Helping You Navigate Turbulent Times Issue 09/15 for March 2, 2015 IS SCIENCE FACT OR FICTION?

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Helping You Navigate Turbulent Times Issue 09/15 for March 2, 2015 IS SCIENCE FACT OR FICTION? From the time we start our education, we learn that math and science are absolute and exact, while English, social studies and history are based more on opinions in the eye of the beholder. We learn that water always freezes at the same temperature and that certain forces are so constant that they can be described with a mathematical formula. Consequently, when a scientist speaks, we tend to accept it as fact. However, as I get older, I find there are fewer and fewer scientific judgements that stand the test of time. When I was in high school in the early 1970 s, the consensus opinion of scientists was that the earth was cooling. This, together with the population explosion was supposed to result in mass starvation. I was also taught that we were going to run out of oil in 1980, similar to the peak oil theory that gained prominence again in 2008. All of this, together with the threat of a nuclear war with Russia led many to believe that it was not responsible to bring a child into the world. If you listen to Meathead s comments in reruns of All in the Family, you will observe this sentiment. Presently, we are led to believe global warming will cause mass flooding as polar ice caps melt. What is the truth and what is fiction? Lets look at some other notable scientific pronouncements. The comments and pictures below are from a post that was sent to me by a client.

A rocket will never be able to leave the Earth s atmosphere. New York Times 1936

Just last week, the scientists who produce Dietary Guidelines, a U.S. federal report, reversed course by announcing that it will stop warnings about eating cholestoral-laden food after 40 years of doing so. After so much fanfare over the years, the experts now say there has been a shift in thinking. History shows science is not so much about facts as it is about a process to find more information. However, through this process, many so called facts change as more discoveries are made. This means it is all but certain that some of the information we now accept as facts, will be altered or even discarded as new evidence emerges or as thinking shifts. We must be careful about what we believe and embrace as the scientific truth because it might change tomorrow. What experts believe is good or bad today, may be reversed without notice. This can have all sorts of ramifications for sectors, companies and investors over time. The same is true of portfolio management theory and investment principles. Ideas, guidelines and generally accepted principles that seem to be accurate and

rock solid, can actually turn out to be wrong. Warren Buffett has such disdain for academic wisdom in the financial area that he said, You couldn t advance in a finance department in this country unless you taught that the world was flat. This is just more confirmation that it is important to guide our minds and thoughts to compare what we hear from economic and financial experts with what we experience in reality. Success is more of a function of consistent common sense than it is of genius. Data for charts compiled by Thomson Reuters Financial stocks are a major component of the markets. When financials are in an uptrend, market averages have the wind at their back, as they have since February 6 th when this oscillator for the US Banking Index bottomed (see the green arrow). When this oscillator peaks and turns down, it is like a person trying to go up a down escalator. The oscillator (white line) can still rise more before reaching the fully overbought level above 0.8 on the left hand scale, suggesting markets still have more upside potential.

Media attention focuses on issues like ISIS, Greek politics and the Ukraine. It is estimated that ISIS only has 10,000 to 20,000 fighters. Greece matters very little to global GDP, as does the Ukraine. The white line on this chart is the Nikkei 225 Index, representing stocks in Japan. After a decade of stagnation, you can see this index bottomed at 8,500 in 2012 and stands at 18,696 now. Japan s economy is a global powerhouse that finally seems to be on the mend. This is a very positive development for global economic growth that does not receive much attention. The white line on this chart shows the Chinese Shanghai Composite Index since 2004. The green arrow shows this Index suddenly spiked from 1,400 to 2,600 in recent months. This is also significant. The Chinese government continues to take steps to encourage economic growth. This is also important for global growth.

This chart from Baker Hughes shows how the number of oil rigs skyrocketed in 2009 when oil prices were at $100 a barrel. When the high prices reduced demand, and increased the supply of oil, crude oil prices collapsed. The number of oil rigs have dropped from 1,600 to 1,000, which is still much higher than the peak of 400 in 2008. This is why oil prices are still low. It will likely take some time for the supply of oil to fall enough to meet the demand. Until that occurs, oil prices are likely to remain weak. However, oil prices have almost doubled a year or so later from the low after oil prices collapsed in a similar way in 1986, 1999 and 2008. It will be interesting to see if that will happen again in the next 12 months or so. The long-term oscillator for oil has been rising from the fully oversold level since January 16 th, 2015, suggesting that the downtrend is over for the time being. Oil prices should be stable or slightly stronger until the oscillator peaks sometime in the future. In 1986, 1999 and 2008, it took three months for oil prices to form a bottom before a new uptrend began. Have a good week!

Dave Harder, CIM, FCSI Vice President and Portfolio Manager RBC Dominion Securities 604-870-7126 Toll Free 1-866-928-4745 If you would prefer not to receive this type of communication, please let me know. This commentary is based on information that is believed to be accurate at the time of writing, and is subject to change. All opinions and estimates contained in this report constitute RBC Dominion Securities Inc. s judgment as of the date of this report, are subject to change without notice and are provided in good faith but without legal responsibility. Interest rates, market conditions and other investment factors are subject to change. Past performance may not be repeated. The information provided is intended only to illustrate certain historical returns and is not intended to reflect future values or returns. This information is not investment advice and should be used only in conjunction with a discussion with your RBC Dominion Securities Inc. Investment Advisor. This will ensure that your own circumstances have been considered properly and that action is taken on the latest available information. 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. The inventories of RBC Dominion Securities Inc. may from time to time include securities mentioned herein. RBC Dominion Securities Inc.* and Royal Bank of Canada are separate corporate entities which are affiliated. *Member-Canadian Investor Protection Fund. RBC Dominion Securities Inc. is a member company of RBC Wealth Management, a business segment of Royal Bank of Canada. Registered trademarks of Royal Bank of Canada. Used under licence. 2015 Royal Bank of Canada. All rights reserved.