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

Markets. He had expected a bit of a pullback, given the strong performance to the energy stocks in the 1st half of the year, but the magnitude and the speed surprised him. There started to be negative economic data points, a speculation that China was slowing down, speculation that Europe was tipping back into recession and all these things were bad for oil demand. IEA had ratcheted down its forecast from 1.4 million barrels a day of global demand growth, down to 650,000. Things were moving in the wrong direction. On top of this, there were rumours that the Saudis were conspiring to lower prices and undertake a price war for market share, which was a huge departure from the way that Saudi Arabia managed their business. He read recently where Saudi Arabia needs between $95 and $100 a barrel. For them to let oil prices slide down to $80, they are feeling the pain along with other OPEC members. Between mid-June until now there has been an unwind of about 40% in terms of futures contracts. There are 93 billion barrels a day of global demand for oil, but in terms of the daily transactional volume of the 6 main futures contracts, it's about 1.73 billion barrels which gives you a multiplier of almost 19X the actual physical market for oil. This means that when there is a big unwind in the futures market, it far and away overshadows the fundamental and physical market demand for oil.

Natural Gas. Natural gas has been up 8 straight sessions. This is the typical seasonal pattern where things are starting to get cold. We are getting indications that look like November is going to be colder than last year, and this starts the rally for natural gas. This presents opportunities in natural gas stocks if you believe the rally is durable and we are going to have a winter that is cold enough to narrow that supply deficit even more.

Flow-through shares? These are typically issued on a private placement basis or through a prospectus issue. It is no different from a common share, but what you do get is a renouncement of exploration/development expenses. Where it is an exploration expense, you can write off the entire investment against your taxes. In essence, you are arbitraging your top marginal tax rate against your capital gains rate, because when you dispose of the share down the road, the entire amount of the disposition counts as capital gains. It is probably best to have your accountant go over this with you. It is a more suitable investment for somebody who is a very high income earner such as $120,000-$130,000.

Markets. He was fairly cautious in August and reduced some positions and built up some cash. Although it has been painful for the last couple of months, looking back over the last 1, 2, 3 years, the portfolios have done quite well in energy and resources, especially relative to the larger names. He prefers the more intermediate or junior names that provide good growth. Looking for some good opportunities on the gas side right now.

Natural gas. Has mounted a little rally. There is a combination of factors. Inventory levels are still about 10% below where they were in the 5-year average last year, which has created a bit of a buffer. Also, exports into Mexico are starting to open up in 2015. Weather is the big guess. He anticipates a colder than average winter according to his energy forecaster.

New income splitting rules? His understanding is that you will be able to file a return in 2015 for your 2014 income and will be able to split up to $50,000 of income with your spouse. This works best for people who have one spouse who is earning a fair bit more than the other. The caveat is that you need to have a child under the age of 18 years in order to claim this. Feels that this really disproportionately favours the wealthy people.

This does not affect existing income splitting that retirees currently have.

Transferring money from an RRSP into RESPs? Any money you take out of your RRSP is taxable. If you can find a way to fund the RESP without raiding your RRSP, this would be a better way to do it.

Bond ETF fund for a 5 year hold, that would provide income and somewhat mitigate rising interest rates? He doesn't like any kind of a bond product. In this rate environment, there rates are ridiculously low and can't go lower; you are not going to make much money.

Markets. We are at an inflection point as it pertains to the US$ and oil. Today, there has been carnage in the energy stocks. We are into the shoulder season of retail shopping because of Black Friday and the holiday season. When you have the price of oil discounted by $3-$4, it puts a lot of money into the pockets of the consumer and into GDP numbers into countries like India, the US, China, Japan, who consume a lot of oil. There is an opportunity here for the economy to re-rate unemployment numbers to a more normal level as opposed to an inflated level.

Economy. Countries like Canada, Russia and Venezuela that rely very heavily on oil exports to balance deficits and budgets, they are facing the wrong end of the stick. There could be a ripple effect in certain parts of the economies. The 1st bellwether stocks, such as oilfield services and equipment, are already playing out in the stock market, and typically become the best and most important leading indicator in terms of operating efficiencies of these companies.

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.