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

Gold? Geopolitical risks figures into the price of gold, and if we had a geopolitical crisis, gold would be higher. This has performed reasonably well in the last week or 2, but he doesn’t really see any upside from here.

Markets. The TSX is down about 23% from its high, officially bear market territory, but this is where opportunities surface, so he has been buying aggressively and reducing his cash position. We have seen most of the decline in the Cdn$, but it could decline another 5%-7%, but at some point you will get a recovery. There will be a period when it will trade in a narrower range. Expects that in 4-6 weeks we will see the bottom in oil, but will have to see how much oil Iran actually produces. There are also the floating stores. Most people think it is oil, but it is really mostly condensate. Venezuela is not in the best of shape, so we will see if they can continue to pump 2.4 million barrels a day.

Markets. He is still conservative and would suggest investors should take some money off the table on the rally. Feels the rally has legs, but was extremely surprised at how quickly the market came down this year. There is a lot of weakness and thinks the market is overvalued, and will continue to correct. Because of this he would continue to stay cautious. However, there is a bright side, and that is the decline of the Cdn$ even though it is affected negatively, but it is having a really good outcome on the earnings expansion of Canadian gold producers. Gold crossed $1600 this week and closed today at $1550. These companies are producing at $1000 or less Canadian, so their earnings are expanding. In essence, gold is doing what it has always done, acting as a safe harbour in times of currency crisis. We have so much debt in the world that economic growth isn’t happening, it is being stifled. The same as what happened in the 30s.

Uranium? Likes the uranium industry, but doesn’t know if he would be getting in just yet. Thinks this is being driven down through this inflationary spike we are going through. He would be looking to add some, because a lot of nuclear plants in Japan are getting turned on again. It is a question of timing. For him, he would rather stay in cash right now.

Markets. The fed’s impact on the markets has led to low volatility that has not been normal in the past. We are getting back to normal now. Good companies will attract greater amounts of capital and propel their stock higher. Last year he said he would like to see a quiet, flat year in the market because the market was getting too distant from earnings.

Buy US stocks at today’s currency exchange rate? If you find a good company, you buy it. Over the long term currency doesn’t have a big effect.

Telecom would produce the best dividend as a sector. You want a predictable stream of cash and the stability and growth of dividends is a good thing to look for. Just seeing high dividends is a bit dangerous.

US equities outperform Canadian? He thinks it is likely. US institutional investors have shorted Canadian banks. Commodities are weak. There is opportunity in both places and you should not bet on one place or the other.

Markets. We are probably still in a bull market, and this is a pullback in a bull market. The extent to which this goes down is unclear, and it will probably have to go a bit lower. His big question is, “is this a start of a bear”. When you see the kind of price action that we have seen since January 1st, that is not reflective of a normal correction unless there is something technical going on. Also, it might be a combination of being technical and fundamentalists really trying to figure out whether or not the data is indeed pointing south. You have China growing anywhere between 4% and 7%. Not too bad if you’ve got Europe and the US growing at 2.25% this year. His focus is to be in stuff that pays to wait as to where the ball is ultimately going. This is a year of transition. Energy is done for a while. Resources are done for a long while. The area of growth is going to be US housing, US consumer, Europe ultimately improving and areas that are levered to that in Canada. He screens by looking for companies that are cheap relative to their peers and for companies that have sustainable and growing dividends. Also, for companies that can grow their earnings per share over the next couple of years.

Markets. If you can find value, and there is a lot out there, it could be a good time to buy. Investor psychology is such that the vast majority of people will be running like crazy from the market. There are certainly a lot better sales on now than there have been. If you like a stock, and you are in it for the long-term and not looking to trade, this could be a great time to get in. You will get a higher dividend percentage then you would have a few days ago. We are seeing a lot of dividends being cut in oil/gas and commodity companies which could be a major danger. He has learned that the market really does indicate quite often when that is going to happen. When you see dividends getting up to 10%-12%-14%, virtually every time the dividend does get cut. Even though a lot of people say that a dividend cut is priced in, it almost always happens that the stock price continues to go down.

Banks? A good time to pick them up? If you like the long-term dividends, then he could argue for this. Banks got absolutely hammered in 2008-2009. Doesn’t think banks are as solid as people think. Banks are making a mistake by raising the dividends all the time, and they would be wiser to pay down debt. He would be wary.

REITs? Commercial real estate could get hit because of bankruptcies. A lot of companies pay out quite nicely. There aren’t any that really attract him right now. There could be a lot more bargains in the sector later on. It could be a good time to buy in if you are willing to hold.

Pipelines? The sector is dealing with so many political risks right now, and it is difficult to get pipes up and going. At the end of the day pipelines are necessary. If the whole sector is getting hit, he likes that as a general rule. You should look at each company and their financial statement carefully. Look at the management carefully and where the stock price has been. Check the dividend to see if it is going to be secure and then make your decision.

Medical marijuana? This is a huge field. He wants to see it legalized and taxed. It makes a lot of sense, but it has to be regulated. The key is picking the right companies, and there is a lot of money to be made.

Markets. Feels the market is overreacting which is typical, so you just have to go with the flow and make good longer-term decisions. He runs with a fairly fully invested portfolio all of the time, because he is trying to collect dividends for his clients to meet their income stream demands. It is really a matter of trimming one stock and adding it to another based on valuations. The market is getting to be good value, trading at about 15X in Canada and about 15.5X in the US. A lot of what is going on in the market is short-term trading volatility, and being a longer-term investor it is nice to see that. Earnings growth has slowed significantly in the US and valuations are getting to where he likes because earnings growth is not going to be 10% plus, which the market has been expecting for 3 years in a row. It will be somewhere between zero and 5% this year, so the market has to adjust to that.