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

What bank would you suggest to take advantage of US housing? The US housing rebound is continuing. There was some backup in interest rates in May and June, but it is still quite strong and she thinks it has years ahead of it. US banks is a great way to play it. There are banks, you could play, but are expensive. Prefers the money centers, the bad banks during the downturn. There are fresh management teams in there and there has been time for healing their balance sheets. They are not perfect, but they are certainly better and they are really cheap. Bank of America (BAC-N) and Citigroup (C-N) are trading at less than BV. There is the steep yield curve as well as the housing market and these 2 things are a great way to play a recovery in the US economy and in the housing market. She owns these 2 banks.

Markets. They are hoping to get a US budget before this Friday when they go home. If they get a deal together the market might see that as a small positive. They are going to come up with some kind of a deal but it will be the bare minimum. They have some serious long term problems that they just cannot address. The market expects tapering to begin between January and March of next year. He is looking for a modest consolidation sometime.

Fixed income for 2014. 10 year bonds could go to 3.50% by the middle of the year. Tapering would push it there. So a 10 year bond bought now would get a capital loss of about 3.5% - 4%. He suggests shifting to preferreds or ETFs with senior debt. If you cut your duration (1-5 year corporate laddered ETF such as ZCS-T) there is less risk. Short term bond ladders are the best place to be. As interest rates shift up you can then move out in duration.

Natural Gas ETFs. Some hold underlying futures contracts. Double leveraged are not good to hold for more than a couple of weeks. The rebalancing is too hard on the net asset value. HNU-T participates when natural gas goes up. FCG-N is a basket of larger Nat. gas players and ZJN-N is the juniors.

Educational Segment. Effects of QE over the last 5 years. 2007-2012: There was a global wealth transfer from savers to the governments and the banks. Ultra low interest rates benefitted the governments because debt financing costs went down. If a lot of the money has to go back as we unwind it, there will be increased volatility. Low quality balance sheet companies will suffer. Can the US unwind this? He bets they can`t and have to step on the gas sometime next year.

Markets. Media is talking about tapering in December, but he doesn’t think so. Thinks there is zero probability of tapering in December and unlikely for the first six months of next year. Thinks you will have very strong returns in equities in the near term. Ultimately we are shifted towards growth and you should be focused there, eliminating defensive and cyclical equities. The resource sector will be fairly attractive. It is a longer term story. Energy looks quite attractive because it is linked to global growth. It has been phenomenal recently compared to the long term. Precious metals are the flip side of his growth argument. The safe heaven argument falls apart. The run has been over for two years.

Markets. No one thought it would be this good of a year in the US. The economic power house of China, Brazil, and India are actually down. We are at the lowest number of stock market bears since 1987. It has mostly been P/E expansion. Usually you get another good year after a blowout year. He sees mid to high single digest next year and Canada plays catch up.

Is an ADR for a European company a European stock or a US stock for geopolitical risk, etc.? He says it is definitively a European stock. The underlying company is still generating earnings in their own currency. To be an ADR, however, it must meet accounting and audit requirements of the US.

Tapering is not going to take place in the next couple of weeks. Nothing will happen until the end of January and then probably not until March. It is a headwind when it happens.

Energy. Energy is considered a more risky asset class, but she is seeing more “risk-on” days coming versus the past 5 years. Feels generally like the energy sector is working, especially in a lot of countries where you are seeing five-year highs, but not so much in Canada. $4-$4.50 for natural gas is a pretty good price for 2014 but may dip down in pockets of trading. It seems like the coal/gas switching has really tightened up the trading band of where natural gas trades. Crude oil has seen some weakness in the last week or so. It sort of approached the lower end of the trading band, but has improved in the last few days. US numbers on global, GDP growth, etc. that came out this morning will definitely help crude. On the flip side, with all the US production of light oil increasing, it has a lot of people worried, but she does not think crude will crash. The $85-$105 WTI US$ per barrel range is what she has been using for the last couple of years and still feels that is intact.

Cardinal Energy is a new IPO opening up next week. She is not participating in the offering, but it was very close. Chose a different one (See Top Picks). Looks like it is going to set up for a nice dividend paying oil focused company led by a management team that has done this numerous times. Suspects you won’t be in a lot of trouble holding this stock.

Colombia. Not extremely worried but a little worried about the general climate. New president and a little less tough on crime. She got out of all 3 of her Colombian holdings in the last year.

Economy. We have continued, slow economic recovery out of the 2008-2009 downturn. Sluggish but moving forward. Right now there is more momentum than there has been in a long time. Politicians in Washington have been acting like a bunch of little kids for some time and this will probably happen again in February. More and more people are feeling that things are getting better in Europe. This is a pretty good set up for an economic backdrop for 2014. His funds are all about trying to maximize long-term growth of clients’ wealth. Does this by finding really good companies that are going someplace and doing something better than other companies and generating a lot of free cash flow for the long-term. He is only willing to pay when they are trading at a discount.

Markets. Still seeing good earnings growth in the US at about 6%. Also, there is starting to be some stabilization in Europe, albeit at a very modest level. Asia is stabilizing. The Chinese PEI numbers are coming out fairly good. Also, there is a commitment from Central banks globally to keep interest rates very, very low for an extended period of time. US Fed is putting in $85 billion a month and there may be tapering, but 1^st the government is borrowing a lot less money than it used to, 2^nd the government is just not going to stop buying all kinds of bonds, they are just going to reduce the amount they are going to buy and 3^rd they’ve made a commitment to keep rates low, probably well out into 2015. This gives you a fairly clear runway of issues you can see.

Markets. Longer-term, you are going to continue to see a gradual appreciation of wealth in China but there are regional disparities. Anything to do with staples is going to run. Recently announced policy changes are going to be supportive. Going through Hong Kong or some of the US ADRs will give some opportunities to look at. He is seeing big gains in his European portfolios as capital flows to Europe on the back of an expected recovery. The recovery is still very slow. Staying away from South America. Latin America has some big challenges. After a decade of big commodity growth, apart from a couple of isolated markets, you have some government interference and big inflation problems, and once those issues are fully dealt with, there will be some big opportunities, but right now he is definitely staying away.