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

REIT Bonds. Most REITs don’t have convertible bonds.

Residual strip bonds. They are a biproduct of an original bond. Usually created by a Canadian or provincial government bond. It generates no income but you buy it at a big discount and then it matures at par.

Closed End Bond Funds. Typically trades below par right out of the gate just because of the fees. He would own it in the secondary market, rather than the new issue. Tries to buy it at the largest possible discount to NAV. If looking to sell, some of these offer an opportunity to get out once a year at NAV.

River Cree Entertainment bond, 11%, due 1/20/2021. First issue done by aboriginal group in Canada for a for-profit business. Casino that allows smoking, which is known to have higher returns in gaming rooms (3 to 4 times higher). It is a complicated security because it has no assets. Have traded up since he first bought them.

Mattamy Group 6.875% 11/15/2020 Bond. Builder that is mostly in Ontario. Family owned business. Own great land banks going back to pre-2005, land that is now hard to get because of increasing environmental regulations.

Commerzbank AG 8.125% 9/19/2023 Bond. He still thinks it is very attractive at 6.5% yield. It is part of the Tier 2 capital structure. Bank is Basel III compliant.

Markets. Valuations are a lot higher than they were 12 months ago so this has now truly become a stock pickers market because there are certain sectors that no longer offer value. To just buy an ETF or the broad market is probably not going to be a great strategy in 2014. Feels that Europe and Japan will be the outperformers, the US reasonable and Canada still a laggard. With Janet Yellin, taking over from Bernanke, tapering will probably be on the slower side, but clearly more of the same. The market should be happy about this.

ETF with a basket of Japanese stocks? Nothing wrong with this area, but of course, you are going to end up with some of the big uglies like Sony, Panasonic, Toshiba, etc but at least you would get exposure to Japan. This will be one of the better performing markets in 2014. You could look at iShares Japan (EWJ-N) or Wisdom Tree Japan, Hedged Equity (DXJ-N).

Uranium. Bullish on uranium long-term. The reality is that places like China and India are putting up so many nuclear power plants and that is where a lot of their electricity is going to come from. Also, Russian production will be fading out over the next few years, which will give uranium producers a chance to get higher prices. Long-term he is bullish, but not for the next 2 years.

Real return bonds? These yield about inflation plus 1.2%. If you are concerned about inflation and willing to live with a very low yield in a low inflation environment, but hedging yourself with regardless of what happens you are going to be covered, there is nothing inherently wrong with owning these in a “tax free” account.

Markets. Market is going to continue on as it has until the sentiment changes. There are a few things bubbling underneath below the radar screen such as secondary currencies like the ruble, Indonesian rupee and Turkish lira. They are having a difficult time lately, especially in the last couple of weeks. This started in May when the Fed had its 1^st salvo at getting the market ready for tapering and it has sort of accelerated. Some of these currencies are down 20%-30%, making those central banks a little bit nervous in trying to sell treasuries and US$ in trying to defend them. In a Seasonal Play, people will be looking at big cap value plays and financials along with some rotation into laggards and stocks that have been beaten up.

When comparing and investments, performance to a market index, what specific period of time do you usually use? You stick with the timeframe that you are interested in and the performance would be your measuring stick. There is no point in looking at a 3 month performance number if you are looking at a 2 year chart benchmark.

January Barometer. This is essentially the predictive power that January has on the rest of the year. Looking at positive Januaries over the last heat 5 years, 77% of the time, the market continues to be positive for the remaining 11 months of the year. There are about 29 negative Januaries and it is about 50/50 in terms of positive and negative outcomes for the remaining 11 months. An interesting stat, but there is not much predictability behind it.

January Effect. Basically the tendency for Investment Managers to take on increased risks. They want to get a jump on the benchmarks and this particularly affects small cap stocks. Generally the market is positive in the month of January. Average gains for the month is about 1.15% for the Dow Jones industrial and is positive about 66% of the time. Even though we’ve just had a couple of negative days, it is definitely not an omen for the rest of the month. The tremendous gains from last year are not exhausted. There is still room to go. Silver, copper, zinc, all the base metal stocks tend to do well. The 3 sectors you want to focus on during the 1^st quarter tend to be financials, materials and energy, basically the makeup of the TSX. (See Top Picks.) They tend to outperform the S&P 500 or the US markets between now and early March. Sectors you want to stay away from are utilities and consumer staples.

Markets. S&P and TSX have broken out from a technical point of view. When we look at fundamentals (trend of fair market value), it is weakening. The market could use a little bit of a correction and then let’s see how the individual stocks respond. He combines fundamentals with technicals. He looks at what the monetary authorities are doing and what they will probably do during the coming year and he sees quantitative easing programs not working out particularly well and he wonders if as this year moves on if we start to see the same weakening from Europe and Japan, could we see it in North America.