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

Markets. He does not expect a move on OPEC production quotas this month. It is hard to know when something will change, but he thinks it will be sometime in 2016. Society is aging, especially in Europe and Asia and many have not saved enough for retirement. We need adjustments to government policy so that it is far beyond central banks to manage this. They can’t keep spending money they don’t have and it will be toxic in the decades to come. He thinks the Fed will do a partial move, depending on non-farm payroll numbers coming out this week.

ETFs that hold ETFs and their fees. There is almost no double dipping. In the MER of a fund holding other funds, they include the MERs of the funds they are holding.

Educational Segment. Tax Loss Selling. This is tax loss selling season. Energy is the worst sector this year. FHE-T gives a selection of US energy companies, traded in Canadian dollars, no hedging. You sell the stocks for tax loss and then buy back this ETF to keep your exposure. They decided not to hedge to the US $ last year. Canadian dollar ETFs with US holdings are not subject to US estate taxes on high net worth investors upon death.

Markets. 75% of the time the market goes up in December quite nicely. 1.7%. That is in the US. The Canadian Market is up 2.3% during December 87% of the time. People buy things for Christmas and that is positive. Tax loss selling finishes and people buy. The TSX starts rising this week and outperforms the US market because Commodity prices bottom this time of year. The US$ is ahead of itself and pushes down the prices of commodities. On Dec 16^th, the Fed is likely to increase interest rates and once that is over, that sets a stage for commodity prices to move higher. COST-O and WOOD-N and ITA-N have gone up nicely since November when he was on last.

Oil going forward. The seasonality turns positive this week and strengthens until the summer time. Prices bottomed two weeks ago. The energy complex is starting to move quite nicely. Gasoline is up 5%. This is caused by commodity prices. Around the end of January the stocks will set up for a sustained move. If the US $ comes down then oil prices will go up, regardless of what happens with OPEC this week. We have a bottom in for crude oil.

Markets. Running about 12% cash, this is down from the fall. He is nervous. The names that he has are working really well, and you always start to worry about that. They are no longer as cheap as they were, and there are a lot of headwinds. A lot of his money is invested in the US. US currency has been a problem, and he thinks it is going to continue to be a problem. International investors are going to increasingly look to put money to work in the US, because it is a high yielding currency. Two thirds of European communities have negative interest rates. Globally we are somewhat in a liquidity trap, which is a concern for equity investors, because there is reasonably sluggish global growth, low rates and the big US international companies are going to struggle with the currency headwinds. Thinks he will do a little bit more raising of cash in the not too distant future if things continue this way.

Lifecos or Banks? Owns 3 Canadian banks, but doesn’t own any lifecos. If you want to own a lifeco, he would own Manulife (MFC-T) because of its exposure to Asia. However, from a growth perspective, the Canadian banks look like pretty good value here. Yielding about 4.25% or so and trading at around 11X forward earnings, which is pretty reasonable.

Invest in Canadian companies that do a lot of business in the US or invest in US companies? Canadians, as a general rule, have way too much money invested in Canada. They have their homes, they have their jobs, and they tend to have a large chunk of their portfolio invested in Canada. There are some companies that have a lot of exposure to US$ earnings. Royal Bank (RY-T) would be a classic example. The spectrum of choices that are available in Canada are so limited compared to the US. Although the exchange rate is a problem, an $.80 Canadian dollar is as good as it is going to get. US companies are the place to be.

Markets. The US$ will continue to be strong, and may even get stronger. However, when companies report, the FX headwind that they have been reporting all year is going to start to drop off. In early 2016, we are going to see comparatives start to be more in line. The US dollar a year ago was about $1.20-$1.25 to the euro, but in early 2015, that dropped down to about $1.06. So when companies compare this year’s earnings to last year’s, you are not going to hear talk about the FX headwind again. Energy is a part of the market, but we have to analyse things. It’s not enough just to see headlines and draw conclusions. US corporate profits are basically flat for the year, but when you drill down, ex-energy they are up about 5%.

Markets. He has a lot of cash and has found it difficult to find stocks with good valuation to buy. Now we are in tax loss season and he is starting to get some valuations, so over the next couple of months, he is probably going to be putting his cash to use. Regarding the US Fed increasing interest rates, history has shown that stocks do well when interest rates start going up, because it means economies are doing better. As interest rates keep going up, it is good until inflation starts to wield its ugly head. That is usually the end of the market for that cycle. We have some good times ahead. The Canadian prime rate is not going up in any hurry. There is no economic reason for the Bank of Canada to raise rates.

Markets. Dividends are the get rich slowly approach. Slow and steady wins the race. The dividends are the only value of a stock. The dividend champions are those that can raise their dividends. Buybacks are tax efficient. Sometimes they offset stock options the company issues. Some companies buy back below or above book value and this affects the dilution effects of buybacks. He expects modest growth and no bounce back in the western provinces in resources. He looks for modest growth in the US also.

Markets. There is a tug-of-war competing for 3 clearly defined areas, but they are all bound by one thing, the Fed and interest rates more or less. 1.) Tug-of-war is between the US Fed and the other Central Banks, and they are all doing different things. 2.) The US Fed and its own data. 3.) The push and pull between consumer staples, defensive names, and the more pro-growth oriented names. His Bond/Stock Relationship chart showed that from 2007 to 2009 bonds were outperforming stocks, and from 2009 onwards stocks were outperforming bonds. The chart shows that we are right back up to the 2007 level and we want to see that break out higher. We are right at the juncture.

Market. Since April markets have been sideways to choppy to down, all waiting for the Fed to do something. His view is that they have a free pass to move in December. They should take that pass and raise rates. Until then, we have the US$ that has been generally sideways, commodities that have been generally pointing down. It is a strange macro environment. You have the US wanting to tighten. China, Japan and Europe all in an easing cycle, which should put upward pressure on the US$. However, he feels that most of that upward pressure has been played out in anticipation. He looks forward to a rate hike just to get the macro environment back, hopefully trending again and out of this sideways chop. Energy has been a washout. But even with crude testing its lows again, we are not seeing the same selling pressure in the energy sector. It’s too early to call a hard bottom on this, and we have seen more than one false reversal. There is clearly some cyclical strength and money is coming out of the defensives.

Markets. Earnings season is largely behind us and the numbers came in largely as anticipated. For the 3^rd quarter year-over-year, earnings were down about 2.5%. If you exclude energy, they would have been up about 5%. Now the market is looking for a rate hike, which is expected will be raised in December. She thinks they should. US employment picture is very healthy and it is time to start normalizing the interest rate environment. Now the focus is on the pace of interest rate increases. She thinks it will be very gradual and very well telecast. There are no inflationary pressures, so there is no need to do it at a very quick pace. Energy and the US$ have been the 2 headwinds in the US. Expects the US$ to be relatively strong, because it is the only central bank globally that is going to raise rates. 10 year US Treasury bonds are the highest, so it is attracting a lot of cash flow into the US. She is not anticipating the appreciation that we have seen over the past year. That comparison will start to ease as we go into 2016 along with energy prices, so profit growth in 2016 should be much better than in 2015.

Markets. US stocks look more promising than Canadian over the next year and perhaps even longer. GDP growth in the US is about twice as much as the Canadian, which is a tailwind that will favour the US market. Also, valuations are pretty attractive in the US market. It is hard to get excited about Canada when the metals are under pressure. On oil and gas, we are starting to see the light at the end of the tunnel. Banks although favoured are still under pressure.