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

Markets. S&P is at an all-time high and it is blue sky above there. Markets are responding really well. It is overbought, but keeps going up. Bad news comes out and it keeps going up. Very interesting times. The breakout on the TSX is very convincing. The last spike up this fall is a positive sign. The S&P 500 chart shows that on the RSI, we are overbought and stretched out as far as the number of stocks above the 50 day moving average, but that doesn’t mean it is not a good time to get in. He’s not saying a correction will happen, but it is less likely and also won’t be as severe.

TSX. Before, the macro environment was making a huge difference and all stocks were moving in the same direction. Over the last 12 months or so, especially the last 6 months, companies that are doing well operationally have been rewarded with higher multiples and those that are not are getting entrenched. It is better now for “stock pickers” like him. He looks at fundamentals of each individual company, looking for growth at a reasonable price. When the market becomes more comfortable overall, it trickles down to the small caps and this has really been shown in the US where the Russell 2000 has really outperformed. In Canada, small caps have underperformed in the last couple of years. As the TSX moves higher, money is going to start to flow to small cap names. Likes Canadian small caps but, on the resource side, you have to be very, very picky because a lot of the companies in the resource sector may run out of money. Make sure that they are low cash cost and have a half decent balance sheet and able to fund themselves.

Natural gas. Kind of range bound here. Has tried to break out a couple of times but hasn’t really moved up to much.

Markets. Looking across portfolios, most equity investors have done really well. Stocks are close to 5 year highs. You have 1% growth in the US, a euro zone that is still in trouble, Asia is slowing down but the feds just keep pumping money into the markets, which is driving markets higher. Very puzzling. Thinks we are starting to see a chasing of the growth stocks. There are some pockets, but you have to look for them. The banner headlines of the indexes are up hugely. He is using geographical shifts. His positions were in the US and Europe 2 or 3 years ago and Asia less so. Now he is looking to Asia, which is a big opportunity. India is very attractive.

What are the tax indications when a Canadian investor invests in equities on non-North American stock exchanges, with respect to both capital gains and losses, dividends received and gains and losses on currency exchange? Canada has tax treaties with most countries. You only pay tax on a triggering event, such as selling a stock with either a capital gain or capital loss. There are also other implications such as is it registered. You should discuss this with your advisor and/or accountant.

International fertilizer industry? In terms of fertilizers, he has always looked at this as a very strange market. Believes that a lot of the food inflation that we have experienced has largely been driven by the US Food for Energy trade that has demanded large amounts of potash fertilizers to drive the corn volumes in order to get ethanol. Feels the trade is getting a little long in the tooth. Also you are starting to see South America having some challenges in getting high yields for food commodity products. He would be wary of this area.

Oil. Canadian oil has suffered a big discount to WTI and global prices looking back 12-18 months ago. There were transportation issues and we just simply couldn’t get our crude to market. The big terminus Cushing was overloaded with inventory, which caused the price to decline precipitously in Canada. That scared a lot of investors away, particularly foreign ones. Discrepancy has been corrected and feels we have smoother waters ahead in Canadian oil and natural gas prices.

Markets. Globally, there is good reason to be somewhat optimistic. Business conditions are improving in the US. Housing is stabilizing in the US. There is some stabilization in the European situation and last quarter had positive growth. The decline in China’s growth may be stabilizing and is still up at around 7%. With this, the markets have run to the extent that it is getting harder to find things that you want as a value investor. Debts are continuing to grow however, and these are longer-term concerns. Expect there will be inflationary pressures down the road.

Markets. A lot of people think we are way over bought but we are actually lagging, based on 1932 and 1980 cycles. The Dow is supposed to reflect the economy of the time. In 1932 we manufactured everything we used. The Dow was similar in psychology. We have not recovered as much as we did in other downturns. The US market leads and is leading the market. China is the best economy but when you look at financial services markets, the US is still where the money is. We are not over extended and the correction is much further down the road (another year or so).

TSX. This has been outperforming the US since early July. US markets in general got overpriced. Also, he had a hard time understanding why the Canadian market was lagging so much. Part of it was because a fair amount of Canadian portfolio money was heading south. That got to a certain limit, and then slowed down. Canadian market looks very strong and he feels the 1^st resistant zone is at about 13,500 and he hopes it keeps going. When markets first break out, one of the first places that money comes back to are the financials and the banks. Not bad places to put your money as you get paid a good dividend and he expects more dividend increases. US market looks pretty reasonably priced but with the political turmoil, Canada ends up as being a pretty safe haven.

Share buybacks. What is the advantage to shareholders? He is not really in favour of share buybacks as he would rather they increase the dividends. However, he would rather have a share buyback than nothing at all. This reduces the number of shares outstanding, meaning that the EPS goes up and shows that management feels the shares are undervalued.

Markets. Could this rally fizzle again? Look at the weights in the TSX. There is not a whole lot of upside. The preferences for the dividends are overwhelming sometimes. Thinks there is another correction coming but might not be until they talk of tapering again in January. The Fed is not going to do anything until they settle the fiscal house. Oil prices have been getting weaker for a while and think they will settle in the mid-90s for the first half of next year.

ETF to park cash in short term. HVPW he likes. High volatility put write. Naked puts 15% below current market. Yields 8-9% a year. Relatively low downside risk, just that some companies might get put to you. There is also a potential for a couple of percent on the currency.

Educational Segment. Putting Foreign Exchange Content into Your Portfolio. JNK-N, ZHY-T give this. Cad$ is 4% weaker now than a year ago so if you held in US$ you are 4% better off now. XSP-T is hedged or ZSP-T is not hedged and he prefers unhedged, as he is bearish on the Canadian dollar.

Markets. When a stock falls into his value range then he buys it regardless of what the market is doing. He looks at the PE ratio of the market. He doesn’t buy stocks with PE higher than market without good reason. We are at 13.4 times next year’s earnings. There is a simple solution to the US fiscal problems. There is a Simpson Bulls report from 3 or 4 years ago. They put together what he thinks is a pretty good plan that Obama shot down.