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

If we start to go into a rising interest rate environment you would want to go with the shortest lease term, so you would like hotels and apartments, as opposed to industrial and commercial. Apartments in Ontario are full and that is partly a rent control problem.

Markets. As energy struggles and as we go through the next interest rate cycle, we know the Fed will try to raise interest rates and normalize things. He thinks there will be a lot of consolidation in the energy sector over the next couple of years. In the pipeline space, bigger is probably better. The US economy is looking at bit better than a month ago. At the end of the day none of the concessions from Greece will fix the problem. If they want to keep Greece in the Euro then they have to eat some of the debt. They need to have a currency that puts people to work. Individual investors should not focus on the noise in the market like Greece. The markets are going to do what they are going to do. And should not get caught up in it.

Educational Segment. Avoiding get caught up in the weeds. We have been hyper focused on Greece. The reality is that whatever happens, it will not matter to the long term results in your portfolio. It promotes anxiety. Tips: Investors need to focus on the big picture. Find your happy place where your portfolio should be positioned so that noise does not prevent you meeting your long term goals. Everyone should have a part of their portfolio looking for opportunities from mispricing. It is a small portion. If you want the highest return possible, have a concentrated stock portfolio with managers you like, or do it on your own. You have to be able to handle the risk of volatility of it so you don’t get out at the wrong time.

Markets. There is a lot of macro uncertainty. Greece, China, the Middle East, energy markets and the Russian situation. We aren’t seeing a lot of earnings or revenue momentum. The likelihood is that we would see some sort of a correction in the US. She expects the Fed to move up the interest rates in the US in September. Interest rates will be lower for longer, however. The US economy is not strong enough to stand much of an interest rate hike. There are some good opportunities with interest sensitive sectors selling off. Wait for a rate hike before stepping in aggressively.

Markets. In the most recent CPI numbers 80% of components have a gain of 2.14% and this is a far cry from what people are worried about. Next year you are going to see 2.25 to 2.5% and then a rise in interest rates. In 2006/7, the interest rate curve went flat and this is abnormal. You won’t get a flat yield curve any time soon because that would kill the economy and that is last thing the Fed wants.

Investment Advisor Fees: He charges 1.25% on the first million and that stays constant regardless of the value changes in the account. He charges it quarterly.

Markets. In April he raised some cash in his funds, because he knew the pipeline for IPOs was quite large. Also, in the summer there is a little bit of weakness in the sectors, and he wanted to have a little more cash on the sidelines in order to participate in some of the IPOs or get some names that have been beaten down quite a bit. You have to be very selective on IPOs and be sure that there is good visibility and that multiples are not too high. The problem is that when all IPOs are doing really well, the multiples expand quite a bit and people know they can get higher valuations for them. Sometimes it’s good to be in an environment where IPOs are not doing well and are trying to come public. That is where you can get some good values. You want to see the dust settle on some of these, so you can see what kind of valuations they will normally trade in. Smaller cap names in Canada, outside of the resource sector, are growing earnings fairly rapidly and don’t trade at ridiculous valuations. He would feel comfortable with a lot of them in Canada. In the US, some of the high flyers trade at much higher valuations and could come down more. Investors should have 5%-10% of cash sitting on the sidelines, just so that they don’t have to sell something in order to buy something.

Markets. We may have a new federal government in the fall. This would represent an opportunity. It could cause a bit of a shock to the markets.

Quarterly Earnings Reports – should investors pay attention to them? He thinks there is too much emphasis on 3 months. You should look at a year. You can compare quarterly earnings to a year ago. Watch for write downs, debt increases and negative cash flow.

A lot of people are saying the markets are overextended and valuations are stretched. IPOs have valuations that are insane. He would be more wary of investing now than in 2009/10 after the blow off. It was the same in 2005, but there was still some run left in them. He would still invest, but be quicker to sell.

Markets. Central banks in the rest of the world are leaving rates lower for longer. The recovery has been anemic everywhere in the world including the US. People are nervous that the Fed is going to raise rates, but they delay and delay. The rest of the world is lowering rates to fend off deflation. Low rates drive the stock and bond markets. Dividend yields are a big part of the returns to investors. He likes companies that are growing their dividends and earnings. Some of these companies have corrected quite a bit, as they did last year at this time. The run up in the US dollar has run its course. He would not be buying Euros or Yen at this point.

Markets. If you believe we are in a continuation of this elongated cycle that we have been in with a lot of disinflationary forces, then he thinks you can still be constructive on a lot of the yield stocks that have come down quite a bit over the last couple of weeks. He is seeing opportunities in select names in utilities, REITs, telecoms. Also, still likes the growth names. You kind of want to toggle back and forth. This is a different environment than past cycles. Not sure how long this is going to last, but the opportunity is that you buy the yield when people are really scared of runaway interest rates and you buy the global growth stories where people are afraid there isn’t growth. We are still very much in a bull market and we are not going to have anything big, as long as Greece is contained.

Canadian bank stocks? They have a lot of negative press around them. There is a big US Short. As long as a real estate holds up, this is a sector that you can own. Payout ratios are low and dividends are high. P/E ratios are quite low and growth levels are good. When they get to a level of 4.6% as a group, that is when he buys them. Not a lot of risk and some decent rewards. Royal (RY-T) would be his favourite growth play. He also thinks there is good value in CIBC (CM-T).

Gold. There are 4 things he looks for to gauge the short term direction on the gold price and where he goes. The 1^st is yield and what the Fed does, 2^nd is the US$, 3^rd how the ETF is positioning, and 4th how the futures market is shaping up, with speculators being either Long or Short gold. The perception is that higher rates will be a headwind for gold, which has kept a lid on gold recently. However, going back to 1994, there have been 31 rate hikes by the US Fed, and on average gold has performed well, a little bit more often than not. Given how depressed the gold price is and the fundamentals, he feels that it is very difficult for even an interest rate hike to push gold lower. A headwind for gold is the US$. The US has propped up the dollar which makes gold more expensive to own for consumers in other countries. The consumers who talk about gold are China and India, where there is a cultural attachment in owning gold. Demand there continues to be strong, but has tapered off as of late. As those countries emerge and wealth grows he expects gold demand to rise, particularly in China, as they move from an investment driven economy to a consumer driven economy. This should be the 1^st year that we see supply taper off in 7 years. Psychologically that is an important milestone in the gold market, which should really put a floor underneath the gold price. Looking at all the variables, he thinks gold should be at about $1250, and we are currently at $1180. Sees the upside versus the downside ratio for gold being about 3 to 1. A good risk/reward to him in the short term. We have been in a bear market for 3 years and they don’t last forever. While it is difficult to put a finger on a catalyst in precious metals, all the elements are there that tell us we are bottoming. If we go to $1150 or below, the real industry fundamentals will take hold, which will help put a floor under the gold price and prop it up. Supplies should peak this year.

Silver. An interesting metal, because it is seen as a higher beta metal than gold. One thing he doesn’t like at the moment is that there is a lot of supply. A lot of that supply has to be consumed by ETF’s and investment demand. Has seen the demand rise recently, due mostly to demand out of India, because it has implemented some taxes on gold. Most demand is being propped up by artificial demand by India. His exposure in his funds is mainly about 7%-8%, and mainly held in 2 investments, Fortuna Silver (FVI-T) because of its new discovery and significant wealth creation, and Silver Wheaton (SLW-T) because of its royalty business model.