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

Markets. Currently he is having trouble finding Deep Value Stocks. He needs to Buy companies that are trading at less than their intrinsic value, where there is a large margin of safety. Companies that are strong financially and generate free cash flow, but are trading at valuations that offer a lot of upside, with hopefully minimal downside. After several years of a Bull market and an economy that is not doing very well, it is becoming difficult to find these companies. Globally stocks have been propped up by central banks’ stimulus. Low interest rates are fuelling a good part of the rally over the last 18 months. Investors are chasing yield, and many of them are buying stocks for dividends as if they are bonds that can never be cut or go down. That is always a bit worrisome. Previously had been able to find value in Europe and in Asia, but even that is getting a little tougher.

Asian/European volatility. Should equities be pulled back to North America? This is a difficult question to answer, but you would be better in North America, mainly because of the strength of the US economy, especially in some of the non-core, non-alpha names such as defence stocks, some of the retailers and leverage names to the housing cycle.

Update on your Value Japanese investments? Japan remains the cheapest market in the developed world, even in emerging markets. He has always liked that Japanese companies have very low debt levels, often zero debt. Fantastic corporate governance. CEOs are not motivated by stock options, but are motivated to build a better company to hand off to the next CEO. They have so many great engineering companies that are best in the world of what they do that no one has ever heard of before, because they are not consumer product companies.

Gold Bottom. If gold stays below $1100 for 6 months, half the mine production in the world shuts down (so he has heard). He believes it could only go down here for a spike and so now it is a great buying opportunity. He is nibbling here. We broke the double bottom and did not see a panic, so he sees this as a buying opportunity. It will be a great trading opportunity in the first half of next year.

Thinks interest rates will generally stay low, but could increase slightly in the second half of next year. Mortgage rates are driven by bond rates. You might want to lock in, especially if you want the security of having constant payments for 5 years.

Educational Segment. The US Election Mid Term Year. Thinks the democrats are not going to take the senate. You get an average of a down side of 1.5%. For the next week or two expect the markets to pull back a little. It is a buying opportunity. If you are a trader you take a little cash off the table. We are going higher into the year end.

Markets. He still sees value overseas. The correction is not over in Canada. In the US the correction was quick. Thinks in Canada and the US we still have to see a test of the lows. He is sniffing around on the energy side where he lightened up by selling a lower quality holding and is looking at a higher quality one. He likes Europe and South East Asia. He likes Chinese companies listed in Hong Kong or as ADRs in New York. He likes international companies that are headquartered in Europe, but most of the business is done elsewhere. He is watching those again now. It is a time to be in quality.

Canadian Market. You should be diversified, but don’t direct money to the resource stocks. Only buy companies that do a lot of business outside of Canada. CCL.B-T, for example, or an engineering company, or a life insurance company.

Markets. The double low in gold from last year was vulnerable. We just took it out. There is still more downside coming in gold. When it comes it could be a phenomenal buying opportunity. Get in when people are panicking.

Markets. He was set up for the correction. As the year progressed and the equities were outperforming, they became a greater and greater piece of the portfolios and he was trimming back. It forces you to do mechanically what you should do intellectually, Sell High and Buy Low. The correction was a V bottom one, which in a way, has kind of negative implication for the market. It trains investors to not worry about a correction and of being overweighted in their equity positions. Most people define corrections by percentages, and he thinks that is misguided as we have to define them by effect. The effect of the correction is intended to be to dislodge securities, stocks from hands of the weak. On balance, the market is fairly valued. Going into 2015, we are very likely going to see more volatility, which is normal. That is a constructive thing for the market and it is healthy for it.

Markets. Japan upping its investment in equities and securities from 12% to 25% is material, but will they still have that sway. Thinks we are really in a post-central bank world. We'll have to wait for the next week or 2. Looking at all the different sectors and the different markets, what has really been noticeable in the last 2 months is that the areas with the strongest strength include US health, Canadian health, consumer Staples and utilities.

Markets. He was pleased to see Japan announcing they were ramping up their stimulus program. They were stagnant for so long that it make sense. There are risks that they are taking on debt, but it kick starts the economy, so it is a good thing. On the general market, he wouldn't be surprised to see things coming back up again. He is very bullish on the US. This recovery is very real. We are getting better job reports, housing is doing better, new car sales, etc. He has been positioning his clients on a stronger US$ for about a year. He has started to dip his toes back into energy.

Options Straddles? A straddle is where you really don't know which way the market is going to go, so you buy some Call options and some Put options at the same price. The idea is that as long as there is enough volatility to cover up the cost of the options ($2 on each side, and $4 in volatility, you are going to make money.) He likes to do straddles on an event driven basis. He doesn't want to put them on and hope for the market to be volatile, because they are a wasting asset. He wants a date where he knows there is something coming, such as earnings report, or a fed meeting, where he thinks there could be volatility, and will apply the options as close to that date as possible (maybe one week). You always have to remember that options are a wasting asset.

How far out would you go to buy a Put on a bank? Not very much. He Sells Calls on a bank because he wants to get the income from the banks. To buy Puts on a bank because he expects them to go down is a wasting asset. First of all, he would buy them a little bit out of the money to get better leverage, but wouldn't go too far out in terms of time because you pay too much and the chances of recovering your money diminish every week.

Markets. Historically if you look at market corrections in October, they are always good buying opportunities. Ebola has proved itself as to not be able to be airborne. China is set for a soft landing. What’s not to like about this. For these reasons people, are all just buying in without a change in fundamentals. So just go with it. The TSX is all about oil. Cheaper oil is better for the consumer, but we worry about the companies. Oil is a real catalyst here. Baytex came out with earnings today and said they were increasing production.