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

If Euro's are being held in a Greek bank what happens if Greece changes currency to Drachmas? He believes that the Euros would be exchanged to Drachmas at a certain rate. After which the the Drachmas would probably fall in value.

Markets. We have lofty valuations on stocks and we now have the Fed that is trying to normalize borrowing costs. That accommodation doesn’t leave you a lot of places to hide when interest rates start to rise. Typically you would use bonds or defensive stocks as a way to play defence. As we saw in June, balanced funds all of a sudden aren’t looking so balanced. Thinks China is a bigger concern than Greece. The Chinese market is still the driver for commodity demand. It is starting to drive a flight to safety in the US$. All you need to do is look at where the US$ is going, and that will tell you where commodities are going, as well as where equities are going. Looking at the price of oil and copper today, it looks like there is more volatility ahead. Playing defence in Canada is definitely important. For an average investor with a long time frame of 15-20 years, the market volatility is just par for the course. Any time the market starts to act technically weak, bad things can happen. Volatility picks up and the likelihood of large drops starts to pick up. A 10% allocation of cash in a portfolio would not be out of line for a long-term investor. He looks at stocks in 3 ways. Good price momentum, good valuation, and reasonably low volatility.

Economy. China, in the past 4 weeks, is down 30% from its peak, mostly because of a bull market that was really driven by government policies that were urging investors to take aggressive bets. He doesn’t think people realize what the risk are out there, or how far they are being pushed out the curve by these continued Central Banks positions of zero interest rate policies. In the end, they are not getting the desired effects of trickle-down economics. There is a flurry of individual investors who have never invested before and are being dragged into the market. He doesn’t know how sophisticated they are or really know what they are doing and are the ones who panicked in and are panicking out. There have been a lot of questions about Chinese accounting and other things. Doesn’t think the average institutional investor is really throwing a lot of money into the Chinese market.

Markets. Over 12 of the last 13 years, something unusual has happened in the summer. Last year it was Ebola and the Ukraine, and this year it is Greece and China. Then the markets go down. China is propping up the stock market by getting institutional investors to buy more. They had a 30% drop in one month. You are going to have more volatility in the markets during the summer. Once you get past the volatility then you are set up for upside.

S&P 500. It broke below its 200 day moving average today, and then came back. It should go sideways for a bit. It should go up by end of year. There could even be a summer rally.

Greece and the Bond Market. This morning the reaction was a strengthening US dollar and then a strengthening in bonds. It is a flight to safety.

Educational Segment. Volatility vs. Markets. When the volatility spikes, the market goes down. This happens every year. Reduce equities in May and watch for volatility. Then the summer rally happens. Last year it happened in the middle of October. But a lot of times it happens in the summer. As of today, your finger should be on the trigger to maybe buy over the next two to three weeks. You have to watch for the trend of volatility to end. Wait for the VIX to come down again, completing the spike. Gold seasonality: July 9^th, gold usually starts to go higher until the end of October. Support going back to last November is still in place.

Markets. Greece is inevitable. It is a huge crisis. The logic end is that they leave the euro, even if not the best end. They got in under false pretenses. The little guy is suffering at the expense of everybody else because they don’t pay their taxes there. It’s the little guy with savings in Greece who gets paid in Greece. The euro was set up to benefit Germany, which it did. The contagion from Greece is not as huge as people think. The markets have not sold off as much as people would have thought. He was hoping for more sell off so he could buy companies cheaper. In the event of a market correction it would not be commodity stocks because it is way too early. He would look at multinational companies headquartered in Northern Europe, but doing business around the world. He would not look as much in Canada. The US dollar is down today meaning that the markets have priced in Greece leaving the euro.

Banks. He is not all that positive on Canadian banks. He is more positive on the US banks. He has BNS-T only. It is a relative call. The Canadian economy will be much slower, if it grows at all. Canadians are overextended and he does not see as much loan growth. In the US the banks have much more interest rate exposure.

Gold. Money flows into the US dollar not gold when there are issues. He would be more interested in gold ETFs than gold stocks because of issues at mines. There is lots of other stuff to own.

Pipelines. He just sold TRP-T to reduce exposure to the beneficiaries of the search for yield. He can’t advocate putting new money into them.

Markets. Since March 2009 we’ve had 2 advances. The 1^st advance for the first 2 years was what he calls a rebound bull, which is a drop followed by a rebound back. This was followed by a small bear. Around 2012-2013 we began a new advance. There is probably another year to go yet, and investors need to pay more attention. Don’t get involved with the broad indices. Avoid ETF’s that has every stock in the planet in it. Go for seculars and go for the dominant theme. Dominant theme investing will get you through bulls and bears, because dominant theme is a long-term trend. Some current dominant themes would be healthcare and Agro. Also, lumber has a ways to go. Transports are dominated by rails and airlines, and he thinks it is more consumer sensitive. On the other hand, the Russell 2000 is economy sensitive and is starting to outperform the transports. This is a good sign and is telling him that the US economy is going to march forward.

Gold. Chart shows a group of lows from 2013, and it looks like it is wedging. The sentiment is negative on gold, which is a positive. He thinks the weak money has disappeared from gold and is now moving into stronger hands.

US fracers. Why is this group down? The oil group in general peaked in mid-2014, and then plummeted down to a low in December/14. It rallied back and is now testing that low. Some are breaking that December low and some are not. The fracers are leading the sector. Today was a very special day for the entire energy sector.

Economy. Government bond yields, leading economic indicators (LEI) and the price of oil are all positive. The LEI is above the 18 month moving average, which is a positive sign. He is always looking to see whether oil has gone up by 80% or more over 12 months, and it hasn’t, but has actually dropped. We need oil to be in the $75 range for that to happen. Also, wants to see a normalized yield curve where short-term rates are lower than long-term rates. These show that there is no risk of a recession in the next 6-9 months. If there was going to be a recession, he would want to be out of the market, or at least taking some sort of defensive action. The market would turn down prior to a recession starting. Margin debt is now hitting an all-time high and he wants to watch when that starts to come down, which means that liquidity is coming out of the market. Even though markets had been hitting new highs in the US, he wasn’t really seeing the breadth that he would like. Would like to see more stocks hitting new highs and carrying on. Seeing a lot of new opportunities in a lot of areas that he hasn’t looked at before.