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

Markets. Stocks have been pretty fully priced, particularly in the US and he feels this contributed to the sell off after the quarterly earnings announcements. It will be interesting to see if this continues or not. Rather than viewing this as a buying opportunity, he would rather step back. He has been calling for 12,500 on the TSX to be a resistance zone. It has taken 3 shots at it and have failed for the 3^rd time. If we breakout, we’ll probably run another 500 points. If we don’t he expects we’ll be back down to 12,000. Don’t rush into this market.

Markets: Likes farmland. We are into a period of rising government bond yields. The risk trade is on and the safe haven is on. Prefers corporate bonds. He is a seller of higher yield instruments he recommended in the past. He would be buying corporate bonds for now but not for long.

Brascan 5.95 June 14'35s. Don't go for 10 year corporate bonds. Yields are likely to rise in that time. If he really likes a company he may change his view.

Premium bond, real return bond of something else for grandson: Real return only yield about .3 or .4 above CPI. But these are the way to go. Buy for a grandson but not for yourself.

When to sell before maturity. He wrote on it in the third edition of his book. Buy convertibles when they are just about in the money and premium to maturity is less than it would take to pay the premium back. The time to sell them is right now. The premiums are as much as 53% and it would take 17 years to pay it back.

GICs are an attractive place to invest. Favours a laddered approach. GIC world stops at 5 years and to go further you have to use bonds.

407 International 3.87% 11/24/2017. They can raise tolls whenever they feel like it. They are a utility. Giant long term contract. Triple 'B' rating. Probably would carry to maturity. Maybe the only infrastructure bond in his portfolio.

Treasuries. When you look at what has happened since QE 3, all 3 of the previous stimulus, the equity market was significantly higher a month later in this is the 1^st time that it is significantly lower and we didn’t get the big uptick in yields that was expected. Thinks the Fed wants to reflate things. Doesn’t know if they can deal with structural problems with monetary policies.

Markets. He is very bullish. Recent numbers show that Canadian manufacturing came out 3 times better than expected, US unemployment is the lowest in 4 years, housing starts best in 4 years and China’s money supply and exports are going gang busters. 4^th quarter has always been a good time to be an investor. Everybody has talked about the fiscal cliff but with what Bernanke is doing they are not going to let this thing fall off the cliff.

Markets. He sees a firmer tone in the markets. People come back to the market in the fall. The US election is going to come to a close quite shortly, so that ceases to interfere with business. All the ailments of the world are continuing but we are all getting so used to them being there that we can actually deal in investments again, rather than just standing off. That doesn’t stop major collapses from occurring.

Markets: We had a 5% pullback and now it is over. People are surprised by the surge in share prices so far this year. We have a lot of support from governmental but he still thinks lots of cash is piling up on the sidelines. At some point there is going to be an interesting strong move in some direction. The fiscal cliff is reality. As we get closer to the election, Romney is going to have an interesting effect if poll numbers go up. There is some hard medicine that is going to have to be taken soon. Bearish on oil. Nudging into nat. gas but basically he is defensive.

Economy. Thinks economic risks are tilted towards a recession next year in both North America and Europe. Next year we will be 4 years into an economic cycle that bottomed out in 2009. On average business cycles last for 4 years. Certainly with all the risks that are out there and the deceleration of the economy as it is right now, it seems like reasonable odds, about 65%, that we enter some kind of an economic slowdown or recession in the 2^nd half of next year. Stocks tend to anticipate those things by around 6 months and the average decrease in price is around 30%. He is currently about 37% cash in his equity fund.

Markets. Expects that the Cdn$ will descend as commodities fall so the US$ is a good spot to be in. Has used his cash to purchase US$. If there is a correction as he expects, he will be buying US equities. Bigger opportunities over the next 2 next year’s in the US than there are in Canada. Investors should be re-evaluating how much equity exposure they have in their portfolio. Ask yourself, what if things don’t turn out as good as everybody projects. Do you have enough cash? Are you positioned properly? Can I position myself for good opportunities by having my money into relatively short or safe investments that will pay a reasonable return?

Your opinion on borrowing to buy dividend stocks and how much leverage is too much. Whenever you borrow money to make investments, the first thing is to make sure you have some prospect of having some income match it. Also, you should use the income to pay down the debt. You should make sure the leverage is not more than 2 to 1. Using money at a time like this because money is cheap is not a prudent thing to do.

Markets. Investors are going to keep expecting central banks to 'stir the pot'. The economy is not strong. The unemployment rate is coming down because people are leaving the labour force. They need to keep mortgage rates as low as possible so the housing market can recover. Lumber stocks are a speculative trade. They will rally in expectation of things being fixed in housing. S&P earnings went down if you exclude the banks. You are starting to see that earnings momentum is slowing down. IMF said it will be slower for the next 4 to 5 years. We are in for a bit of a harder landing globally and it is because of global debt. More and more S&P earnings are from global earnings so it is a benchmark for the world. If the fiscal cliff comes in we have a GDP recession next year in the US.