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

Markets. He is not buying energy stocks today, but watching them with great interest. The pressure has to let up eventually. The drop in oil price is supply driven, not demand driven. The supply increase can’t continue for long. A call from the US to sell Canada came out and he feels the US are probably shorting oil stocks. The lower Canadian dollar benefits some oil companies in terms of costs. Two tech stocks with US exposure hit 52 week highs today. As we come to the end of the year you should see some covering on the shorts.

Technology has done well. ‘Old tech’ has sustainability of the dividend. He does not play in the ‘New tech’ stocks because they don’t normally have dividends.

REITs becoming their own sector on TSX. If the weighting went up, then index funds would have to buy more of them. If rates went up REITs would fall. REITs are fairly fully valued here.

Markets. She has had a theme of Sell Canada and Buy the US for the last few years for her clients. Even up to the last few months, she has been pretty consistent in her messaging, especially talking about the Canadian market and energy. She has talked about home country bias, where people in their own country tend to invest in their own country. For Canadians, that has been pretty hurtful. The energy Index alone was about 25% at its peak of the index. But there is also all the related industries that feed on that. Up until today, US energy has fallen off just as much as the Canadian energy. However, as of today there is a very big difference. Also, Book Value is also trading at a pretty sizable discount on US companies.

Markets. The numbers are actually looking pretty good. If you go back in history when the market got really rapped, there were some basic problems in the system. There aren’t any at the moment. We are doing very well in North America. Even though he loves his oil stocks, he knows that low oil prices are good for both the Canadian and US economies. Thinks there is a good deal of Canadian money going into the US. Their market looks a lot healthier than ours. In the consumer areas of discretionary and staples and looking at some of the multiples, it is a terrible place to do business. Margins are razor thin and there is a lot of competition. Also the yields aren’t anything to write home about.

India. The big winners in energy are the large importing countries. The US is still the largest importer, even though it is producing a lot of oil, followed by China, Japan and now India. India has been an emerging market thesis of his for some time. Emerging-Market Currencies are always a bit of a risk factor, because things can go wrong. However, as far as economies go, they are huge beneficiaries of a lower energy price. Ever since the Indian election in the spring, things have really changed. There is a lot of anticipation that things are going to get better. Everyone is giving Modi the benefit of the doubt. We haven’t seen a lot yet, but these things take time to put into place. India has the best demographics in the world, with the youngest population and is where China was 2 decades ago. It is ready to go, but hasn’t really gotten started yet. The problem was the huge bureaucracy. You couldn’t get things to market because of a lot of transportation problems. The new president is saying he is going to fix all that and the markets are giving him the benefit of the doubt.

REITs. Has exited the REITs, maybe a bit too early, but it is better to be too soon rather than too late. If the bond market starts to move against him, these dividend plays will have some pressure on them if they don’t have enough growth in them. There was some pressure a couple of weeks ago, when the market sort of had that little hiccup.

Pipelines. Reduced his holdings, but hasn’t moved out of all of his pipes. He thinks this is a good strategy. Take profits when you can.

Commodities. The commodity cycles in Canada are always a shock. They are brutal at the beginning and have a life to them. Often they take 3-5 months to start to show a bottom. We are already 3-4 months into this thing, so it could be in the next quarter or so before we start to see where a bottom is.

Markets. The numbers are actually looking pretty good. If you go back in history when the market got really rapped, there were some basic problems in the system. There aren’t any at the moment. We are doing very well in North America. Even though he loves his oil stocks, he knows that low oil prices are good for both the Canadian and US economies. Thinks there is a good deal of Canadian money going into the US. Their market looks a lot healthier than ours. In the consumer areas of discretionary and staples and looking at some of the multiples, it is a terrible place to do business. Margins are razor thin and there is a lot of competition. Also the yields aren’t anything to write home about.

Energy. We have to look at the oil price, not so much as an economic situation, but that the price didn’t really collapse until the Saudis came in and cut. There is a big political content here. When that happens, the market reacts. Drilling permits in the US have dropped 40% in November.

Shale oil has huge decline rates, with 75% in the 1^st year. You get in there, get a lot of oil, and then basically have to go next door and drill some more wells. At these kind of prices, that economic doesn’t fly anymore.

He suspects we will be in for several months of low oil prices, but then he sees them back into the $75-$80 range.

Even the gas side doesn’t look that exciting. Expectations of a repeat of last year’s weather are sort of fading into the background.

REITs? He thinks they are going to do fine, particularly with the market sort of getting bounced around. It looks as if interest rates could well be going up. He is not as concerned as others about that. He can see a 25 basis point increase in interest rates on the US side, but can’t really see it on the Canadian side. This shouldn’t really hit the REITs hard. However, going back to the taper tantrum in 2013, the moment the market turned against the REITs, they really sold off. If you have some good profits, consider taking some of those off in the new year. REITs are still the best place for yield you can find in this market.

Markets. Financials have been a good place to be, but he prefers the lifecos to the banks because the banks have been driven by the capital markets and by home loans. Outside of Canada is probably a better place to be than Canada. Regional US banks are a good place to be. He wants to own things that are good quality. Asia is out of favour here and so is a good place to be.

Markets. He is underweight energy, but the names that he does own are the higher grade names, such as Suncor (SU-T), Canadian Natural Resources (COS-T) and even Crescent Point (CPG-T) is not too bad. Some of the smaller caps, more highly levered names, are the ones that you want to avoid at this point. He is more exposed to the US than he is to Canada. If you think longer-term, who knows where energy prices are going to flow or where oil prices will land. $60 seems to be more of the consensus as a trough for oil prices. It depends on what OPEC does and how the economy responds, etc. Looking out 24 months as well as the energy sector in the past, and how they have fallen off in terms of the RSI, they tend to do well after 12 months, but do particularly well 24 months out. Longer-term, based on history, they tend to do okay if you’re picking up those shares at this point. He is expecting a little higher volatility next year.

ETF for the Chinese market? iShares Xinhua China 25 ETF (FXI-N) is the largest one out there and has the most assets. If you are looking at the performance of the Shanghai and seeing how it has done well, this one has not. You want something exposed to the A shares, a class that foreigners cannot purchase. 2 ETF’s that give you exposure to A class shares would be the Market Vector China ETF (PEK-N) and Deutsche X-Trackers Harvest CSI 300 China A-Shares (ASHR-N).