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

Biotech. Not able to value Valeant(VRX) because they have so many moving parts, so many acquisitions, and so much complex accounting. They have a ton of debt, stock has gone up so fast, it is uniquely vulnerable to go down.

Markets. It has been 9 years since the Fed raised rates, and the 7^th year of 0%. He thinks they need to get going. Right now the market is discounting nothing until 2016. The US dollar is certainly reflective of people’s view that of all the global economies, this is the one that is closest to raising rates. There are quite a few Canadian companies that can benefit from earning revenue in US dollars with the cost basis in Canadian dollars. US companies often have a headwind as they translate back foreign earnings into the stronger US dollar. Not hugely enthusiastic about the outlook on energy for the near to medium term. There are still some headwinds. Iran is coming back into the marketplace. Doesn’t see oil going down to $30 a barrel, so we are probably near the end of that run. Has a very, very small weight in energy right now and nothing in base metals. Canadian banks are great franchises, but have not yet seen the effects of low energy prices. Given that he thinks oil prices stay low through to the end of the year, he thinks the banks will start to take some hits on that.

Canadian Banks? These have attractive dividends which he feels are very safe. Doesn’t see anything particularly worrisome about them, but they wouldn’t be the 1^st place he would go to add. One of their challenges is the ability to grow earnings.

Market. He believes we are in a bear market. The majority of stocks are going nowhere, except down a bit. Even the good companies. These are bear market conditions. Pretty much everything is off. We have to get through this particular condition. It’s also the summer doldrums. We are also confronted with the drab prospect of an election campaign in Canada.

Canadian Banks. Thinks the banks really are central always to a Canadian portfolio. It is very difficult to make choices. This is the 1^st down year for them in 3 years. Thinks they are currently around the bottom, but doesn’t necessarily see them rising strongly. They pay good dividends and provide reasonable safety.

Markets. Greece has been going through so much and it looks like they may get more money, but even if they do, it is a major danger. He looks at it as though they are a person with 4-5 credit cards and everything is maxed out, and somehow they get another credit card and think they are in good shape. Greece keeps getting bailed out and he thinks it is going to make the bailing, longer-term, that much tougher. Doesn’t know how they can possibly get out of this situation and how the creditors get their money back. China is a wild West show and when he sees what the Chinese government does, he gets an idea of how inexperienced they are with stock markets; the way they are tempting people to go into them and the way the brokerage firms are saying “margin up”. His long-term view is that China is going to do just fine and the yuan is going to increase in value over time, but at this point in time, one has to really, really watch the gyrations and not get sucked in.

Gold. Not a bull or a bear on gold at this time. Gold is off by more than a third, but if you go back a number of years it came down from $850 to around $250. It could fall from here. In Nov/Dec, he bought into 4 gold companies Alacer Gold (ASR-T), Golden Star (GSC-T), Orvana (ORV-T) and St. Andrew Goldfields (SAS-T) and is just a little ahead. He likes the idea of having some gold in his portfolio when it is not too expensive. 3 of these companies have really clean balance sheets, which is critical to him. These are the ones that could return to form, but doesn’t expect this to happen very quickly.

Silver. Gold, to him, could go up or down. Silver could certainly go down, but he thinks it has a better upside. What he likes about silver is that it is really used. Gold does not have the same industrial usage. Thinks a lot of miners in the silver field are going to have to close down operations, which will hurt some of the supply. Some of the companies are going to have to sell themselves.

Reverse stock splits on penny stocks? In his research, these are companies to be avoided. Over 90% were down in value a year later. What a lot of the companies are doing is trying to stay on certain exchanges or trying to make themselves available to certain investors who would not buy under a certain price point. In the vast majority of cases, the stock price goes down soon after they do the reversal, so it is very, very dangerous. He would avoid them and perhaps look at them a year later.

Markets. Thinks the market is pretty constructive right now. We’ve had some good gains, and the US economy is quite good. Canada is a whole other ballgame, but the US is going to drag us out of whatever recession we are in. Investors are willing to invest and are not worried about the Fed any more. They are bored hearing about the Fed and interest rates. 72% of companies that have reported as of yesterday have beaten estimates. So earnings are still pretty good. Interest rates are going to stay low. Thinks the environment is okay. The resource market is probably dead for a couple of years. If you focus on good companies and avoid the speculation, there are good companies out there and they are priced right.

Markets. The Canadian market has gone through a reset in many respects in the last 3 years as commodity prices have come down, but in particular the last year has been really hard. There has been a triple storm of low commodity prices, a recession being talked about as well as the Cdn$ being really, really weak. Canada is out of favour. Thinks the markets in general are going through a reset. Looking at the last 5-6 months, the Dow, NASDAQ and S&P are doing a kind of a toppy thing. Fewer stocks are taking the market higher, and if it goes higher more stocks are hitting lows. This is a time for caution. The tough part in a narrowing market is that fewer and fewer names are giving leadership. He would like to see more global growth. He typically runs his maximum cash at 20% and is currently there. He is looking at financials.

REITs? The fear of the rise in interest rates has hit the sector. That has been the biggest factor to take stock prices down. The question is how quickly are rates going to go up and is it going to be an inflation induced rate issue? Canadian REITs are really cheap on a global basis. Money keeps coming into Canada to buy our houses in Vancouver. Will that follow-up into the REIT sector? Over a long period of time, real estate prices will link pretty well with inflation. Thinks the 2^nd half of the book is okay.

Markets. Resource sector just keeps getting whacked and whacked, and for good reason. It is going to be tough sledding for a while. There was a little bit of a rebound towards the end of last week, but thinks that is a little premature. There is still bad news to come. You should look back and see what the market has done over the last 7 years. We breached a 14,000 level in 2008 and got back there in 2011, but didn’t get back over 14,000 until 2014, and then we got up over 15,000. Now we are back basically where we started back in 2008. It has been a really tough market to make money. It comes back to looking for those dividends such as the good old Bell Canada (BCE-T). Banks haven’t been that bad, not spectacular, but at least you are not trying to trade the market. Trading this market is extremely difficult. Thinks we will be back into a growth pattern and that most of the pain in Alberta will have gone and been completed. Feels we are in slow growth and will be lucky to get above 1%. The big positive factor is that the US still continues to look like it is in a take off mode. If they do well, that is good for us.

Markets. There are some pains of job cuts in the sector. He thinks we have another 4 weeks for reports to come with bad news. Be prepared for more job cuts. He thinks we are forming a bottom and testing 52 week bottoms. He believes we are seeing the forming of the bottom for the next 5 years. Oil should be about $50 for the next couple of years.

The Low Oil Price. The Saudis are doing two things. Supply has increased because of US shale production. Demand has shrunk because of slow down in emerging markets. We are using oil more efficiently in cars and so on also. The Saudis are threatened by the US. Their cost is $20. The US is $50. World demand will increase because of price. The Saudis can keep oil at $50 for two years and then their internal social budgets blow up.