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

Markets. In the last 8 years we have seen global debt increase by over 40%, and is over $50 trillion by now. This has largely been a result of low interest rates making debt very attractive, quantitative easing and Central Banks have built their balance sheets up to huge amounts. We are not immune in Canada, not so much on the government side as on the consumer side. In spite of that and all the 3^rd geopolitical turmoil, markets seem to continue to just pace ahead. We have had a pretty good run for a number of years. In his view, valuations are looking a little bit stretched. This is a time to be somewhat cautious in the market. Be prepared to act on any downdraft, but be very careful about the prices you pay going into stocks. He is always looking for things that are a minimum of 3-5 years and longer. In energy, you might well be early. You want to be in the companies that are financially strong, well-managed and companies that take advantage of the current weak environment.

Markets. The breadth of the NASDAQ is lowering even though it made an all time high last week. The Russell 2000 (mostly NASDAQ small cap stocks) was actually down on the day, which is not a positive sign. OIH-N is bottoming, but because the glut in oil supply is not getting cleaned up any time soon, this bottoming process will take some time. Maybe into next year it will come back down again as part of that bottom process. Take some long term money and put it into the energy sector for 5 years and get a good dividend. We are starting to see growth in Europe. The biggest export in Greece is refined oil products. He thinks this will be an interesting play.

Educational Segment. Couch Potato Investor. There is risk in buying and holding. RAFI smart indexes have a great track record of forecasting forward based on what the inflation rate is, on bond yields and what a 60/40 balanced portfolio might look like as we move forward. They are forecasting a 4% return in a balanced portfolio over the next 10 years. They have a web site so people can follow this. You have to look at risk and return together. Higher returns are going to come in the future from emerging markets.

Markets. The big story is that since the beginning of the year 14 countries have cut interest rates around the world. There is very anemic global growth and deflationary worries around the world. Interest rates should stay lower for longer. He likes mid cap value and small cap stocks. There are bargains out there, but they are increasingly hard to find. He is keeping more than 5% cash on the books. Over half of his stocks are benefiting from a higher US$. This approach should pay him good dividends for the remainder of the year.

Markets. He is somewhat bullish for the next couple of years. The 2008-2009 session and its correction was so severe it could take up to a decade for the economy to get back to normal levels. This gives you 3 years to go in this bull market. There can be short term disruptions, either geopolitical or weak economic data, but looking out 3 years on how well the US will do and how Europeans might recover, this gives a pretty potent mix for higher markets.

Energy. With the fracing and the additional non-OPEC supplies growing at quite a rate, oil is going to be in plentiful supply for over the next decade anyways, if not longer. That will be a tremendous plus for the economy. He expects the outlook for oil will be a little higher by the end of this year, but it is far too early to know how the impact of a number of influences will be on the price. Feels that $50-$75 is not a bad price range.

US$. A 10 year US government bond is at about 196. If you are in Europe and looking at some alternatives there, you can buy a 10 year German government bond for 17 basis points. He doesn’t know who in the right mind lends any money to anybody at 17 basis points for 10 years. Clearly the US bond market is still attractive to foreigners. As that capital inflow is maintained, that is going to put upwards pressure on the dollar.

Gold. Had thought that inflation would be higher and that international finance would be rockier, and that gold would reflect those 2 things. If something happened to the price of oil, gold would go up.

Markets. He will reduce his correlation to the equity market during the summer because that is a period of increasing volatility. There is a lack of positive catalysts to drive the market higher. You don’t want to be exposed to all that volatility. Investors expecting a decline between May and October might be disappointed. The average is only a decline of about 2 tenths of a percent. The market has actually been more positive than it has been negative about 62% of the time using the S&P 500. If you are not of the belief that we are going through a recession, you could actually do all right during the summer. For him, he wants to reduce correlation. This year there could be a higher than average chance of a sizable correction during the summer. He is seeing economic data that is a little bit soft. His biggest concern is if the Fed does not raise rates because the economic data is not strong enough to support it. S&P 500 is basically flat during the summer. There are no major catalysts to drive it higher. You get your major strength from October to May. The major sectors that pull down on the broad average are discretionary, industrial and materials. If you stay away from those and go towards lower beta securities, you can make plays in consumer staples, which is a big thing during the summer, such as healthcare, utilities and even some of more commodity sensitive areas such as energy, agriculture and even gold miners.

Healthcare. Tends to do well during the summer. It is less correlated to the market, so you don’t see the seasonal shift that some of the other sectors do. The period for healthcare starts about now and runs through to September. (See Top Picks.)

Gold. Seasonality for gold follows the same time frame as agriculture stocks, from about the end of June all the way through to September and October. Basically this is a time of rising volatility.

Markets. The NASDAQ is above its all time high, but he is very concerned about what he is seeing. The reasons for markets going higher is a problem. The Chinese economic news continues to worsen, for example, and yet the market continues to go up due to stimulus. The US is the only market that has lagged and it is because they stopped QE. The medicine of low interest rates has been way overdone. You are forcing all investors further down the risk curve just to get any kind of return. This is not right and when it ends it will end ugly. He is getting more defensive. He has more cash than previously.

Canadian Banks. Consumer credit in Canada looks a lot like the US in 2007. More regulatory capital will be required due to the federal budget. Loan demand just isn’t there. He is cautious on Canadian banks and has lightened his positions on recent strength.

Markets. It is hard to look around and find good value. Markets are quite expensive. We are seeing a pretty soft US earnings season. Greek problems are coming up. There is fear of seasonality. There has really been a softening of US data points in the last little while. Even though equities are expensive and much harder to buy here, they are still so much cheaper than bonds. Expects the market will get the benefit of the doubt. Data is generally improving in Europe. There is a lot more accommodation in China. US earnings have been pretty murky to date, but a lot of the earning releases are front-end loaded to multinationals, which are very sensitive to a tough greenback. Domestics will start reporting in the next little while, and he thinks that will also give a little bit of a lift. You still have the effects of lower oil to come, and you have easy money everywhere. Pullbacks will be shallow and you want to keep on trying to buy them.

REITs. REITs have had a pretty good 2015. Part of that comes from the base at which they were. They started the year looking very cheap, so a lot of money started to flow back in. The collapse of oil stocks also helped. Also, interest rates have not been going up, despite what everyone thought was sure to happen. Canadian REITs are more attractively valued compared to US REITs. They have always traded at a discount, which makes sense. However, they are at historical wide spreads now, indicating there is still value in Canadian REITs.