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

Where in North America to invest now. The Canadian Market is the way to go, e.g. XIU-T. It has just started, as of today, to outperform the US market. The energy sector in Canada should bottom in January and have strength until May. They have not set up yet, but we are getting there.

Educational Segment. Metals. Gold has two periods of seasonal strength: Mid-July until the beginning of October, and then January to the end of February. He does not like gold. He prefers Silver, platinum or palladium where seasonal strength is stronger. The supply of silver is diminishing because the price is so low. People are buying silver for solar panels, Chinese weddings and smart phones which consume silver. Lots of silver ends up in landfill, but gold does not. The Gold-Silver ratio is at a historical high. It means silver is likely to outperform gold for at least the next 18 months. Platinum/palladium demands from the auto industry are expected to increase. WITE-N is a way to play silver metals.

Markets. Real estate should stay up until the FED jacks up rates. In the mean time it should perform well and offer a really good yield. Spreads are 5-7%. This gives him a comfort level. It is an opportunity to buy into a good solid income. The yield is income, sometimes return on capital and sometimes a dividend.

Markets. Economically, he would say we are mid-cycle because the 2008-2009 recession was so bad that people said it will take at least 8-10 years to recover, so we are only about halfway through. We have more to go on the upside, certainly in terms of the cyclical recovery. Probably have 3-4 years left to go at least.

Energy. As of last Friday, this was the 6^th worst decline since 1979. With the exception of the 2 market pullbacks in 2000 and 2007-2008, the stock market has pretty well ignored the fluctuations in oil prices. That gives him great comfort going forward. This is a benefit to consumers, not only in the short term, but possibly in the longer-term also.

Markets. He didn’t have a lot of energy companies this year, which he was glad of. Was more positioned in growth stocks than in financial services. Right now he is up 21%, while the market is up 5%-6%, so he has done well. Thinks 2015 is going to be another good year for knowledge based industries such as pharmaceuticals, software, etc. For this sector, he looks strictly at Canada. The resource sector has already been sold off, so he doesn’t think it gets any worse. Next year could be a very good year for the TSX because the non-resource sector will continue to perform well, and the resource sector has been oversold. This makes it a buying opportunity. Although he is looking at energy stocks, he hasn’t bought. The single most important thing is for the commodity to steady up. He has a different way of looking at growth. Looks at it from a ROE point of view, i.e., the growth and net worth of a business. A similar methodology that Warren Buffett uses. Because he applies this methodology in Canada, which is not as efficient as the US, he seems to get a huge amount of bang for the buck. The single most important thing that is tied up in ROE, are firms that have a competitive advantage, or big moats built around them. He wants businesses that are growing at 20% a year, but are protected in some way so they can grow 20% year after year after year. Started his fund 7 years ago and has averaged 28% per year in returns. His target is a minimum return of 20% a year.

Canadian dollar. Canada is a petrocurrency whether we like it or not. Our Canadian$ moves around for a variety of different reasons, but it is heavily influenced by the price of oil. A chart showing West Texas crude and the Cdn$ showed that they have a similar average trend per year. We have seen a weak period for oil that has occurred recently and the dollar has come down at the same time. This is also a seasonal trend. He showed a graph of the TSX relative to the S&P 500 which had a dropping line from September into December, which is saying that this is when the S&P 500 typically outperforms the TSX Composite. Given that the oil is weak in October and November that is to be expected. The better market to be, in the fall time, is the S&P 500. In the last couple of weeks in December, you start to see a little bit of a pick up, and the Canadian market can hold its own coming into April. As of now, you should start increasing your Canadian equities.

NASDAQ. Tech is a main component of the NASDAQ and tends to do well from December 15 until January 23. However, biotech is also a part of the NASDAQ and we are seeing the NASDAQ started to underperform, but that is because of the biotechs. Rather than the NASDAQ, he would prefer favouring technology stocks by themselves.

Markets. The portfolio he manages is up about 22%, which is less than the annualized 5 year return of 33.5%. It looks like it is going to beat the market for the 5^th year in a row. If you look at the stats in the US, 9 times out of the last 9, the market has gone up in years ending in 5. He thinks that next year things will be pretty good. This is based on the presidential cycle and other things. He looks at the out-of-favour sectors as well as stocks. If there is a whole sector that is out-of-favour, and he thinks it has the potential to come back, he can be delving into the sector and picking up a few treasures going forward.

Energy. Thinks one of the main problems in this sector, both between the companies that pump and the ones that provide the services, is that during the good times they didn’t take care of their balance sheets. The debt loads were absolutely incredible. He tries to avoid companies that have a lot of debt. Sometimes you can cherry pick and find companies that have better balance sheets than others to give you a lot of upside.

Oil. This is clearly the down catalyst for this year. Thinks at some point the Saudis are going to stop over-production. Longer-term it is going to hurt every economy as well. From a value point of view, this tells you where to put some capital and he would like to see some stability in the oil market. At this point he would favour some of the larger cap names, where he thinks there is some opportunity. There are also some opportunities in some of the markets where they are oil heavy or have benefited from lower input costs.

Markets. He is not a believer that the US is going to continue uninterrupted to new high levels. Corporate growth has not proven to be anything significant, and the US is going to eke out about 1.5% next year. That is a good place to be, as valuations are quite stretched if you consider their kind of continuation of growth. Asia looks kind of interesting. Europe is a little expensive given that we could effectively go back into recession, so there might be some opportunities there. Latin America is something he is starting to think about for next year. It has been in a hole for a long period of time and is not just an energy story, but is also agriculture and mining.

Markets. Typically the net Selling pressure for tax loss selling candidates is around December 15th. He saw the initial bounce off the bottom, and today retraced about a 3^rd of that. Typically this lasts until about mid-January so some of his Top Picks, at year end time frames, are very tactical and shorter term in nature. He thinks we are getting an oversold bounce. One example is Argonaut Gold (AR-T) which is probably down about 80% this year. It came out of the TSX composite index as well as coming out of the GDXJ Index. There were 24 million shares of selling pressure last week. At some point, you get a reflexive sort of bounce off of those types of situations. Strategically he is still negative on the broader commodity space. One of the big things that he thinks will continue is that the US will continue to outperform the rest of the world, particularly in commodity driven countries like Canada, Australia and emerging markets. Also, thinks the US$ will continue to strengthen as well. A Canadian company that sells mostly into the US, and has US dollars as its revenue, with Canadian dollars as its costs, would be a big beneficiary. These are the types of companies he is looking at from the long side.

S&P 500. We are typically in a period of seasonal strength for Santa Claus, from December 15 right through until January 5. The S&P 500 on average, during the last 20 periods, has gone up 16 of those periods, so it is a good time from the seasonality point of view. Average return for the S&P 500 is 2.2% per period. The good news is that the Toronto market does even better. Average return is about 2.7% from December 15 right through until January 5. A lot of the energy and gold stocks have really been sold off because of tax loss selling pressure. Once tax loss selling pressure comes off, we are off to the races.

TSX. Had a significant jump last week. The energy sector had been way oversold and was do for a bit of a bounce. From the low last week to the close on Friday, the TSE energy Index is up over 20%. Typically, at this time of year, energy stocks tend to form a base pattern. We are a little bit high right now, so you may want to wait until the base is formed a little bit more. Typically oil prices bottom right around January, and the energy sector has a very important period of seasonal strength from the end of January right through until May of each year.