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

Markets. It has been a quantitative tease with the ECB. The DAX made an all time high. The consensus is now that QE with happen through the ECB. The Swiss bank said they will not continue to be pegged to the Euro. This was a black swan event. This wiped out some hedge funds. There is a gross under investment in people’s retirements. The bottom half of the population has almost no savings in their retirement accounts. The governments need to nudge people such as with the recent move to require companies to force employees to set up and contribute to a retirement savings account.

Amount of portfolio in US. The US is about 48% of the world in terms of market capitalization, vs. Canada at 4%. This means to him that you should have at least 50% in the US. But one of your most important factors investing outside of Canada is currency risk.

Silver. It is a tradable rally here. Not sure if it is the capitulation he was looking for. He thinks the deflationary risk in the world is still greater than inflationary pressures. This is probably not the take off and launch place for precious metals and we may make new lows later in the year.

Educational Segment. Volatility: Taking the Whole World into Account. Europe`s economic performance is horrible. Chinese growth is in question. US markets are really fluctuating. The Swiss Franc`s volatility wiped out some hedge funds. Out to twelve years, the interest rate in Switzerland is negative. People only buy the bond for the currency, not the negative interest rate. 70% of your return in global investments is based on the currency. The Euro is heading for parity with the US$.

Markets. There was a great Santa Clause rally, but Canadian and US markets peaked on Dec 29^th and will probably correct until late January. The key is that going into the 4^th quarter earnings reports’ results have not been all that good. After the end of January we go into the final phase of a presidential election in the US, which is the strongest part of the cycle.

The end of January until May, the economically sensitive sectors do well. That is when the economy picks up.

‘08/’09 Crash again? We get these volatilities in the markets and they have increased in the last couple of months. The sector that has been the weakest are the energy and financial services sectors, but these have the weakest seasonality right now. He is looking for an opportunity to enter these sectors as soon as he sees bottoming. We are seeing early signs of bottoming in the energy sector over the last couple of days. You want to watch to see if it is outperforming the index. You want to see support. You want to see it moving above its 20 day moving average.

Nat Gas. Beginning of September until the third week in December is the period of seasonal strength. So we are outside of that period, so now all you will see is lots of volatility based on the outside temperature. There is no reason to be a buyer at current levels.

Markets. We are getting near a major cyclical top in the markets. This is based on valuations primarily. He was raising cash in the summer. Notwithstanding the brief October correction, the market remains expensive. Bargains are tough to find and there is an appreciating US$ along with a slide in commodity prices. There could be some emerging-market issues that haven’t jumped to the front of the queue as yet, and that can cause some uncertainty. Volatility will be a constant theme in 2015 and prudence will be important in maintaining cash for a play. A rising US$ generally is not good for emerging markets. This doesn’t necessarily come to the forefront right away. Oil could drift down a little further, but oil under $50 is not sustainable for the long-term. Depending on your investment horizon, you could be picking away now, and over the long term that would be a rewarding trade.

Telecoms? In Canada, this is a small universe. His view on the sector is constructive, but more company focused. There has been a threat of the 4^th wireless player coming in, but he doesn’t think that threat is really all there. The biggest component is how and what people watch, so the shift from TV to online to mobile is one factor. (See Top Picks.)

Cdn$ versus the US$ in 6 months out? Longer-term he is more constructive on the US$. The short term is very commodity centric, and he has been very surprised at how well the Cdn$ has held in with the decline in the price of oil. If interest rates go up, which he thinks they will, this will be further pressure on the Cdn$, but if there is a rise in the price of oil, you could see it rise to a little over $0.85.

Markets. He is expecting more volatility and lower equity returns this year. After 4-5 years of steady gains, both in Canada and the US, equities are not undervalued the same way that they were. As a result, we are going to see more volatility. Stocks will not be as immune to bad news as they were when they were cheap. The market will pull back when there is bad news. Now, more than ever, you need to understand what is in your portfolio, because if you have risks in your portfolio that you are not aware of, you are going to feel it more than you have in the past. Now that things are fully valued, you should expect both the losses and the gains. Feels the Chinese slowdown is here to stay. From 1978 until 2008, their economy was growing at about 10.5% per year. That kind of growth is simply not sustainable. Today it is at 7.5% and going to go lower. Still growing, and considerably more than we are in the West, but not at the same rate as they were before so won’t be consuming as much in the way of energy and natural resources. The growth we should expect in energy, commodity and agricultural, for the next decade, won’t be as fruitful as it was in the past decade.

86 years of age with all money invested in Canadian banks because of dividend. Is this a reasonable investment? He owns the Canadian banks, and views them as being an important part of the overall portfolio. Easy money with the Canadian banks has been made. They make their profit on the spread between what they pay in interest and bank accounts, and what they earn in loan interest. The spread, being so low, is very tight but has been offset by the Canadian consumer continuing to borrow, borrow, borrow. He doesn’t expect loan growth for Canadian banks to be nearly at the levels that it was, and that will weigh on their bottom line. Dividends are safe and doesn’t feel this will change, but expect more volatility moving forward. You would benefit from talking to a financial advisor and getting some diversification.

Credit card companies? The common denominator for Visa (V-N), MasterCard (MA-N) and American Express (AXP-N) is that they have benefited from the shift with the consumer using less and less cash and using more of their cards. Transaction volume has certainly picked up over the years. Visa is the largest. More of MasterCard’s revenue is global. AMX is different because it is a charge card and you have to pay the full balance at the end of the month. MasterCard has really been investing in the mobile payment platform. They issued over $1 billion in debt last year, which is beefing up their infrastructure for mobile payments. They expect to issue over 500 million cards this year and are seeing growth in that space. However, the easy money has been made and valuations are quite rich. There is a little more opportunity in AMX because it is cheaper, trading at closer to 20 times, relative to the other 2 which are closer to 30X. He would not be stepping into these at this time.

Utilities? He likes the space. It is tough to get good dividends these days, and utilities certainly provide that. If you are building a portfolio overall, utilities make sense. What you want to be careful of is to not become too attracted to the cash flows and the dividends because these names will tend to be quite sensitive to rising interest rates. Any real talk of interest rates going up and you will start to see volatility in the share price. He owns Enbridge (ENB-T) and Emera (EMA-T) which are giving good dividends.