not buying products, but services or experiences.

Gold. He does not understand how you value an asset that does not produce anything and is not useful for anything. It is a sentiment play. They stopped buying it when all the things that would make investors nervous happened.

Markets. To look forward you have to look backward because it will be more of the same thing. There such a depressed commodity market. The underlying TSX and the Canadian economy are underpinned by that. There is a feeling of capitulation, but it is very tenuous to pick a bottom. The US recovery is still very tenuous. This is a stock picker’s market as it was for the last year. It will not be a big momentum situation. Canada has underperformed the US market for several years and statistically, it should not do so this year. Canada keeping interest rates low is encouraging even more debt. Lowering rates would create a run on the currency.

Markets. We are going to have a lot more volatility. We didn’t get the Santa Clause rally. Markets are selling off because of weak economic data from China. One of the biggest risks this year will be geopolitical risk, especially in the middle east. Oil should bottom this year, then rally, but he does not know when. He thinks US stocks will be flat if it is a good year. He sees a bigger correction this year than last year, more than 10%.

US ETFs. BMO has equal weight bank ETFs. ZWB-T and ZBK-T. ZWB-T is hedged. IAT-N is a US ETF that excludes money centre banks.

Hedged ETF still? When to stop? The S&P 500, ZSP-T (unhedged), ZUE-T hedges. Some people think the currency will dip into the 60s. In 5 years the CAD$ will be closer to $.90-$.95. I terms of Europe there is XIN-T, currency hedged. When the Euro is below parity, he would lift hedges (Trade to unhedged ETFs).

Education Segment. Promise yourself to be diversified. There are 11 economic sectors. REITs are split out from financials now. 8 of the 11 sectors are much more volatile than the whole thing put together. The more concentrated the portfolio, the more volatility you could get. This year will see more volatility in equities than the last number of years. Tech, healthcare, financials and energy are the most volatile and Canada will be more volatile this year because it concentrates in these sectors.

Market. This is not energy related, for once. It is China. The market is recovering a little bit from the worst. Energy is still the big thing for the TSX and the Canadian economy. We could beat the US market for the first time in 6 years this year. It is probably a little early for Gold or metals. It brings you back to Tech, healthcare, consumer staples and some consumer discretionary. If the US grows you would get financials as well. He switched from RY-T to a US bank previously. He was looking to get to the US and the currency didn’t hurt.

Preferreds. You don’t want to own anything that is coming up for a reset in the next year or two. You want new ones that have 4 years to go. He suggests ATA-T Preferred that rolls over in 5 years at 5.5%

REITS are trying to make money on the spread between mortgage rates and the cap rate on the rent they get. They are still holding up at good highs. The stocks look relatively attractive. Rate increases in Canada will probably not happen until 2017. There is a worry about rates in the US, but you can make money in Canada, but watch out for mortgages coming up for renewal in REITs.

Markets. He has been fairly negative for the last year. Certainly with the news out of China and the conflicts in the Gulf plus the last couple of trading days of the year, it is not surprising that people dumped a lot of them. Most of the buyers of stocks over the last couple of years have been the corporations themselves, buying back their own stock. He is negative on the growth outlook. Coming out of the financial crisis, you never really unwound the big debt binge. It is going to take a long time to get to serious levels of spending. He feels now just the way he felt in 2000 and again in 2007 when he didn’t like anything. If there is no money to be made, perhaps stay on the sidelines for a while.

DRIPs. They are a good idea. It takes your holdings higher. It is a logical thing to do.