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

Any guidelines in buying back “in the money” covered Calls? Let’s say you had a stock that is trading at $50 a share and you sell a $55 Call option and you pick up a couple of bucks. Then the stock rallies past $55 and you are now in a position where the stock could be called away but you don’t want that to happen because you think there is more upside. You Buy the option back and roll it up to a higher strike price. It would be closed out at a loss quite likely and then roll it up to maybe a $60 Call. The point he would do this at is the point where the option has gone in the money and it depends on whether or not he thinks the underlying stock has continuing growth behind it. If it was a gold or oil stock, he would let it be called away.

Markets. Because October is a challenging month on a seasonal basis, plus the freeze up that is going on in Washington, from a technical analysis perspective, it looks like we are in an intermediate correction and he could see an S&P 500 pull back of 6%-10% giving a buying opportunity as there is lots of time left in this bull market.

Markets. Government shutdown & debt ceiling is all noise. His clients are up this month. Clearly good news for Canada as it is smarter this time. Looks like the plan is to do an increase short term for the debt ceiling. A good business is a good business. He is 100% invested. Stocks are the best place to be and he is also in some bonds and convertible shares. You cannot be in cash. Valuations on companies he is interested in are very constructive. Stay away from emerging markets because they have not done well, although he likes companies that have some exposure to emerging markets. He stays away from gold, base and precious metals as well as resources. Avoid anything with a PE over 15 or 20. He increased US exposure to 30%.

REITs’ Recovery. Interest rates have come back off a bit but we all know they are not going down to 2%. REITs will have to prove they can raise rates, get good retainers into Canada and show the Canadian economy is improving.

Economy. IMF lowered their growth outlook for the global economy from 3.1% to 2.9% for 2013 and 3.20% to 2.6% for 2014. This is because of the Washington induced uncertainty that has come out which is creating uncertainty globally. This is not the 1^st time that Washington has had challenges in terms of debt ceilings or budgets. If the market sells off between 3%-7%, it is a healthy level to get back in.

Crude oil. Believes $103 price is sustainable. Geopolitical tensions (Syria) pushed the prices north of $110 a barrel and then once the Russians and Syria struck a deal so that the US would not invade, the price pulled back to $103 level. $95 to $105 level is healthy for oil. As global economies recover this bodes well for oil.

Economy. Debt ceiling problems in the US shouldn’t have an effect on markets, but it certainly can and is starting to show up. Rate of interest on one month treasury bills is way above what a three-month treasury bill is. There are signs of legitimate stress in the system, but US government is not going to default on their debts. This is an opportunity for investors if things get carried away and people start to panic and run for the exits. Seeing some signs of stabilization of the global economy. Europe has stopped going down. China seems to be basing and their electricity production and rail traffic is increasing.

Markets. If you look at the 3 major credit rating agencies, they are averaging AAA for the US but if it goes down below AAA then many pension funds can’t invest in US bonds. He would not be surprised if this debt ceiling thing is with us for the next 20 years. They are not doing enough for the unfunded liabilities. We are all aging and we cannot change that. 5 people are working for every one retired (3 in Japan) and that will go down as time goes on. There won’t be enough people working to fund retirement in future generations. Earnings season is coming up and that could be another fly in the ointment. Growth in many sectors is starting to turn negative now. Revenues on a year or year basis are peaking out.

Russia – corruption, overspending – is there an ETF to short? RSX-N is a long ETF on Russia. It is 41% oil and gas, 12% telecom, 11% banks and 9% mining. You are shorting oil and gas and not Russia if you short this one.

Educational Segment. In 7 weeks the portfolio has had a return over 1%, with the benchmark being up 0.4%. We ‘should’ get a pull back in October in equities. If stocks correct, junk bonds go down as well. ZCM has a 4.3% yield. Over the next two weeks he wants to roll out of ZCM, taking bond profit and roll it into the US stock market to get the next up leg there.

Markets. We have seen this movie before on the US debt ceiling. The market gets nervous but each time it gets less so. Everyone expects a resolution at the 11^th hour. But he would recommend buying on any good dips in the coming weeks. He thinks the bond buying tapering was a little pre-mature. We will be in a low interest rate environment for a very long time. Most stock markets have gone too far, too fast, however. You want to be cautious and defensive. You want to own high yield defensive stocks. World economic growth is very fragile. You have to be careful.

Is a stock cheap? It depends on the industry, each one of which has different metrics. Price to earnings, price to free cash flow, etc. See how they stack up to other companies in the industry.

Markets. US markets and, Canadian markets to some extent, are trading at very full valuations. There is not much value in North America. There is much more value in Europe, Japan and other parts of Asia.

US REITs. With the government shutting down, should he stay away with interest rates possibly going up? This is the 18^th shut down since 1976. They have all gotten settled before and he suspects that this one will too. Rising interest rates are negative for REITs and interest rates are certainly poised to go higher over the next couple of years. He would stay away from investing in REITs. Thinks there is more selling to come.

Markets. He is looking beyond the US government shutdown and debt ceiling and just looking at companies, balance sheets and earnings prospects. Companies perform in the environment they are given. They have no choice. His job is to find those companies that are going to do the best job and are best protected in that environment. Any future gains for the markets are going to have to come off earnings growth and not multiple revisions higher. He is looking for earnings growth and acceleration of profit margins, etc.