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

Real Estate. There was so much growth in commercial properties, so every year it was worth more and more. A lot of that was thanks to low borrowing costs. Feels the market is saying to the Direct Property Market that it is topped, and if it is not going to expect higher values, then it is going to have to have a higher yield. The only way for yield to go up is for prices to correct. That has happened and we are now at a point where you are able to enter in and lock in a very attractive yield.

Markets. It has been a very rough start. He is not upset as he is carrying substantial cash. Had felt valuations had got extended, especially in the US. Looking for a correction so that he can start to spend some of his cash, not only in the US, but in Europe and in Canada. Only buys companies that have strong balance sheets, and ones that pay safe dividends. One area that is pretty safe is in integrated stocks, and is looking for bargains overseas in integrated companies. A lot of sovereign wealth funds have been liquidating stocks because the countries’ budgets are out of balance and they can either raise taxes, cut back on what they are giving their citizens, or sell some assets out of their sovereign wealth funds.

S&P 500. Sometimes there is a good time to own an index, and sometimes not. When markets are roaring, indexes are great to own because they are fully invested all the time and the professional investor can keep up with the index because they are always fully invested. When this is not happening, they are not always the best things to own. Even though the index holds 500 stocks, it is really only 4 stocks that have been propelling it. The valuation on those stocks are ridiculous and the S&P looks vulnerable.

Markets. On the longer-term view of the S&P 500 there was a bottom in 2009 which was followed by a long uptrend. That multiyear trend line has now been broken. In the bigger picture, taking out the summer low and taking out the trend line, he is a little concerned for the intermediate term. Believes we have entered into an intermediate term bear market. That is likely to be the scenario for the next number of months. Last week, there was an inter-week and inter-day reversal. Last Wednesday the market went way down, and then ended up on the day, but still below its Open creating a Hammer formation, usually a sign of washout. When investors are extremely nervous they capitulate and this formation happens, and at the end of the day the market picks up. The theory is that “Smart Money” picks up off of weak hands in the afternoon. That can be a good sign. Started seeing those signs in the past couple of weeks which could suggest a short-term rally. In other words, on any rally over the next 1-2 weeks, stocks should be Sold.

Charts. He always uses logarithmic charts. Sometimes linear charts distort things. A logarithmic chart will be on a trend line, but on a linear chart it is not. It is important because a $10 stock that moves to $11, a 10% move, is different looking on a percentage basis than a $20 stock that moves up $1.

Markets. This is going to be a choppier year. There is mixed economic news. US growth seems to have slowed a little, and there are some concerns about a recession. Chinese growth has been slower than it has been. It all adds up to another year of very slow growth. The US Fed move in December concerned a lot of people. There might be a little more shakiness in February, but feels we are in a bit of a bottoming process. The US consumer is actually in pretty good shape. They are sitting on cash a little bit more than usual. Eventually, with the money that is coming into their pockets, they will be spending a little more. Expects to see an acceleration in consumer spending towards the end of the year, which will provide more confidence and the market should do better.

Oil. From a long-term perspective, this is undervalued at this time. However, in the short term, there is too much production with more supply than demand. It will correct eventually. The price will likely stay in the $25-$35 range for the next 3-6 months. Eventually this oversupply situation will solve itself. N.A. conventional production is already dropping and some companies are shutting in wells because they can’t make money on an operating basis. When we get to the end of March, there is going to be surprise on the amount of downside in North American production.

Markets. The last two January’s have been challenging. The January Barometer says that as goes January, so goes the whole year. It suggests that we get flat or negative returns for this year. You have to be active and rebalance to take the risk down a bit. When you do get the panic it should be an opportunity rather than a fear. This quarter’s earnings have come in so far much better than expected. Companies are taking down their expectations. The forward numbers coming down is a challenge for the markets. He does not think we get above 2000 on the S&P in the first half of this year. In oil, hedges roll off the books this year. There are too many unknowns to have confidence in the oil market. When we rally, take money off the table and then take advantage of dips. Energy is a very important catalyst for what happens for the remainder of the year. Japan has done stimulus for the last 17 years and has not fixed the problem for their aging demographic. Canada has a similar demographic challenge. The overlying challenge is the aging demographic. Interest rates may have to say low for decades because of this.

Healthcare stocks or ETFs. Generally healthcare does not pay a huge dividend. You have to be careful. CSH.UN-T is not diversified enough. He would like a wider perspective to healthcare. A global healthcare ETF would be great, but you have to buy it in the US and take the currency risk. Some ETFs with good returns are returning your own capital to you.

Fixed income. The entire bond world after inflation and tax is negative. It is a bad investment. But don’t replace it with equities and dividends. When markets sell off, you should up your equity exposure.

Gold. Every time gold has made a lower low, it has been the primary trend. We have not seen a higher high. If interest rates stay low for the next decade or two, it will peak in failed rallies. Buy into dips and sell afterwards, but as a long term investor it is not time to invest yet.

Educational Segment. Dollar cost averaging. For the average person, if you are smart, you can make informed decisions beyond dollar cost averaging. But don’t just invest on the month end. He looked at the VIX index. He took a rating of -1.57, and said put that same money in the market when it declines that much. This is Smart Dollar Cost Averaging. -1.57 is based on volatility and this is the moment you need to invest. You don’t know whether to do it at the close or the next morning but he prefers the afternoon of the day of that volatility.

Markets. Slowing global growth is an opportunity for Canadians. We are famous for resources, but it is not a good time to be in many of those sectors. The good news is that if you are in industrials or technologies you can do well in this market and in this economy. Food will be under constant demand. If you are just going to buy the index, you are better in the US. The CAD$ has been under huge pressure rallying just below $0.69 and has probably bottomed here. Canada is probably the only tradable petro-currency in the world.

Gold. In the US, Gold is no better than a hold. In Canada, gold has held its value well compared to the currency. Our dollar will be under pressure for a long time.

Bonds. A lot of things are going on in the bond space considering the action and inaction we have seen from Central Banks globally. The Fed looks like they are out on a limb all by themselves at the moment, and thinks they are done for the moment now, especially with the Bank of Japan’s last manoeuvre. He is in the camp where he feels the US economy is fine and bubbling along at about 3%. The consumer is in great shape, housing market is good and auto sales are good. The manufacturing side is suffering from the strong dollar, but the economy itself is in very good shape. This is a market of lows; low inflation, low commodity prices, low interest rates, and it is going to stay that way for a while. Thinks there is a real opportunity in the high yield market right now. The Cdn$ is undervalued by a good 10%-15%, so the US$ coming off the boil will help alleviate the downward pressure that we have seen. There is a lot of attractive risk/reward possibilities in the high-yield bond market. There are equity type returns available, in a market where the volatility is less than the stock market, and that deserves close scrutiny.