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

Spread strategies. This strategy is designed to reduce the risks and the cost of the option you want to hold. If you are bullish and you want a Call, you put on a Spread. E.g. you have a $50 Call, which costs $1.50 and you sell a $55 Call for $0.75, so you have the play between $.50 (?) and $.75 so the maximum you are going to make on this is about $.75.

Gold ETF? Has been quite bearish on gold. Can’t see any reason why gold can’t come back down to $700. US$ is doing very well so he can’t see gold recovering anytime soon. If you did want to buy one, he would suggest the SPDR Gold ETF (GLD-N).

REITs. Tapering impacts fixed income the most. Thinks we will be range bound at 3% for some time. REITs are tightly bound to interest, although not as much as bonds. There is some risk to the REITs so he would prefer others. Industrial REITs are better than most. There will be tax loss selling in the REITs for those that got in too late. Wait until after tax loss selling if getting into REITs. Might consider Granit, who can grow their payout.

Markets. Themes working include yield, dividend growth. You want sectors that benefit from weaker growth. Consumer, technology, and health care. Thinks that did well so far are sectors that do well early. Tapering is just a news item. We’ve been seeing a sideways chop but he thinks the market will finish fairly well. He is shifting to growth names. He is moving from pipelines, REITs to things that pay less but with higher dividend growth, like financials. He thinks we are in a new secular bull market. We are in a market that is similar to themed 90’s. Consumer-related sectors will continue to do well going forward.

Markets. The pullback is just normal market nervousness. There are no significant changes in the environment. Some of the numbers coming out of the US have been pretty good. There are some good earnings numbers. Even a hint that the budget issue in the US will get settled is probably good news. Doesn’t think tapering is going to happen until March. Not quite sure how the Obama care will affect the US economy. Feels the TSX should play some catch up in 2014. Our banks are still reasonable in terms of pricing. A little concerned about the energy side, but thinks that price will be picking up as we go into 2014.

Real estate or Financials in ETFs? He would prefer financials, particularly the banks, which he feels are reasonably priced and have good yields. Power Financial (PWF-T) would be another good choice. Real estate has had a pretty good run. Some of the REITs got really hammered so the volatility might be a little unnerving.

Gold. Believes we are in the process of bottoming, but bottoming processes are tough to call. Looking for much higher prices down the road. Inflationary component is one of the things that has not shown up. Looking at all the fundamentals, including money printing, demand for physical gold coming out of China, it has been absolutely spectacular. China’s imports from Hong Kong into Beijing were practically nothing 4 years ago and today, in the last 3 months, they have done about 330 tons, which is almost half of the worlds mine production. At these prices he is expecting there will be shutdowns in the industry.

Silver. Expects the silver price over the next decade will actually outperform the gold price. Silver has a 16 to one relationship with gold, i.e. 16 ounces of silver equals 1 ounce of gold. This basically means that gold at $1600 would have silver at $100. About two thirds of demand for silver right now is from industry.

Markets. This rally has gone ahead very quickly, particularly in the US. Feels their market is a little bit ahead of fundamentals and could be subject to some sort of shock. If the economy is as strong as the market would indicate, then they will certainly begin tapering at some point next year. The market seems to live in fear of that liquidity moving out of the market. Also, there is always a possibility of some geopolitical event in the Middle East, upsetting the apple cart. Wouldn’t be surprised to see some sort of correction, but the good news is that overall the business economy does appear to be stronger. Good news for Canada is that as global economies begin to expand again, the demand for commodities will come back. 2014 could be a much better year for Canada, relative to the US than 2013 has been.

Tapering. When this happens, what effect will this have on Canadian and US stocks? In the last year or so, just the threat of tapering has caused markets to have a hiccup. It has tended to be fairly short-lived. Really believes markets will take a hit when tapering begins to phase in. However, he does not think they will begin tapering until they’re fairly convinced that the economic recovery is strong enough to exist on its own merits. If anything, it should present a bit of a buying opportunity.

Markets. Getting much more difficult to pick stocks but there are always stocks that are going to go up. You have to work harder, but have to be a little bit more careful. He likes broken stocks that are on the mend. An old business that has been around for a long time, easy to analyze because it has a lot of historical data behind it. If you are selling stocks or have cash, don’t rush out to buy. Just wait, there is going to be a pullback at some time. Bull market probably still has legs.

Should an octogenarian sell his big 5 banks? Canadian banks are amongst the most profitable, stable banks in the world. If you are in your 80s and getting your dividends, you should be fine. Stock price may not do much, because there is weakness with consumers, but the dividends are solid and go up.

Markets. If you ever want to be invested in the equity market, you need to know what is going on in the bond market. When it exhibits stress, it is an unhealthy environment for equities. Right now it is very positive. Bond market is not under any kind of stress. Yield curve is very positive for banks and lending in general. They are not going to pull back on their ability to lend any time soon. That is good for equities because that is where companies, who list their stocks on the stock market, get their money and lines of credit. Money is being printed all over the world, which is very positive for equities. Even if they taper a bit, she is still a bull on the stock market. Global growth will pick up next year.

Financials. Likes Canadian financials, particularly because we have a new Central Bank Chairman. Our banks have done pretty well on their bottom lines. They are up 50% or more since before the crash and stocks really weren’t any higher by July. New Central Bank governor came in and has totally changed the tone of how easy our monetary policy is. This is very positive for financials.

Energy. There are a lot of refineries in the US that want Canadian oil, especially the heavy stuff. They are trucking it, railing it, etc. Doesn’t know if Keystone XL will get approved or not but they are finding ways around this. She is seeing that the backlog is starting to drain. Just on that alone, she bullish on Canadian equities.