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

Pipelines. Have been the golden goose over the last 3-4 years and have been a large part of his portfolios. He believes this is the least price sensitive part of the energy complex. Oil-finding technologies are very price competitive. He likes KEY-T and PPL-T.

Gold. He is short some gold exposure (ETFs). Some are better than others. G-T has held in relatively well compared to the group. He likes FNV-T better because they are a royalty company. He has covered 2/3rds of his shorts in gold because it looks like it might take a bounce.

Markets. Feels this is just a garden-variety pullback/correction. Valuations were pretty lofty last year and we had a huge run-up. It is natural for a pause to be taken. As long as you have some cash reserves, you get to take advantage of the bleeding when it stops. You get opportunities to increase the portfolio income, to buy better quality stocks and at cheaper prices. Looking at the US unemployment chart, it effectively came off the cliff and basically ran from 4.5% to the broadest measures of 16%-17%. You’re not going to get a straight line recovery from 16% down to 4%. There are going to be people leaving the workforce and coming back in. It is going to be a lumpy process, but we are seeing consistently positive job aids in the US. That is good for everybody. US was the first into the hole and the first out. As global recovery broadens around the rest of the world, it will be better for everybody. He is going to wait until the bleeding stops. He has about 15% cash for longer-term clients and will be buying for sure.

Markets. The world has changed a lot. He was on the program at the end of August and we are in a different world now. The market is off from its highs by about 8%. Thinks we are coming to a line where investors should really be looking for those stocks that they would have liked to have bought, but were too expensive. We are at a point where we can begin to pick away at them. This is the opportunity we have been waiting for. The world has been scared by the threat of slowing emerging economies, particularly China. We have also seen the stagnating economies in Europe. There is a fear as to when the US is going to start raising interest rates. The inflationary indicators are such that he doesn’t see any compelling reason to raise interest rates to quickly or too soon. The US economy is still showing signs of expansion. Feels that Canada will be pulled along with that. Our market has suffered more than others because of our exposure to commodities, energy, etc.

Energy. Prices have come off significantly. In just the last month Brent is down more than $10, and West Texas about $10. Natural gas seems to have held in a little bit better. Part of this is with the slowing economies, and all of a sudden the surplus production from the US and inventories have built. Once economies begin to expand again, he expects there will be stronger pricing. In the meantime analysts will be moving down their cash flow and forecasts for oil/gas companies, so if you pick the financially strong ones, they are going to get through this period. In the long run you are not only picking up a little bit more attractive yield today, but you have the potential for good capital gains going forward. When buying energy stocks today, your time horizon has got to be at least a couple of years.

Markets. For the past number of years, things have been to the upside and stable. There has been a lot of worry out there, but the worry has been for nothing for the most part. The higher we go, the more people should worry, if they are going to worry about it. Human psychology is such that when things are going really well, it is going to just get better and will keep going higher. That is when a lot of people invest, and that is when they start losing money. Most of his buying is November-December and he has been looking. Has done some selling over the past month or so. Will probably buy only 2 to 6 positions starting in 4-6 weeks. When tax loss selling arrives, he will be in there buying.

Economy. Germany is a concern. Italy and France are showing negative GDP numbers and now Germany is heading to be stalled out. It was supposed to be a beacon of strength along with the UK. US$ has been strong largely because it is the economy that has shown the most growth. This is a country that put together the most fiscal and monetary easing policies that has actually started to work, whereas some of the other countries are not getting the same response. You are seeing a flight to safety with the US$. With the easing policies everywhere else, the signs of inflation are really not there, so people are continuing to plow into US treasuries and keeping yields low. Given that the US continues to be strong and the job growth is there, corporate America is in the best shape that it has been in a long time. The next leg he would like to see is the consumer benefiting and starting to spend. Job growth has been there. He would like to see some wage growth next. Canada should benefit to some extent as the US economy does better. Our weakening dollar is a tailwind as well.

Energy. West Texas oil below $90 is a bit of concern. There is either a problem with demand or too much supply globally or a mixture of both. WTI is going to trade in relation to Brent or international pricing. It is worth keeping an eye on, because he thinks that a lot of the countries that have increased their production, especially the ones with geopolitical problems, are not sustainable. Over time they are going to run into hiccups.

Markets. Markets are off today, but the S&P 500 is really only off about 4% from their highs, and the TSX is off about 7%. Maybe this is the 5%-10% that everybody keeps talking about. She doesn’t see anything on the horizon that would make it any more severe than that. Thinks there was probably some profit taking. Feels the US economy is recovering. As long as we get profit growth from the corporations, she can see markets continuing to have upside over the next year. Stock valuations are not that unreasonable given that there is not a lot of inflationary concern. PE multiples are just above historical averages. Germany is a concern because of US multinationals that do business there. Strong US$ is a headwind for multinationals. IMF is calling for 7%-7.5% growth in China.

Markets. Global growth forecasts are starting to lower, but there is still growth. The correction last week was an opportunity to buy. There has been a large move in the US$ based on what has been happening in Europe. We are getting close to resistance for the US$.

TSX Support Level: The 200 day average last week was taken out. The next big support would be around 14,200-14,300. We should hit that in the next month or so.

The pipeline sector is not cheap. There is no ETF, but ZJN-T and FCG-N are gas ETFs. Stay away from ETFs with direct commodity links. Pipelines are best played with ZWU-T although it also plays Telcos.

Markets. It has been 5 years of free money with QE. The markets have been complacent, but now the markets changed as we come to the end of the process. He thinks the Fed will be cautious and not raise the rates quickly. There is a potential for bonds to get out of control when interest rates start to rise. As interest rates rise, corporate spreads narrow. Higher yield bonds are as overvalued as any asset class and will get a double wammy when interest rates go up.

It has been a challenge for investors because of their age. 55+ investors should be invested heavily in fixed income, but the rates are not high enough to live on. They are being forced into the equity markets.

Government of Canada Interest Rates. The government auctions their bonds from time to time. The coupon is set to the current rate, but after the date of issue the price goes up or down according to interest rates.