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

Markets. He generally doesn’t like it when the Bank of Canada lowers rates to get the manufacturing sector going; because you get beaten up in a lot of other areas if you are consumer. There was a huge rise in exports the other day ending a 5-month malaise, but he doesn’t know if that is going to be sustainable. Still not thrilled with the low dollar policy that we have. Let’s wait and see what happens. As we move sideways, he simply sells options on either the index or buys BMO Covered Call Cdn Banks ETF (ZWB-T). This is a strategy that he always likes. The covered call strategy is a way of boosting very minimal meagre returns on fixed income. You can get 5%-6% out of some of the covered calls. He is about 30%-35% US now.

Bonds? He always has bonds in his portfolios. However, you have to remember a few things. If you expect interest rates to rise, you want your bond portfolio to be shorter term, 2-3 years at most. Also, whatever current yield you see, never believe it because current yield can be very misleading. Go into a bond ETF and look at what the yield is to maturity and what is the trailing yield. You will be somewhere in between. He likes iShares DEX Short-Term Bond (XSB-T).

Hedging with an ETF to cover a drop in the Cdn$? The problem is that there isn’t really a currency ETF, and they are not liquid even if you could find them. Your best way to hedge, if you feel that is the direction it is going, is to move some your money into US$’s.

Markets. Technically we have leaders in the bull market and now the leaders are being shot. Most technicians have seen the breadth of the market is topping out. With big names collapsing today, we are losing the leadership. This signals the end of the life of this bull market. He is not saying it will be a deep correction, but we will see a shift where investors go into things that have not worked over the last couple of years. ABX-T is an example. Most of the sector is up. We are moving away from tech and health care and over to commodities. The crude oil stocks have reacted worse than the price of crude has in the last couple of months. Energy is now oversold. We have seen a 50% retracement in gold and it should hold for a couple of weeks, then gold stocks should start to rally. If not, then gold could head to $900.

Markets. The market is fickle. Today the market hated the media stocks. Disney announced that some people were cutting the cable cord. The market threw a fit and over reacted. So CBS, Fox and Via Com were all down big time. He recommends that we assume that these big companies aren't being run by idiots. People sometimes focus on the small picture instead of the big picture. The time to buy is when everyone is selling. He is a value investor. He has been waiting to buy Disney for years and if it goes down 15% he will be all over it.

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.