Won2One with Nick Foglietta

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1 January 25 th 2016 Won2One with Nick Foglietta Tactical Equity Income Model Portfolio Record 40% 30% 20% 10% 0% -10% -20% -30% -40% S&P/TSX Composite RBC TEAM Tactical Equity Income Model Present Conditions: TEAM Model Asset Allocation: 0% Equities/ 100% Fixed Income S&P/TSX 60 Closing Value: 12,389 TSX 200 Day Moving Ave: 14,001 % Above/Below 200 Day Moving Ave: 11.51% Below Levels for change: 100% stocks - TSX 14,710 and 100% fixed income TSX 13,300 Weekly Quote Why do people like spending money they don t have on things they don t need to impress people they don t like? David Ramsey, Financial Peace Seminar quote.

2 Market Update The expected bounce in global stocks came a week late but it finally made it to the financial markets. It took the jawboning of both Mario Draghi of the European Central Bank (ECB) and Kuroda of the Bank of Japan to get it to stick a fact we should not lose sight of! So how far does the bounce run and how long does it last? I am going to use the run of the mill bounce formula to answer that question. The usual BEAR market bounce retraces 60% of the short term decline that preceded it. The chart below shows you what I would expect for the bounce to look like in Canada. The chart uses the past 30 days of trading and sets a target of 12,620 on the TSX as a stopping point for a BEAR market bounce. It is only above this level for the TSX that I get interested in longer term investing again! (Rather than trades.) The best clue as to when another decline may start to take hold is the Canadian dollar vs. the U.S. dollar. The CAD$ has bounce from the 0.68 range back to the.708 range at time of writing. As for timing, bounces in BEAR markets don t last all that long. My hope is that the TSX is able to hold above the 11,600 level until the end of February. Below I am re-showing the chart I used in the 2016 market forecast. It is still too early to make a call as to whether the U.S. is in recession or not but the chart is tracing out a much closer trend to the recession call than the non-recession call.

3 In summary, be careful who you listen to when getting your financial news. The BULLS are talking the bottom after two days of bounce. Bottoms are not made in two days when the economic conditions are like the ones we see at present. That does not mean the bottom has not been seen already for If the Canadian dollar can continue to rally with commodities and the U.S. does not enter a recession the green chart pattern above could be playing itself out. Let this rally mature and let s see if the stock market rally fails and slides to retest 11,600 on the TSX. To get BULLISH, I think the 12,620 TSX level is a great place to start getting serious about a neutral call for Canadian stocks. Two more quick observations: 1. Bank stocks in the U.S. are still trading poorly. I would feel much better about a sustainable low for global stock markets if the U.S. banks would start to gain a strong bid. 2. Oil prices are moving against fundamental data. Looks a lot more like short covering than a fundamental bounce. You never know for sure but be careful.

4 Dynamics of the Employment (Jobs) Reports This will be short and simple I promise! But it is important to grasp a broad understanding of what is happening in the North American employment market. Analysts come on T.V. and say how low unemployment is in our economy. President Obama brags about creating millions of jobs and cutting the unemployment rate in half from when he took office. But the good news does not play well on Main Street The chart shown above is a representation of the last monthly jobs report in the U.S. The red dots show the number of jobs added in the sectors in the corresponding sections of the economy. The blue bars show the range for the past year. Every sector is positive except logging and mining. So all the good news must be true right? Well yes and no!

5 As the chart below shows, there has been an incredible growth in PART TIME jobs. With only part time jobs (and no benefits) people are forced to hold MULTIPLE JOBS to get by. In the chart below we see that U.S. consumers have been unable to keep up to U.S. production. When you add the facts together: elevated debt levels, growing inventories, slowing sales (especially ex-autos), and falling commodity prices you have to be extremely cautious on your outlook for economic growth.

6 Quality job growth requires quality economic growth no short cuts! Just remember that fact! The Russian Ruble Before you say, how does the Russian Ruble fit in with my investments, I want you to consider how much the falling Canadian dollar has impacted our Canadian cost of living prices. Now imagine the Canadian dollar falling to about $0.30 U.S. rather than only $0.70 U.S. Ok, now you can look at the chart RUSSIAN RUBLE 160 WEEKS 4JAN13-22JAN16 HI-1FEB13 HI/LO DIFF RUS.ZZ.U % CLOSE AVG J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D J F M A M J J A S O N D LO-22JAN Could such a serious decline in the Russian currency cause Vladimir Putin to act irrationally? I m not sure, but the decline in the Ruble has been severe! There are so many strange and severe movements in the currency markets these days. This is only one example. But there is a strong correlation to countries with difficult social problems and/or middle class stress and those countries that have seen their currencies debased. More food for thought! About the author: Nick Foglietta is a Vice President, Investment Advisor at RBC Wealth Management in Nanaimo, B.C., Canada. He has been managing money since Securities or investment strategies mentioned in this newsletter may not be suitable for all investors or portfolios. The information contained in this newsletter is not intended as a recommendation directed to a particular investor or class of investors and is not intended as a recommendation in view of the particular circumstances of a specific investor, class of investors or a specific portfolio.

7 You should not take any action with respect to any securities or investment strategy mentioned in this newsletter without first consulting your own investment advisor in order to ascertain whether the securities or investment strategy mentioned are suitable in your particular circumstances. This information is not a substitute for obtaining professional advice from your Investment Advisor. The commentary, opinions and conclusions, if any, included in this newsletter represent the personal and subjective view of the investment advisor who is not employed as an analyst and do not purport to represent the views of RBC Dominion Securities Inc. The information contained herein has been obtained from sources believed to be reliable at the time obtained but neither RBC Dominion Securities Inc. nor its employees, agents, or information suppliers can guarantee its accuracy or completeness. This report is not and under no circumstances is to be construed as an offer to sell or the solicitation of an offer to buy any securities. This report is furnished on the basis and understanding that neither RBC Dominion Securities Inc. nor its employees, agents, or information suppliers is to be under any responsibility or liability whatsoever in respect thereof. RBC Dominion Securities Inc.* and Royal Bank of Canada are separate corporate entities which are affiliated. *Member Canadian Investor.