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

Markets. The Chinese market has gained an average 6.5% each year since 2002. Their market will continue to be volatile. He feels their markets are fairly valued and are trying to form a base. The US banks’ top line numbers struggled to grow last year. US banks are all about earnings this year. They are not expensive. The markets will have 10% downside and 10% upside this year.

Europe. EWL-N gives you Switzerland. EWU-N gives you the UK. He recommends non-Euro developed countries. You will have the currency risk between CAD$ and US$ as well as between the US$ and the local currency.

Educational Segment. The Relative Strength Index (RSI). It looks at the average gain and the average loss over the last 14 days. The average RSI of SPY-N (S&P 500) going back 22 years is about 54. The standard deviation (volatility) is 11. It hit below 2 standard deviations (32) last Friday. Historically following this point the return has been 3.11% vs. 0.82%.

Markets. It was not the broad market that was headed in the right direction last year. In the later stages, it becomes more important to pick stocks. He has been quite bearish on commodities for about 4 years; however he does not see significant downside in oil prices. It is not the time to step into oil stocks yet. He is comfortable waiting and missing a falling knife as well as missing the first 10-15% of rise in oil stocks. He thinks there is a high probability that Canada will head into recession. He thinks the bank of Canada may cut rates again.

Longer Duration Bonds. Benefitted from the Bank of Canada drop in rates. The challenge in long term bonds is that the credit quality can change while you are holding it. You may need to sell it before maturity. He does not advise against long term bonds, but cautions against a change in credit quality.

Portfolio consisting of a Single Balanced, Global, Diversified fund. You have to dig deep and see if it is good management. He does not currently have exposure to Europe. He prefers to use the multinational companies in the US.

Canadian Dollar below $0.70 and Oil below $30 a perfect storm? If you are in energy it is a bad thing, but if in US stocks, they benefit.

Markets. A lot of people are questioning if this is 2008 all over again, but there is no evidence of that. 2008 was a collapse of the US financial system that spread, and was based largely on the US market. What we are faced with is cheap money, cheap commodities and China uncertainty. China had been the stalwart, growing 7%-9% for 2 decades. It is clear that China growth is slowing and it is not clear what it is going to settle at, 5%, 6%, etc. The Shanghai market is a very volatile market, and is not an indicator of the Chinese economy. The volatility is scaring people. The big question is, is there more to the Canadian economy than oil. There are things you can buy in Canada that are not correlated with oil and the Cdn$. Has put a fairly significant weighting into the US in the last couple of years. Doesn’t think China is going to be back as a big supporter of higher prices and commodities, but they still have a growing economy, and still buying 18.5 million vehicles a year. Their demand for oil is not going to drop, it is just going to grow more slowly. Also, the Chinese are very deliberately moving from an export led economy to more of a domestic economy.

Lumber? Had thought this was going to go higher, but it hasn’t. They’ve gone lower, and he is puzzling over this. His thesis was that housing starts go up in the US, Cdn$ is down and lumber is priced in US$s. It is hard to imagine that the fundamentals of the lumber stocks won’t get better as the US creates jobs and builds houses.

Canadian Banks? Historically it is hard to go wrong buying Canadian banks. He has been buying US banks, but continues to own TD (TD-T), which he views as more of a North American bank. Also owns a little Royal (RY-T). If he didn’t own any Canadian banks, he would probably step into them gradually. They are going to do a little better when interest rates go up. If you are buying Canadian banks, you should do it for the long haul and just be patient.

US Stocks? Wouldn’t buy these just to be in the currency, but with their economy growing 2.5%-3% a year, and Canada struggling to grow, there are some good reasons to have a US weighting, particularly if you spend any time in the States. It’s good to have the US income.

Pipelines? Likes Inter Pipeline (IPL-T), Pembina (PPL-T) and Altagas (ALA-T). This is because the smaller pipelines have been able to continue to get good sized projects approved. The big, big projects have run into political troubles. Some of the pipelines have “take or pay” contracts, meaning they are going to get paid no matter how much oil is shipped. Inter Pipeline with its 7% dividend is a screaming bargain.

Canadian Small Cap Markets. It is difficult to be optimistic on the Canadian market. Very tough with oil prices where they are and commodity prices moving down overall. He is finding pockets where he can invest and feel fairly comfortable. It is going to be another difficult year, especially in the short term with the macro trends that are negative towards Canada and is hard to find stocks that will benefit from the lower Cdn$. Had been buying things in anticipation of a weaker Cdn$, but if you are just moving into this area now it is a little bit more difficult. Most of the damage has already been done. Thinks the smaller cap Canadian IPOs are going to dry up, but he is anticipating a few IPOs that should be coming in the next year or so that are quite interesting. Has about 10% in cash and is being very selective.

Markets. The January barometer is receiving a lot of discussion in the last few days, especially with the dismal start we have had this year. It has a 75% success rate, which implies we are going lower. The first 5 days of the year has determined the performance for the rest of the year. However, looking at the negative Januarys over the past 65 years, it has only determined the success or the failure of the market for 4-years only 42% of the time. A negative January does not determine a full year of negative performance. However, technicals right now are not too favourable. S&P 500 broke through significant support at $1,990 in just the past few days. The 200 day moving average is slowly creeping lower, which implies a negative longer-term trend. You might want to take profits here. If we break down through $1,990, you can imply downside potential all the way to $1,700. The TSX has been in this decline for quite a few months. Each time it has tested resistance, it has moved significantly lower. This declining trend line came about after hitting a double top resistance in early 2015 which could imply further pain ahead. Markets, for the most part, have been strongly correlated to the price of oil. Even the US market, which doesn’t have a large constituent in energy companies, has still been heavily influenced by oil.

Gold. Gold has gotten a bit of a bid over the last couple of days. Obviously all the geopolitical risks have caused it to bump up a bit. On a seasonal basis, miners/producers will bottom in the month of December and then move higher through to April/May. Gold tends to be pulled along through to February. However, metals have been sinking to new lows. If we do not have the backdrop to drive them higher according to their seasonal norms over the next few months, it is best to stay away.