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

5- Year Quebec Hydro strip bond. Hasn't benefited from the real interest rate move that has happened in the 30-year or 10-year. Over time, it should do fine.

Real Return Bonds. Real yields are in a bubble so these are not attractive right now. There are better assets for an inflation-adjusted return.

30-Year Canada bond yielding 5%. Because of its duration, it will have a lot of exposure to interest rate moves i.e., a lot of risk. Expects interest rates have put in a bottom and inflation expectations picking up in the short-term.

Today’s Market Call was pre-empted for live coverage of Federal Finance Minister Jim Flaherty’s Fall Economic Update.

He is looking for a very short term set back after the recent rally. He is optimistic going into the end of the year. The major impetus for growth will come from developing nations. Thinks the fed will do more quantitative easing, but he questions how much good it will do. Stocks will go higher after the US election on Nov 2.

We had been in a fairly wide trading range since fall of last year and now have broken out of it. He favours energy because price of oil has moved up quite nicely and is sustainable. He can see oil hitting $90 and maybe even $100 by end of 2011. Calgary and Alberta-based companies are quite exposed to Nat Gas. A lot of their valuation models have an expectation of higher gas prices. It could get to $3 or less.

Natural gas prices. Shale revolution and horizontal drilling has made the question of price recovery open-ended. There are massive shale reserves in North America. Might be some shorter-term spikes but the supply is there to meet them. Expect we are in the range of $3-$7 longer-term.

What a big turnaround in the markets since the spring. The double dip is a memory. You can’t loose for commodities. It’s rare to see all asset classes going up together. In the long run something has to give and he believes that over time bonds and gold will trend down. Gold and bond prices have gotten ahead of themselves. There were no earnings warnings heading into the third quarter. Profits are going to remain strong. If we have a 5-10% pull back in stocks, bond holders should move into stocks.

Gold: Can’t believe it’s got this high. Prefers to own the big producers. Maybe it will in deed hit $1500.

Canadian Bank Tier 1 Bonds and the call feature? Bonds can be called on a change in regulatory or tax regime. With the coming change in taxes, there is a risk these could be called early at par.

Greater Toronto Airport bond due 2027 paying 6.45%. Trading pretty expensively right now so might be an opportunity to take some profits.

Real Return Bonds. Taxes a factor when determining inflation rate? You face taxation every year on implied increase in value on your bonds based on a change in inflation. He recommends these for tax-exempt accounts only. Right now they are very expensive.

(A Top Pick Oct 19/09. Up 1.86%.) Government of Canada 1.25% Due Dec/11.

Gold bullion/Gold equity. Some of the influences for this are a weaker US dollar and Global government concerns. These problems will continue. His clients hold from 5% to 15%.

Oil. Despite the recession and weaker demand, it has held in quite well. This is also influenced by the weaker US$. A fundamental area for a core exposure. Nice to have companies with yields.