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

Markets. He tries not to forecast the markets, but is cognizant that we are in the month of May, and selling will have some merit to it. Also, be aware there are opportunities in the summer, which is one of the reasons he has pulled down his net exposure in his portfolios and is sitting on around 67% cash in his flagship fund. Still likes non-bank financials and he tends to use the banks as a hedge for market risk. Likes the consumer stocks as there is a scarcity value of those. As investors flee from the resource space, that tends to be a safe haven for them. Avoids direct exposure to the resource space. More of a “bottom up” investor rather than a sector player. A typical hedging trade could be Canadian Pacific (CP-T) which is overvalued, and where the first risk is market risk and the second industry specific risk. Because of this, it would not normally be in a pairs trade within that sector, so Canadian National (CNR-T) would be a natural choice. If diesel fuel goes up or down, it affects both of them equally, which helps to take out some of the risk in the portfolio. This allows him to focus on the alpha.

Markets. It is inevitable that we need a correction before we get any kind of a summer rally. Every year, in the last 13 years except for one, there has been a summer rally. It’s difficult to pin down when it happens, but you can tell by watching the VIX Index closely. Historically, something happens in the summer time which causes volatility to increase. When volatility increases, look out because you then go into a corrective phase, and you don’t want to be there because the amount of correction can be significant. Once the correction is over, you are set up for the next move, which is your summer rally. The TSX Composite is really fascinating, because it is hanging in there. If it drops another 80 points, it completes a major breakdown on the index, and establishes a technical selling to move markets lower.

Crude Oil. On a seasonal basis it has its strengths from around the end of January right through until the beginning of August. On the other hand, just a couple days ago on a short-term basis, it broke down through a short-term support level. The seasonality may be peaking out a little bit earlier than usual this year. Technically, it has recently been in an upward trend, but is starting to stall. He really doesn’t have a strong opinion on crude oil as the seasonality and technicals are not really coming together.

2 Month Canadian Treasury Bill. There are a number of sectors that normally do very well in the summer time, so you want to set it up so that when those sectors come into the period of seasonal strength, you are all set to go if the technicals get lined up.

5 Month Canadian Treasury Bill. We are going into a period of exceptional volatility. You want to protect yourself against a situation where the federal reserve is expected to increase its rates.

Markets. The underlying constant is the growth. The oil fall has given cover and inflation and Cap X have come down, but underlying things are quite strong. He sees an overheated economy next year, primarily in the US. There will be an 8 month lag for Canada. The balance sheet of the average consumer in the US is actually quite healthy. Inflation can be an incentive for people to make major purchases before the price goes up next year. He sees growth rather than defense. He is out of anything that has done well over the last 5 years.

When you buy back your stock it is a tax effective way of increasing your earnings per share. He prefers dividend raises because he believes when boards raise a dividend they ask 3-5 years out how sustainable that is, whereas a buy back is immediate.

Short Sales of Stocks. The stocks he shorts are large and liquid. If there was a technical squeeze and there is not enough stock to borrow, your broker might demand it returned. This never happens in the large caps. When you go to borrow for a short sale. You want to do it from a larger broker.

Markets. Investors need to embrace volatility. It is an important part of the market place because it allows you an opportunity to purchase things. You need to understand the valuations of the companies you are buying. He feels you will not see strong, strong economic growth in the world. Even in the US people are not spending all the money they are saving with oil being down. They paying down debt or saving more money. That will lead to lower economic growth. That is the world we live in now. The Canadian dollar should be around $0.95 and the weakness below that was caused by things like lower oil prices. You need to have a long term approach to investing.

Energy. Believes that OPEC has got the US shale into a position where they want them, and that is in a decline in production. They want to see the high cost oil production in the world decline. It is the summer driving season and he expects the big US inventory numbers to decline. On the production side, there is an oversupply. Believes the demand upticks, followed with production declines in some of the high cost basins are going to resolve that problem. Feels that the bottom is probably behind us. Doesn’t believe anybody believes in $80 oil, and maybe the right number is $60.

Natural gas. The US will consume about 75 BCF per day this year. They produce about 70 and get about 7 out of Canada and another 2 from elsewhere. The North American market is probably oversupplied by maybe 3 BCF a day. There are some LNG projects coming on that will completely consume that.

Markets. As a whole there is a new reality of growth slowing. We are looking at half the previous growth around the world. Real returns, however, are going to be only slightly lower on portfolios. You are better with 8% return and 2% inflation than 10% return and 6% inflation. There are some defensive sectors that you can hide out in. Emerging markets are growing twice as fast as developed economies.

Getting an Adviser. Go to the web site for the Financial Planning Standards Counsel. Young people may want to consider a Robo advisor.

Caller withdrew from TFSA then the limit was increased. Can he contribute now? CRA gets suspicious when you make a withdrawal and then a contribution in the same year. CRA would prefer you wait until the new calendar year.

RRSP vs. TFSA. If you are going to be in the same tax bracket when you are working as when you retire, it makes no difference. If you will be in a lower bracket after retirement then it makes sense to defer tax with the RRSP. If you are a low income earner you probably want to use the TFSA.