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

We had a tremendous rally from August through the end of the year. He got to a point where 75-80% of stocks were participating in the rally. At year-end we were seeing some deterioration in short term indicators. They are pointing more to a correction than anything else. You are coming up to Chinese New Year and there is concern over order patterns. There was a lot built into stocks in the short run, based on upcoming earnings. In a bull market you do get big pullbacks in commodities. Silver and Gold had a big run last year. He exited the precious metals during the last 3 weeks. When you look at intermediate, oily names, they continue to look constructive. Within the sector there are some real starts. Also anything to do with capital spending shows strength. Companies have cash on their balance sheets and are continuing to spend it.

Gold. Feels it is heading into bubble territory. Historically, until about 5 years ago, about 90% demand came from jewelry and industrial uses with investors only accounting for 10%. By 2010 about 40% demand came from investors in the form of ETF’s, bullion, etc. Because of prices, people are buying less jewelry. Investors are not going to be able to keep the price of gold up by themselves if there is no primary demand.

Canadian Banks? In spectacular shape. Expanding and have money for acquisitions. Have all had a great run off the lows. Economy is growing but not at an incredibly healthy rate. Mortgages are going to slow down. Not a lot of value but are safe and comfortable stocks to hold on to. Dividends will be rising in the next 18 months or so.

US Illinois 6.9% bonds due March/35? Spread on these bonds versus other municipalities and states, is wider than anyone else’s. Illinois is in really bad shape. Running a $13 billion deficit. Desperate to raise taxes but pension liabilities overwhelm everything else. Credit rating is presently A+ but is on negative credit watch.

Buying high yield bonds? Very difficult for individuals in Canada as a lot of them are not eligible to individuals because banks don’t want the risk of being sued if something happens to them. One of the few ways to buy is through a High Yield Bond fund.

Gold. Looks like there is a technical pull back. US interest rates seem like they are being kept at a low level until employment goes up but the market is making a bet that interest rates are going up. Valuations are still compelling on stocks.

Salida Multi-strategy Hedge Fund. Good company. Have been doing this a long time. Highly respected. Fantastic track record averaging about 30% annually in the last 10 years, including 2008. “Multi-strategy” means they do many types of strategies, usually in the equity space. They’ll do Arbitrage and high yield bonds but mostly small cap equities. Highly volatile.

Influence of Hedge Funds on Price Momentum? Can have quite and influence as Hedge Funds can leverage. Leverage is great until something goes wrong (such as 2008) and everybody starts to get out the exit door at the same time.

Setting up a diversified portfolio of hedge funds? See how the fund can add value to your existing portfolio. Does it go up in a down market or does it have the ability to protect in a down market? Give a manager 3 years of under performing before getting out.

Salida Wealth Preservation Fund. Lower risk product so people could get through the whole cycle without having to have the immense ups and downs. Will have a 10% to 60% net long exposure i.e. it does Short actively in the portfolio and doesn’t necessarily Short individual stocks but will Short off the Index risks against the stocks that it owns. In 2010, volatility was extremely low and still did 17%.

Sprott Small Cap Hedge Fund has one of the best small cap pickers in Canada. Has a 20 Year track record of about 20% a year.

West Face Capital Opportunities Trust. Have been running a managed account for 12 years but in the last couple of years brought out a fund that other people can Buy. Mainly institutional before but is now going on the platform of a lot of the brokerage firms. A truly multi-strategy fund.

Dynamic Power Hedge Fund? Fantastic money manager and highly respected. Aggressive growth momentum based. Takes very concentrated positions such as having 15%-18% positions in one stock. Because of this it will be very volatile. Has some non-resource things in the portfolio.

(A Top Pick Nov 2/10. Up 5.16%.) Vertex Fund.

(A Top Pick Nov 2/10. Up 4.33%.) Northpole Multi-Strategy Fund: