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

Markets. Greece is talking tough on austerity. Greenspan said the Euro does not work for all countries. Berman feels the Euro will eventually fall apart and this is just the next iteration of the debate. The markets will have some anxiety about it. China has some growth issues they have to manage. They will soon be the largest economy in the world, so when their trade numbers slow down, it is significant. Growth rates could fall to low levels over a number of years. We can see strong numbers in the markets without Chinese growth, however. We are in the very early phases of banging out a bottom in the price of oil, but it could take a year. We should be accumulating a position in the crude space. Don’t invest in ETFs that hold the commodity because of losses from the rolling over of futures contracts.

Having just one oil stock and one gold stock is not diversified. Use an ETF. Don’t try to choose between oil and gold. You might want to be more weighted in oil than gold.

What happens if the manager of your ETF runs into trouble? The assets become custodied in segregation and there is no issue and you get your money back, unless there is fraud. It is relatively insignificant in the grand scheme of things.

Safe ETF for one to two year hold. The more diversified you are, the lower the volatility. In two years, Greece could blow up, or the US and China could lift the world. ZMI-T is corporate bonds, preferreds and a lot of everything, Canada focused. There is no global balanced ETF that gives you that exposure.

Education Segment. Comments by a TV Personality on ETFs. He was shocked that this host of a popular money show does not ‘get’ ETFs, saying they were only for short term trading and you should go to mutual funds. The corner stone of investing is diversification. You need 30 to 40 individual stocks to diversify a market and it is hard to manage that many, and that’s why ETFs are great. Comparing CPG-T and RY-T to ETFs containing them, you got more return for less volatility using the ETF recently. The point is that you have to be diversified.

Markets. When visiting Europe he found the mood was better than expected. German is positive and is benefiting from the weak Euro. The Swiss are nervous because of what the S&P did and the appreciation of the Swiss Franc and the Spanish much more optimistic than they have been for a long time. Greece concerns him. He does not know the unintended consequences of Greece defaulting on the debt. If you stick with the quality companies you should do okay. India was the exciting country last year to invest in. If you look longer term, that is probably still going to be true, but there should be a pullback short term. China is the real wild card. There could be spillover effects into other parts of Asia. He looks for companies with strong balance sheets that can finance their growth internally and that have quality management.

India ETF or Mutual Fund. Long term he thinks India is turning the corner. They have a reform oriented government and good growth. Oil prices being lower benefit India as an oil importer. We may hit a few road bumps, so he would scale into it. Start now and buy over the next year or so for a 3-5 year hold.

Emerging Markets Infrastructure. Some of these plays look very attractive. Some of the airports look very attractive. He goes for growth, but these are mostly yield.

Lanexess (LXS-AG) (Top Pick Oct 18/13, Down 9.60%) Had a pretty good recovery. New management are very strong. Since the new year the pop is management coming out with better forecasts, the weaker Euro and the lower oil price. Europe requires labeling on tires so you know where the tire ranks in many categories. The synthetic rubber is much more effective in many of those categories. There was a supply issue, but they are working through that.

Markets. The market is trying to move to the pro-cyclical camp. Financials, energy and materials did pretty well last week. Bonds, the whole defensive play, came off. The Fed was doing some more asset purchases. They took off about $240 billion from August through until about October. Then in November-December, $190 billion gets tacked on. Because of this, he is not sure if the Fed knows some stuff that he doesn’t, and they are still worried about inflation, or is the market just kind of front running that news story. He thinks investors are probably somewhat confused as to where to go. Expects we will see the Chinese central bank and the reserve Bank of India kind of get in on the action a little. Those markets have some real tailwinds behind them.

How does the price of oil relate to the price of gasoline? Gasoline is a separate commodity from oil. Although it is based on oil, the inputs for gasoline are based on oil, but in addition, what are the refineries’ capacity like. There haven’t been many refineries built in North America for 30 years. You tend not to see the relationship be as quick as we want it to be. You can even have different prices in cities that are just 10 minutes from each other.

Interest rates? Thinks everyone was caught off guard when the Bank of Canada lowered the rate. The consensus now seems to be that we will probably see another drop in the near term.

Cdn$ versus the US$? Currencies are one of the toughest things in his business to get right. You have the vagaries of what a central bank will do. He thinks the Central Banks are going to lower rates again. If we saw this break $1.23 to the US$, that would say that we have a new paradigm coming, and would probably indicate that energy stocks are about to do really well.

US Economy. The market goes between worries of “not enough growth” and “too much growth”, scared of deflation and worry about inflation. The concern of the day now is, does the Fed move earlier to raise rates. He thinks they stay on track towards their June/July first rate hike, and it could be very small. This is further evidence that momentum is building in the US economy, which is all good. Also, good for large swaths of the Canadian economy. He diversified into the US about 6 or 7 years ago and has been slowly, gradually adding to his positions. Found some of the yield names quite expensive. A tale of 2 economies.

Markets. Not surprised by the current volatility. We were in a low volatility environment for a period of time, but it doesn’t concern him. It gives a lot of opportunities to own some very good names. He just maintains focus on buying high-quality businesses and building a high-quality portfolio. As the opportunities come along, you are either adding to positions, or establishing new positions with companies where you have been waiting for the right price levels.