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

(Top Pick Mar 12/09) Canadian Bank Preferred Shares. Wished he bought the common shares.

CHINA: is going to continue to grow. At some point Yuan will be allowed to move up. A good place to invest. Strategy is to go in and grab market share, killing enterprises. Thinks a lot of countries should slap tariffs on them to make China move on increasing the Yuan. If you look at their labour laws and what they are doing environmentally, it’s horrific. As a place to invest – yes, but as a good corporate citizen – no.

(A Top Pick May 4/09.) Long term real estate bonds: E.g. Reocan, First Capital. These where a screaming buy from a risk/reward perspective.

Real return bonds. Hedge against inflation. Return is 1.5% plus the rate of inflation. If you believe inflation will come roaring back, then these are the bonds for you, as they will go up in value. He doesn't think inflation is a large problem.

Banks. Had a very nice move and are up 70%-80% on a one-year basis. Currently up about 10% year-to-date. Values are about at the midpoint of historical ranges. Expects earnings growth this year will be mid-single digits but double digit next year. Her preferences are Toronto Dominion (TD-T), Bank of Montreal (BMO-T) and Royal (RY-T).

Natural gas. Looking for recovery to $7 in the 2nd half of this year. Market has underestimated 1) the pullback in activity in the 4th quarter eventually catches up and 2) a lot of shale gas plays are declining 75% to 95% in the 1st year. Shale gas in the US only represents about 15% of their production and is looking for it to flatten out towards the end of the year.

Corporate bonds. This was the place to be last year in the bond market. There is still room as the yield spread still hasn't come down where they where prior to the 2008-2009 mess. Pretty safe place to be but would stay in the 5 to 10 year area.

Real return bond funds? Geared to the CPI to hedge against inflation. You would want to move into these when you think inflation is really starting to pick up. He can't see any big danger of inflation picking up much at this time. Probably in 2 to 3 years you may have to start thinking about it.

Silver. Behaves like other precious metals. The drawback is that there is quite a lot often mined in conjunction with other ores. Also not as much demand as there once was. Would prefer platinum and palladium, which have more industrial applications.

Platinum. Precious metal with industrial applications such as catalytic converters, especially with the current ramping up of auto production.

(A Top Pick Nov 10/09. Up 2.3 % not counting yield.) Canada Real Return Bond Dec 2021 4.25%. Good protection against inflation while getting paid.

Preferred shares? There are a lot of different types including 1) Perpetual with unlimited interest rate risks 2) Retractable that are similar to bonds with a maturity date and 3) Fixed Reset that pay a 5 year rate and floats against government bonds after that. Likes them and recommends them for taxable accounts. Would avoid the Perpetual Preferreds.

There is a fair amount of skepticism regarding this rally. He sees this as a good thing. It feels like we are in a bit of a trading range. It is very easy to find inexpensive growth companies, so he thinks if there is a breakout, it will be to the upside. Not sitting in any cash.

Value Investing in Financials? Presuming Canadian securities. 3 parts 1) money managers 2) banks 3) insurance companies. A little early to be in insurers unless a long-term holder. Banks should outperform in a weak market and under perform in a strong one but expect they will go sideways for now. Money managers are a little expensive.

Canadian banks? Some look reasonably priced and are back at levels they where except for Bank of Montreal (BMO-T) and Commerce (CM-T). If a long-term investor, you could step into them, especially BMO and Commerce, which have some pretty good yields.