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

Markets. He thinks it is possible to see a rate increase of less than a quarter point. The market is pricing in two rate hikes next year, but he thinks the Fed should move twice as often, but half as much. He thinks a 15 basis point move would not impact the markets. Slow and measured increases would add certainty, which the market likes. The price bottom in ‘08/’09 had oil at $32.40. There is a technical scope that possibly we test that level. He thinks it would be a major bottom for crude oil.

Educational Segment. A Recap of his 2015 Predictions and a look at 2016. China slowed as he predicted. He expected the anti-EU party to get in in Greece. He thought they would leave the EU and still thinks it will eventually do so and also that the EU will eventually break up. In 2016 the biggest risk is credit risk. The last time credit spreads were this high, the S&P was 20% lower. He sees a 15-20% correction in 2016. There are geopolitical risks, ISIS being one of them. He expects the Fed rate to be 0.75 to 1% by the end of next year. He predicted crude oil would go down and he thinks it will at best get back to $60 by end of 2016.

Investing cash for 8 months. He thinks we will get another dip next year, so "sit in cash".

Fed Rate Rise and Impact on Gold. We should see a floor in Gold somewhere here. If it goes lower, then a lot of production will get shut in around the world.

Markets. The conditions we had over the last ten years were much more fertile. These are not good times. Now you have a market that is overvalued and there is no bounce back like in ’08. He is not looking for global growth or growth in corporate profits. He thinks they will raise rates because the rest of the world is doing the dirty work. A .25% rate increase will not throw the market off.

Why is gas going up when oil goes down? It is a function of refining capacity and not oil prices.

Markets. We are in totally uncharted territory. The REITs have been kept down so long, and real rates have been negative for some time. At some point you need positive real rates before investors really go gung ho into bonds. Also, as he looks out into 2016, he sees inflation picking up, which is quite a surprise. He has noticed, i.e. ex-energy, inflation CIP in the US is running at 1.9%. (There will be a new number tomorrow.) Looking at the remainder of 92%, 8% is medical, 42% is housing, and each of those is going up 3%-3.5% a year. Soon as energy starts to flatten out, excluding any wage increases, you are looking at inflation of 1.5%-2% later on next year. The bigger risk could be European banks. Towards the end of next year there is a good chance that energy prices will be higher, such as $45-$50, or maybe even $55. Apparently shale companies were able to convince the SEC some years ago, based on the anticipated profitability of a well, that they could add the reserves to their balance sheets. A year ago it was $90, but as we get to the end of 2015, it is not anywhere near there. The SEC has now said they have to remove those reserves from their balance sheets. The wells are not profitable, so they have to leave them without doing anything with them. This may mean a cut back in supply from shale.

With such a surplus in crude oil, who is purchasing our oil? Non-OPEC production was 57.2 million barrels a day and OPEC production was 38.8 million. Demand came in at 95.1, so there is less than 1 million barrels a day surplus. That can disappear if economies continue to grow. Among OEC countries, the annual year-over-year change as of last Friday was 1%, and for non-OEC countries it was 3.3%. That was real growth.

In millions of barrels per day consumption, the US 19.4%, China 10.8%, Latin America combined 8.6%, former Soviet Union 4.8%, Japan 4.3%, India 4.1%, other Euros 3.1%, Canada 2.4%, South Korea 2.4%, Germany 2.4%, etc. Growth is going to come from emerging markets. The US is still below where it was in 2007.

Gold. There is ongoing demand from India and China. In the next 2-3 years, he expects gold is going to go up, but doubts we will see $1900 anytime soon. He would guess it is going to be between $1,000 and $1,300. There have been suggestions that the US$ is peaking. If that happens, it will help gold and other commodities.

Buying US stocks with Cdn$? If you like the underlying stock and believe in it he would buy it now.

Markets. We have had 2 rate cuts in Canada this year. We have had anaemic growth and there has been a lot of challenges with the Cdn$ and commodities. REITs are a pretty simple business and should have done a lot better. A nice hunting ground for income investors. You probably want to stay away from the retail side, but industrial looks pretty good. Also, apartments, multi-residential REITs, look pretty good as well.

Oil. In the short term, the price of oil is scaring a lot of people away. One needs to question if you need to own oil at all. Start thinking 6 or 12 months out. His feeling is that oil is going to be higher in 12 months than it is today. In that case, you want to own some of the large cap, high quality, dividend names. There will be a number of bankruptcies, so be very careful and pay attention to the balance sheets.

Banks for RRSPs? Banks are very good long-term holds for investors. We might be entering a period of slow earnings growth for Canadian banks, but for income investors nothing is more sacrosanct than the dividends, and Bank dividends are very strong.

Markets. What has been driving the market is mostly the liquidity, not any rational fundamental. The markets are overvalued in relation to the real global economy. There is a big divergence of numbers. Right now being a contrarian is where the money is going to be made. He is positioning himself to be higher in cash. Loves precious metals. They are a hedge for what is going on in Central Banks. A lot of “what if” happening is being driven by the liquidity that they have allowed into the market. Everything that has gone up should come down, and everything that has been kept down should move up. Commodities are a different story because the global economy continues to slow down. He makes a distinction between commodities and precious metals, the ultimate form of money.

Gold. Central Banks are not selling gold and silver, they are buying, and at a very quick pace. With the Fed going to raise rates, the need for buying gold is now more important than ever. It is the ultimate form of money. We have an overburdened amount of money printing, so you are just witnessing a devaluation of monies around the world. They are all going down. Because of that, you have to hedge yourself. It is going to play out on a very positive side.