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

Educational Segment. Bonds. Canadian investors with fixed income in portfolios. Looking back to May of this year when they first started talking of tapering. 2.82% was the peak rate in the summer. If we start to see bonds break higher it would be meaningful. 3.5 would be the next place US bond yields would go to (3.25 in Canada). CBO-T is down 2%. ZCS-T has a small total return but a small price loss. Broad US bond market would be down since May because the CAD$ has declined. XLB-N is the worst performer, long government bonds.

Markets. Not much further multiple growth. Canada will be about the same as the US. He will be a bit more of a stock picker next year. You are looking for a combination of growth with some growth. You can’t buy yield for yield’s sake. Banks are a good example. In 2014, sectors to do better are financials, tech, health care. Energy has been a real laggard.

Markets. Tends to look for names that are undervalued, under researched and typically under owned by institutional investors. Focuses on bottom-up investing.

Would you consider a long-short strategy with Canadian airlines? How would you do this? Taking a longer-term view of the airlines, it has been a graveyard for investors. Air Canada was up 340% year to date and Transat (TRZ.B-T) was up about 140% and WestJet (WJA-T) was above 40%. An obvious Pairs strategy would be to go Long WestJet and Short Air Canada but WestJet has its own issues by going from one hub in Calgary to having 3 hubs. Doesn’t find this compelling from the long side or from the short side.

Markets. US has had an incredible run and even Canada, outside of the base metals and gold, had a pretty good run as well. Sentiment numbers indicate investors are pretty bullish. Typically, when you get to that kind of an extreme, you are ripe for a near-term pullback but thinks it would be pretty shallow and short-lived. Conditions for stocks to go up are still pretty good. Global growth is continuing to improve. We have low interest rates and a commitment from central banks around the world to keep them low. There is nothing really threatening in the way of inflation. More defensive, lower volatility of cash flow and higher yielding stocks tend to be much more interest-rate sensitive and don’t have the growth opportunities. If you give up little bit in yield, you can often have companies that have much more economic sensitivity and ability to function in a growing economy. In Canada, there are still opportunities in the financial and energy sectors.

Utilities for it for a 5 year plus outlook? This is one of the most interest-rate sensitive sectors. From a short-term perspective, they could bounce because they have been hit so hard. Next week there is a fed meeting where there is a 50/50 chance of tapering. It will be interesting what comes out of the tapering as well as the markets reaction. People are more used to the idea now and the fed has gone long way to explain that there is a difference between tapering and tightening. You may actually see a relief rally in these types of stocks if they taper. Problem is going to be in the growth of utilities and he thinks that is going to be a challenge.

Markets. Have been a number of impediments removed from the market this week. The budget compromise has taken the heat off there being another US government shutdown. The Volcker rule limiting the kind of risky stuff that the banks can do. Job reports show that things are definitely improving in the US, which will lead to higher wages, which will lead to more spending which will be reflected on the GDP. Cdn$ is too strong right now and is going to have to come down. Wouldn’t be surprised to see $0.90.

Copper? You could play this through HBP Comex Copper Bull+ (HKU-T) but that is a leverage copper play where you could lose money even if you are right. Another one is the Global X Copper Miners (COPX-N) which is a play on the copper miners themselves. Also, you could look at BMO S&P/TSX Base Metals (ZMT-T), a base metal play.

Spread strategies. This strategy is designed to reduce the risks and the cost of the option you want to hold. If you are bullish and you want a Call, you put on a Spread. E.g. you have a $50 Call, which costs $1.50 and you sell a $55 Call for $0.75, so you have the play between $.50 (?) and $.75 so the maximum you are going to make on this is about $.75.

Gold ETF? Has been quite bearish on gold. Can’t see any reason why gold can’t come back down to $700. US$ is doing very well so he can’t see gold recovering anytime soon. If you did want to buy one, he would suggest the SPDR Gold ETF (GLD-N).

REITs. Tapering impacts fixed income the most. Thinks we will be range bound at 3% for some time. REITs are tightly bound to interest, although not as much as bonds. There is some risk to the REITs so he would prefer others. Industrial REITs are better than most. There will be tax loss selling in the REITs for those that got in too late. Wait until after tax loss selling if getting into REITs. Might consider Granit, who can grow their payout.

Markets. Themes working include yield, dividend growth. You want sectors that benefit from weaker growth. Consumer, technology, and health care. Thinks that did well so far are sectors that do well early. Tapering is just a news item. We’ve been seeing a sideways chop but he thinks the market will finish fairly well. He is shifting to growth names. He is moving from pipelines, REITs to things that pay less but with higher dividend growth, like financials. He thinks we are in a new secular bull market. We are in a market that is similar to themed 90’s. Consumer-related sectors will continue to do well going forward.

Markets. The pullback is just normal market nervousness. There are no significant changes in the environment. Some of the numbers coming out of the US have been pretty good. There are some good earnings numbers. Even a hint that the budget issue in the US will get settled is probably good news. Doesn’t think tapering is going to happen until March. Not quite sure how the Obama care will affect the US economy. Feels the TSX should play some catch up in 2014. Our banks are still reasonable in terms of pricing. A little concerned about the energy side, but thinks that price will be picking up as we go into 2014.

Real estate or Financials in ETFs? He would prefer financials, particularly the banks, which he feels are reasonably priced and have good yields. Power Financial (PWF-T) would be another good choice. Real estate has had a pretty good run. Some of the REITs got really hammered so the volatility might be a little unnerving.

Gold. Believes we are in the process of bottoming, but bottoming processes are tough to call. Looking for much higher prices down the road. Inflationary component is one of the things that has not shown up. Looking at all the fundamentals, including money printing, demand for physical gold coming out of China, it has been absolutely spectacular. China’s imports from Hong Kong into Beijing were practically nothing 4 years ago and today, in the last 3 months, they have done about 330 tons, which is almost half of the worlds mine production. At these prices he is expecting there will be shutdowns in the industry.