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

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.

Markets. Oil is starting to base here. Going down to $40s is not something that fundamentals can explain. The markets move a lot of oil in futures contracts. There is a lot of shorts in oil and they are having to be covered. Supply has increased about 2 million barrels per day. We had some increased infrastructure completed in northern Iraq. Libya brought on about 2 million barrels per day of off line production. China is still absorbing new barrels of oil. Sanctions put on Russia have really slowed down activities, and slowed demand about 2 million barrels per day. All of this should have put oil into the $60s, but it went lower, so he knows eventually supply will be cut and the price will go back to the $60s. We’ve seen the bottom on many oil weighted stocks. Buy on down days and get back to a 15-20% range of holdings in oil.

Look for companies with no debt and good management. MPG-T and ELW-X are two examples. RMP-T and Sequence also screen well. Build a portfolio of these names mixed in with CNQ-T.

Markets. Thinks the “Sell in May and go away” is not that far away. We have been in this bull market for quite a few years. Now is a good time to actually be doing a little bit of a portfolio cleanup. Over the next 4-6 weeks, if you have a $100,000 portfolio, look to take $10,000-$15,000 off the table and build a bit of cash. Thinks there will be opportunities to Buy bargains later on in the year. Look at your portfolio for your most economically sensitive or cyclical stocks and maybe lighten up a little bit there. Or look for your most expensive stocks in terms of valuations. Reduce your exposure and use seasonal strength of the market now, because once we get into it April-May, it will be too late to sell.

US economy. The US$ has gone up about 25% to the average global currency, which is going to have a huge negative impact at some point on US growth. All US companies that export are going to be struggling to keep that growth going. Thinks there will be a big slowdown in the US economy in the 2^nd half of the year. The 2^nd issue is the Cdn$ versus the US$. His experience is that the Cdn$ tracks oil more than any other commodity. At $45-$50 oil does not go lower, so at $.80 to the US $1, we are close to a bottom. Feels the next move in the Cdn$ is from $.80 to $.90. For people that are hedging, because it is going to go to $.60, he thinks you are wasting your money.

Energy. He doesn’t feel that oil will go below $45-$50. Feels the next move in oil is back to $60, $65 or $70.

Markets. The amount of unnecessary worry is high. People worry about things that are opposite such as inflation and deflation. He narrows it down to corporate earnings and interest rates, both of which are positive factors. He thinks no one will care when interest rates go up. You might get some increase in volatility, however. We have good DGP and good corporate earnings. Companies cut costs during the crisis and improved their balance sheets. Dividend increases are coming at us very quickly. Corporate results are very positive. He likes mid cap companies without a lot of coverage. He trades no Canadian stocks so it conflict free.

A regular dividend that gets increased on a regular basis is the most powerful dividend, rather than special dividends, which tell you the company just wants to get noticed or in which the management team wants to get paid more that year. You should also watch for smaller companies that initiate a dividend, which indicates confidence in the future.