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

Oil is down significantly. What has happened recently is that traders have gone long on crude oil; net long positions on West Texas Intermediate crude have increased to their highest level since August. On a seasonal basis, crude oil has a history of bottoming around the middle of December. But it doesn’t do much for another couple of months, until we get into February-March-April, when crude oil prices as well as gasoline prices start to move significantly higher. We have to go through a base building period for crude oil as well as gasoline prices, before we will be set for another move, and the move will be on the upside.

How do you view the wheat charts? Corn, wheat and soybeans have bottomed and have formed a gorgeous reverse head and shoulders pattern on the chart. Farmers right now are unwilling to sell their grain, because they think they can get higher prices early next year. Because of this, grain prices in general have been doing very, very well during the last couple of months. The chart on wheat shows a very similar head and shoulders pattern. The target would be a little bit higher than current prices.

Markets. Thinks the markets have been lifted by the belief that Central Banks are going to be the ultimate Put and the great saviour. Look at what is happening in the US, the promises that Draghi is making in the ECB, China cutting their rates. At some point he would just like to see better economic growth. US is doing all right, but thinks they are going to run into some headwinds next year. Trading partners are doing so poorly which will impact their numbers at some point. The market is a little elevated right now, and it needs a healthy correction of 10% or even 20%. Not seeing a lot of things that he would want to be buying. It is pretty hard to find decent value out there. He is getting a lot more defensive in his holdings.

Pipelines? He is not a fan of them here. People have been hiding in them for the past couple of years. They are defensive, but he just can’t buy the valuations.

Conventional drilling versus fracing? Fracing injects steam and chemicals into the ground, which breaks up rock in order to get oil to flow out of it. There are environmental impacts that are still being debated. Feels there is still a bit of an issue with fracing, more than there is with conventional deep drilling. He would rather own the deep drillers than the fracing companies, until some of this sorts itself out.

TSX. He has been talking about a double bottom. It is early to say, but if you look at what has happened, there was a low in October, and just over the past few days, there was a little bit of a lift. We could possibly be putting in a double bottom over the next little while, as long as the October lows hold and we could see a nice bounce. A double bottom, by definition, would be if we break the neck line at just under 15,000. If we break that, it could be quite bullish. The problem is that the main components of the TSX are energy, banks and base metals. The banks aren’t too bad, but the other 2 are not looking so great.

S&P 500 From a technical perspective, this has been and continues to be a much better place to be. You are looking at higher highs and higher lows. There is absolutely no take-out of the lows. Technical analysts also look at breadth, the number of sectors that are participating in a given rally. There has been fairly wide anticipation through this whole bull market.

Oil. Technically there was some support at $54-$55. There was a bit of a formation after we hit a bottom in 2009, where it bounced from around $37 to the $54 area. Some consolidation $54-$55 on WTI, and that is exactly where it hit recently. We need to stay above that level. The bigger trend for oil is Down, and in a bear market, there is usually a reflective bounce. He thinks that is what we are getting right now. We may get another couple of weeks of upside on oil, but his instinct is that this is in a genuine bear market. He has only one energy position in his portfolio, and will use this upside as an opportunity to get rid of it in the next 2-3 weeks.

WTI Oil. Most of the commodities peaked at around 2011. From 2011 to now, the charts had formed a very large symmetrical triangle. This summer, it broke down out of that triangle. It is holding support now at around $54-$55, but after a short-term bounce, he thinks it is going to hit in the $40’s.

How do Moving Averages work? These are simply trend followers. The only thing you should use a Moving Average for is to determine if the trend is in a particular direction at this particular moment. It is not a great trading vehicle per se, so if you are trying to time your entry or exit off of a moving average, he is not so sure he would do it. He would prefer just the basic formations and use things like oscillators.

Markets. We have been going through an18 month market transition. In 2012 what worked was China and the countries that supplied into the China growth story. As the growth story in China slowed, the consumer-lead growth story started to lead. The one commodity that held up in value was oil. Then the oil producers sold off starting with the weaker ones. He steadily reduced his producers to zero starting in September. The broad market then started to step away over the last 6 weeks. The net is that this is a continuation of what has been happening over the last 18 months. It sets up a very positive environment for the consumer market. There is likely to be a really strong economic tail wind. He is focused in developed markets. He would use this strength as a continued opportunity to sell. You have to look at the impact of emerging market debt. As the US dollar goes up, that debt is going up.

Banks. The banks are set up for the environment that is coming toward us. You have to pick your spots. RY-T is probably the most attractive because it has such a large wealth management division. The other bank he likes is TD-T because of the US footprint where they are executing well. He would prefer a US bank because of the dividend growth. WFC-N is one pick.

Pipelines. Pipelines stocks are a group a lot of people have made money in. It was a big weight in his income portfolios over the last 5 years. Pipelines are the least correlated to the price of oil, but what has happened is that people have lost confidence in the pipelines and multiples have contracted. They have long term contracts. Low energy costs for 18 months could cause some volume loss, however. IPL-T is probably one of the more resilient ones. He would not put on any new positions just yet, however.

US$. He thinks the appreciation will continue on for years to come. The Canadian dollar is not appreciating against world currencies as quickly as the US.

US Healthcare Sector. The biggest industry in the US. He would pick JNJ-N. PFE-N is good also.

Economy. It is generally conceded that next year we will still see global growth pretty sluggish and tepid. This makes it more important for investors to keep their costs low. If Real Return is fairly constant (Real Return is the return above inflation) and inflation is very low, then right away the nominal return is low. If we have tepid growth, then returns might be even lower still. We have muted growth and very little inflation, so the total return for the equity markets might be mid-single digits for the next little while. If that’s the case and you are using a traditional mutual fund where you are paying a 2.5%, that is half your return. Whatever you can do to in reduce your costs is really important. That includes the cost for advice you are getting. People who have a 7 digit portfolio should be paying less than 1% for advice.

2015 Investing Resolutions.

1. Keep track of your household net worth (total assets -total liabilities) annually - it should be growing.
2. Resolve to cut costs in 2015; financial advice for a 7 digit portfolio should cost >1%, IMO.
3. Trade less. Research has shown repeatedly that trading correlates negatively to performance.
4. Do all tax loss selling and make all charitable contributions before Christmas.
5. Maximize all government plans if possible.

• RRSP room can be found on your Notice of Assessment

Lifetime TFSA room is $31,000 with another $5500 in room coming in January.