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

Market: Not convinced we are out of the woods yet. A lot of Short covering as people made so much money and Shorts can only go to zero. Some good companies are rallying, which is a good indicator of a bit of a rally. He is 50% cash. When the market does reach its bottom, whenever that may be, stocks should take off like a shot. Has been unprecedented volume this week, which could mark a very important interim bottom. Looking for a nice rally for a while. Could be another shoe to drop. You can buy but be ready to eject.

Q: Long CIBC and BMO and Short TD and BNS? A: No, he would prefer the opposite and be Short CIBC and BMO and Long TD and BNS. CIBC can't seem to get out of the way of itself.

Are you thinking 'between the lines' about the current U.S. Financial Industry Turmoil? I made the following points (among others) in posts I made to StockResearchPortalBlog.com last Saturday morning (before the Lehman Brothers demise) and yesterday morning. I am repeating them in this e-mail for your consideration. 1. Each day (and virtually each hour) new negative U.S. based financial events are reported. 2. These events are occurring immediately before the U.S. Presidential election, in circumstances where one would think the current U.S. Government would exercise a 'postponement strategy' until after November 4 if they had any option to do that. 3. Critically important decisions are being taken in very short time spans, which is contrary to the way things should work. 4. "Until U.S. housing prices stabilize and U.S. Consumer confidence grows, I worry 'Canada's favourite neighbour' will simply go from (major financial) problem to problem". I made this comment on Saturday before Alan Greenspan stated this same thing in a Sunday television interview. 5. The U.S. Government, frankly to my surprise, did not support Lehman Brothers.ie 6. Bank of America announced Monday it is buying Merrill Lynch, with various prices being publicly stated - one of which suggests a price that is a 70% premium to last Friday's stock price close. This is being done in circumstances where rumor has it Merrill Lynch might otherwise have gone the way of Lehman Brothers. In the 'valuation world' I am familiar with, premium prices are not paid for distressed assets unless there is competitive bidding for them. So why the premium? Transactions often close following detailed due diligence at prices less than first offered. Could this be one of them? 7. The U.S. Federal Reserve apparently announced Monday it will expand access to credit for struggling financial companies - which to me seems indirectly to circumvent Henry Paulson's strong position made last Friday that the U.S. Government would not provide aid to Lehman. 8. 10 'Global Banks' apparently agreed Monday to buttress the U.S. Government's efforts by providing $70 billion in a new 'lending program'. Where does this money come from? Could it be as simple as a pass-through from the U.S. Government in circumstances where aid is given to a specific financial firm without the U.S. Government having to appear to be the benefactor? 9. Early Monday morning the Wall Street Journal reported that American International Group Inc., a major U.S. insurer whose shares dropped 31% last Friday, is seeking a $40 billion bridge loan from the Federal Reserve. The AIG circumstance has deteriorated since then with numerous reports and commentaries being made this morning. 10. It was reported on Monday that China's central bank, 'acting against a background of extreme stress in global financial markets', on Monday cut benchmark lending rates by 0.27% lowering the cost of one-year bank loans to 7.2% (effective September 17), and the 'reserve requirement' for all but China's 5 biggest banks by 1% (effective September 25). This to me is interesting evidence of the immediate 'ripple effect' U.S. financial system issues have, and will continue to have, on the global economy. All of these things, individually and particularly in combination, suggest to me the U.S. Financial System clearly is uncharted waters, and may well be on a collision course with an iceberg that is close at hand. Under any circumstance we are living in interesting times.

Opening a new fund tomorrow at Sprott so his Top Picks would be included in the names that he is investing, so for compliance reasons there will be no Top Picks.

Gold: The market is finally recognizing the financial situation in the US is in a meltdown mode. Has been calling for a $2000 price in the next 4 years but thinks it is going to happen sooner. When people lose confidence in the financial system and the US$ that is a recipe for a gold price to rocket. You want to own both stocks and bullion.

Coal: There have been no coal companies coming onto his Stock Watch list. They are beaten down, but not enough for him.

Gold: Everyone should have gold in their portfolios, particularly in uncertain economic times. He recommends between 2% and 5%.

Gold: Negative on gold bullion. Gold is falling in all three major currencies, the yen, the euro and the US$. Having gold fall means that financial assets (even the money you have in your pocket) is getting an uptick and getting more valuable. He needs to see some other things in place, but it indicates de-inflation.

US Market: Basically trading where it was in 1998. Earnings have grown by a double or a triple but stocks have basically done nothing. Provides a steady growth and a lot of visibility. As people get more comfortable with the US$ it becomes somewhat attractive.

Canadian Market: He currently has very little equity exposure, which is the first time in about 7 years. Has about 25% cash and 25% Canadian exposure and 49% outside of Canada.

Using Stops: He uses point and figure charts to identify inflection points where the odds of your success change. You could also use the 50-day moving average in conjunction with this, subtracting 4% or 5% below the moving average.

US$: Last month has been the biggest move it has ever had in the US$ index. In the short term, he expects there will be a pullback but longer-term trend will be to buy into the weakness.

Oil/gas: We are in the usual shoulder season for both commodities where demand isn't high. Could see this for another month but we are heading into the strong demand period. Expects to see a pickup coming into October.

US$: Economic data is frankly distorted. Be very sceptical about figures you see. The dollar has been on a tear for 2 reasons. The euro is in trouble because of the stagnating economy. Russia's dalliances in Georgia have frightened the people and they have run back to the US$.

Trust Conversion Strategy: If you own energy trusts, you have to look at the ones who will not be paying taxes until 2013, 2014 and 2015. Cull the others. On the business side, unless you have a very clear indication that the company can produce sufficient EBITDA or cash flow to maintain distributions, then look very hard at the potential of capital losses.