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

4 ETF’s of $10,000 each that can be contributed to a 1^st time TFSA account for a new retiree? BMO India Equity hedged to CAD (ZID-T), iShares S&P/TSX Capped Comp (XIC-T) for Canada, which is better than XIU-T because it has more small companies. iShares MSCI EAFE (CAD Hedged) (XIN-T) and iShares S&P 500 (CAD Hedged) (XSP-T) as examples of larger company ETF’s.

RRIF withdrawal amounts? These were lowered by about 20%-25% across the board in the most recent budget, and this is the sort of thing that is not going to be changed by the Liberals.

Parking money temporarily while waiting to get into the market? If you are going to park cash, you are not going to get much anywhere. For quick access you may as well just keep it in cash. If you are going to park it somewhere, you can probably get 1.5%-1.75% out of President’s Choice, Tangerine or something like that. The vast majority of his clients are fully invested all the time.

Markets. The risks to global growth are more apparent now. China has been slowing down for 2 years. The investment business does not believe the published figures. He is fairly constructive, however. Emerging markets concern him. Brazil is really struggling. Something bad could happen in emerging markets, but it is probably less than 20%. He hopes the Fed raises rates. It will send the right message to the marketplace. There is not an indication of a recession in the US. He focuses on a two year window and how much cash does a company generate.

Educational Segment. Elections. Statistically, when the Democrats are in power, the markets do better than when the republicans are in office. But if you throw out 1929-1932 you find it is the reverse. This tells you the dataset is useless. In Canada, going back to 1922, when Liberals were in power, markets did better, unless you take out the great depression and in that case they are about equal.

Liberal infrastructure spending would benefit which ETF? There is not a good ETF that tracks just Canadian infrastructure spending. There are some companies that will benefit, but their performance is not very related to the election outcome.

The US economy is the biggest in the world and so it is the reserve currency. The next country to become the biggest is China, but because they have restrictive economic activity, he does not think in his lifetime he will see Chinese Yuan as the currency to have in your wallet as you travel. The Euro will not replace the dollar because it is such a basket case. It is not going to work and he believes it will break up within 10 years. He believes it will be all electronic currency in the future.

Markets. Probably nothing will happen at the October Fed meeting. We have structural problems and the US economy is far weaker than numbers in the labour force suggest. When they start to raise rates it will be very slowly. China is slowing. They will be growing at no more than 7%. It is the new normal. November 3^rd the US have to raise levels for debt. There is far too much debt in the world. You have to understand asset classes, diversification and balance in your portfolio.

Markets. Life has been interesting for the last 60 days for growth investors, and in particular, healthcare has been pretty tough. We basically got into some kind of a liquidity event in healthcare. A little bit of it was fundamental, but what we really had was 2 or 3 major groups who were owners of healthcare stocks who were forced to Sell rapidly. The continuous process of smacking the stocks down made everybody else question what was happening. A number of the stocks were down over 50%-60% in just over a month, without any major earnings revisions in the sector. The biggest issue with carrying healthcare stocks was that we got into a retail bubble. For the last 1.5 years, there hasn’t been a lot of growth in energy, mining, financial services, etc. so everybody piled into the one area where there was growth and excitement, which was healthcare. Then all of a sudden when there was a small correction based on some smaller fundamental developments, the selling started to come. When that happened, the selling beget selling. The healthcare companies could not explain why the stocks were going down. Between Valeant (VRX-T), Patient Home (PHM-X) and Concordia (CXR-T) he thinks the Concordia and Valeant margin calls have pretty much come to an end. It hasn’t quite finished with Patient Home.

There are other quick sellers that are in the market. The ETF’s act that way in terms of rebalancing. In North America, we have what are called volatility funds, which are trying to own low beta/low volatility stocks, and when the stock that has been low beta for a while suddenly becomes a high beta stock, because of some kind of a short-term event, it gets pushed out of these funds. The volatility funds have now become massive as hedging strategies, and once they start pushing at a stock or sectors, the selloff can be unreal. For those people who can stomach it, his advice would be to hang in there. A turn is actually starting to occur now, and as people look into the market for growth, there is unbelievable value in the healthcare sector.

Markets. Going back 85 years, both August and September have been down on the S&P 500. Back to back downs in August/September don’t happen that often, about 21% of the time. When it does happen, 75% of the time you get performance in the 4^th quarter. He is expecting that this year. For Canada, it seems that the price of oil has bottomed, particularly if we go above $49 and can hold that on WTI pricing. It also looks like oil and gold stocks, and metals related to that have also bottomed. Small caps should do well in this type of environment.

Gold. Since 2011 it has broken above its 200 day moving average 6 times. This is all about debts, debts that are not payable. He sees US today as Britain was in the 30s. All of Britain’s gold transferred to the US, and once that occurred, the debts of the US were re-valued against the dollar and gold all at once, and cleaned up the US balance sheets. China today is in exactly the same situation. Looking at how much gold has been accumulated through the Shanghai exchange and different sources, it is up to about 11,000 tons. China is suffering from debt, but they have a lot of equity. Geopolitically there are a lot of issues. Is China going to be willing to put up with what is going on in the Red China Sea? The Achilles heel of the US is that they can borrow all this money at low rates because they are the currency reserve. He who controls the gold controls the money. We are now pretty well at a critical point with regards to the price of gold and what is happening with low cost producers. At $1500 gold everybody will be making money. The difference is that a lot of them will take 1.5-2 years to bring their mines back up and running again.

Do you think REITs will rally in the 2^nd quarter of next year considering that we are in a housing bubble? The reason he likes the REITs and will keep his positions regardless, is because he does see Canada as a safe place where money can be put away, especially in the real estate sector. There is a lot of trouble in the world and there is a lot of Middle Eastern and Asian money coming out. Shorter term it is an issue with what is going to happen with interest rates. Even if there is a correction in real estate, it always has a way of always having a return and having value.

Markets. Look at UUP-N and it is lower highs and lower lows. The US $ has probably reached its zenith in anticipation of rates being raised. There is more evidence now that rates won’t be rising, other than a token amount. We are probably going to see some more weak data. The dollar fell through the 200 day moving average. Gold is not as much a hedge on inflation but against currencies. IEF-N for bonds 7-10 years: June & July were the lowest point after which there was an uptrend. He is looking at the seasonal strong part of the year. The industrials index is showing a good start to the seasonality for the sector. US rates will just act as a tail wind. FXI-N shows Chinese large caps. It is starting into an uptrend.

Markets. We could be looking at a 15 inning game. The recovery of the financial crisis was not anywhere near what you would see in a normal business cycle. It has been a slow recovery and he thinks it is dragging out the length of this business cycle. We are also going through what is typically seen as a contraction in 2015, which is quite healthy for the market. You get a correction and then you move higher. You can get a correction through price discovery, where prices go down, or you can get a time correction, where you actually get stagnant markets for longer periods of time. He thinks we are in a time correction. This will likely go on for the rest of 2015. The price of oil declined so rapidly and so quickly, and was such a dramatic decline, he doesn’t think a lot of people believed it, so the dividends received that you got from lower prices at the gas pump actually went into savings as opposed to spending. We are now starting to see an uptick in consumer spending, and this is going to lead in to a stealth economic growth period. There is so much nervousness that next year could actually be a pretty decent year. We are going to have higher interest rates and that is underpinning everything. The 1^st rise in interest rates will not do much, but it will benefit banks by having a psychological impact on them. They will be able to charge more for loaning money out and are not paying any more to get it because they are sitting with $2.7 trillion in excess reserves. Investors should be thinking about their portfolios in terms of that.

Which factors affect ETF’s the most, the price of the stocks or the popularity of the ETF? The price of the stocks would affect the ETF the most. The whole approach to trading ETF’s from a market makers perspective is to keep the value of the ETF very close to the Net Asset Value. However, some ETF’s will trade slightly above or slightly below the NAV because of large trading volumes.