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

Markets. Leading up to the correction, he was quite cautious on the markets, but now with the correction he has bought in, somewhat into September. It was so oversold he figured that it was a bounce. It bounced more than what he would have expected. He is feeling pretty much the way he did in the summer and is now starting to re-establish his Short positions. Has been selling into the strength in the past week or so. This is particularly in the areas that have moved the most. Energy is starting to act a little better, but he is watching it closely to see if it is going to break out to the upside. A lot of the reasons why he was bearish before have not gone away. A tough call at this time of year. You get some good seasonality and it could go higher. It is surprising how quickly the S&P 500 is not that far from the all-time high. The German market recovered half of its losses which was down 24%. A pretty good snap back rally, but for the wrong reasons. It is the belief that the central banks are the ultimate rescue operation out there. People should still be very cautious going forward.

Energy. The oil glut is not completed yet. We are starting to see a pickup in demand which is good. The nice thing about oil, compared to some other commodities, is that it is not so totally Chinese dependent. Iraq production is coming back on stronger and the additional Iranian production is going to be coming back soon. Shale producers in the US have cut back recently, but they are ready to come back on in a hurry. Oil, for a long, long time, is not going anywhere close to where it came down from. A price in the $60-$70 range is probably the best you can expect for a while. Expect you could see this sometime in 2016, later in the year.

Gold? Had it as a short a while ago, but does not own any gold in his portfolios. Believes the US Federal Reserve is going to move on interest rates in December. Unless the economy totally deteriorates, they’ll start that move. The US$ will go higher compared to the euro and everything else, and that will put downward pressure on gold.

Markets. September and October were just a bull market correction. Consumer and tech stocks have gone right back to where they were after the correction. The bounce in energy and emerging markets may just be short covering. The bounce in energy and commodity stocks has waned. The old leadership has re-established. He thinks this year will finish pretty strong over the next two months.

Markets. Europe’s purchasing manager’s data is showing some improvement. The outlook for global manufacturing is trending toward lower. Today’s PMI number does not suggest more QE. Global economies are diverging at present. Europe is cheap in valuations compared to US markets. Two children per family in China does not mean India will be bigger than China by 2025. China will be the biggest economy in the world within the next number of years, but India and some of Africa are building to the largest population. To him everything is centered about the aging demographic.

$100K into single ETF that was diversified? It depends on how big your portfolio is. The US is 52% of the world. If you have a Million dollars, then 36% of your portfolio could be in a broad US diversified ETF.

Rental Properties in Alberta. It does not matter what province you are in. He is a big proponent of diversification. You need to put 50% down today to be cash flow neutral on a rental property. It is not a cheap investment, there are headaches, but otherwise he likes the idea of rental properties. The problem is if you are concentrated too much in one area because of how much you have to invest in one property. Real estate will correct at some point.

Another correction? The S&P 500. There is very strong resistance here and we went through it. There is a bit of a double bottom through Sep/Oct. He is not sure if we get another dip. The Russell 200 is really lagging.

What if people only bought ETFs and not individual stocks? The ETF or mutual fund is simply a wrapper for the underlying stocks so it does not matter if all investors only own funds. ETFs are more efficient in trading fees than buying the individual stocks.

Educational Segment. Retirement and an encore career – you leave the corporation, but keep doing lots of work, possibly part-time. One of the challenges for this is the uncertainty of returns from investments going forward. An encore career makes your money last longer in retirement. People are living longer, perhaps 10 years longer than you expected. Millennials are looking at living to 110 years old.

Markets. At the start of the year growth expectations are higher, and at the end of the year they taper off. The exact same pattern that we have seen over the past few years. Not negative growth, just below consensus, and he is a bit more cautious than most. The longer-term is positive for the US$. China has a bit of demand for commodities and that will continue. Even if it drops a half a percent, it is still quite high. Chinese equities are looking attractive and he invests in that through ETF iShares Xinhua China 25 (FXI-N). Thinks China is pretty constructive.

Markets. There is not a lot of reason to have a lot of interest rate sensitivity in your portfolio. If you have some utilities and REITs, offset those with lifecos or rate reset preferreds. That gives you a bit of a barbell that will even its way out over time. If rates go up 25 or 50 basis points, a portfolio will be isolated. He only buys dividend paying stocks, and it is very important that those are companies that will grow their dividends. Looks for businesses that have free cash flow yield, pays some of the yield in dividends, has growth in the business and at the same time do some buyback of their shares. About 80% of his portfolio is rate agnostic, i.e. rates don’t matter; it is all based on earnings growth. He is expecting a nice rally before the end of the year.

Markets. There is some activity in mining such as lower costs, 1 or 2 new mines being built, etc. This all seems to be ignoring the low level of commodity pricing. Oils will come up later, but you should own oils.

Markets. He is seeing a global slowdown. After 2008 we had growth on all fronts. We were spoiled with above historical normal returns. We are not going to see a resumption now that we have had a correction. The US dragged their feet raising rates and then could not when we hit turbulence in the last couple of months. He thinks they won’t miss the window again when they meet in December. If rates are raised, he will still be content with dividend yields. You aren’t going to see share price appreciation of the previous magnitude so you need to have dividends. He has 20 Canadian and 20 US dividend paying stocks for new clients. He shies away from ETFs. 2/3rds of his dollars are in the US. Yes you are diversified, but you are still heavily weighted very high in the largest companies of that index.

[12 year time horizon] You can achieve an income mutual fund performance with a small portfolio of good dividend paying stocks as it will have lower costs (MER). Canadian stocks are the best to go with so you don’t have currency risk.