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

Markets. It’s nice to see a bit of a recovery, but he does not trust it. He is still heavily in cash. Look for companies with lots of cash and generating free cash flow. Get back to fundamentals – bottom up. There is a lot of noise about what causes a correction, but he feels it is simply valuation. Stocks are expensive and professionals know it and that is what caused most of the selloff. He thinks people underestimate how much the market has been hurt by the oil price. It is a good time to start picking away at oil stocks.

Markets. The TSX has bounced off the bottom at 13k twice now. It is a psychological and a technical level. A lot of the volatility is caused by news stories. It was overvalued. Earnings over the last three quarters had been slowing. After September he underperformed the market. He has been buying two energy stocks recently. Since the markets have bottomed his clients have outperformed. Interest rates are lower for longer. Equity markets are going get single digit increases in earnings. Stay the course and enjoy your dividends. There will be companies that increase their dividends next year – at least half of them he predicts.

Drips. He does not use them, but advises retail investors to use them if they don’t need the money. Most of his clients need the dividend. For younger clients he prefers to take in the dividends and then buy the best stocks at the time.

Markets. The Saudis are accomplishing what they set out to do which was to protect their market share. They were targeting the rapid growth in the shale oil industry. He thinks they will keep going for a while and then eventually the oil price has to go up just for them to balance their own fiscal budget. We know the pain is there for them as well. The expectation is that the demand will get stronger. He doubts the Saudis see Canada’s light oil production as significant. The drilling activity in Canada is one third what it once was.

Markets. The numbers on Friday were pretty poor so he was surprised at the market reaction. September and October are not really good months, but maybe this rally has legs. In Nov/Dec he thinks it will start ticking up. Canada may outperform the US. Earnings expectations are pretty dismal so he would not be surprised if we get the surprise movement upward. You have the global economy that is growing, and North America is growing too. There has been so much cost cutting that maybe we can get 5-7% by year end.

Private vs. Public REITs. If interest rates go up then cap rates change. It does not matter if the REIT is private or public. When interest rates go up, the outskirts are hurt more and the big cities are hurt less.

$10k to invest? First, use a TFSA. With this small an amount, he would use a bank ETF (e.g. ZEB-T, 4.3% dividend) with half and a REIT ETF with the other half. This will be efficient and sufficiently diversified.

He looked at short interest in three stocks. It is massive. It would currently take 84 days to cover MEQ-T’s short positions based on their average daily volume. TD-T is 7 days. LNF-T in 61 days. These shorts are going to be in real trouble if we see a turnaround like we have in the last couple of weeks. We think it is the US that is shorting a basket of Canadian stocks. They don’t realize that with our volumes it is not that easy to buy back your position to cover it. He thinks they are wrong in shorting these stocks. The retail investor does not get to see these charts normally.

Markets. The IMF has downgraded global growth. He thinks it is prudent to be cautious. There are any number of macro events to give you trouble. The Fed has left uncertainly over interest rates. He is not seeing any reason to get into the market yet. There is more downside. A double bottom would help with a Santa Cause rally. For very high quality companies, you could start buying now. But there are times to be invested and times not to be invested. He is sitting on a lot of cash right now.

US Regional Banks. KRE-N is an ETF to look at. It looks at all the regional banks. You have to be careful of balance sheet positions. Some are liability sensitive and some are asset sensitive. The former benefit from lowering rates, the latter from rising rates, so you want the latter. You should see a wave of consolidation coming. If you start to see a wave of M & A, this should benefit them.

Markets. AAPL-Q broke its 200 day moving average in August and then more bellwethers after that: GS-N is another as is DIS-N. Now we are getting a rally. He thinks we are seeing a rotation out of health care, consumer and some financials into harder assets including energy and materials. Energy has shot up past financials so far this month.

Markets. Canada needs to diversify instead of exporting 70% to the US. Keystone XL is a good example. The acquisition of COS-T could be the first of several cases of the guys with big balance sheets coming in to acquire something in the energy sector.

Momentum ETFs. E.g. First Asset Momentum ETFs. He mentions those that make up the majority of the market. He is not a momentum guy so these don’t appeal to him. He feels these are excellent momentum ETFs.

QE4? He thinks the Fed WILL raise interest rates and one raise is priced into the markets. He thinks they will do half moves. They want to get off zero and they want to test it. Probably sometime next year.

In flows and Out flows of ETFs. E.g. SPY-N, being the largest in the world. Market Makers can liquidate units, or create more, so there does not have to be a balance of buyers and sellers of the ETFs.