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

Silver. Expects the silver price over the next decade will actually outperform the gold price. Silver has a 16 to one relationship with gold, i.e. 16 ounces of silver equals 1 ounce of gold. This basically means that gold at $1600 would have silver at $100. About two thirds of demand for silver right now is from industry.

Markets. This rally has gone ahead very quickly, particularly in the US. Feels their market is a little bit ahead of fundamentals and could be subject to some sort of shock. If the economy is as strong as the market would indicate, then they will certainly begin tapering at some point next year. The market seems to live in fear of that liquidity moving out of the market. Also, there is always a possibility of some geopolitical event in the Middle East, upsetting the apple cart. Wouldn’t be surprised to see some sort of correction, but the good news is that overall the business economy does appear to be stronger. Good news for Canada is that as global economies begin to expand again, the demand for commodities will come back. 2014 could be a much better year for Canada, relative to the US than 2013 has been.

Tapering. When this happens, what effect will this have on Canadian and US stocks? In the last year or so, just the threat of tapering has caused markets to have a hiccup. It has tended to be fairly short-lived. Really believes markets will take a hit when tapering begins to phase in. However, he does not think they will begin tapering until they’re fairly convinced that the economic recovery is strong enough to exist on its own merits. If anything, it should present a bit of a buying opportunity.

Markets. Getting much more difficult to pick stocks but there are always stocks that are going to go up. You have to work harder, but have to be a little bit more careful. He likes broken stocks that are on the mend. An old business that has been around for a long time, easy to analyze because it has a lot of historical data behind it. If you are selling stocks or have cash, don’t rush out to buy. Just wait, there is going to be a pullback at some time. Bull market probably still has legs.

Should an octogenarian sell his big 5 banks? Canadian banks are amongst the most profitable, stable banks in the world. If you are in your 80s and getting your dividends, you should be fine. Stock price may not do much, because there is weakness with consumers, but the dividends are solid and go up.

Markets. If you ever want to be invested in the equity market, you need to know what is going on in the bond market. When it exhibits stress, it is an unhealthy environment for equities. Right now it is very positive. Bond market is not under any kind of stress. Yield curve is very positive for banks and lending in general. They are not going to pull back on their ability to lend any time soon. That is good for equities because that is where companies, who list their stocks on the stock market, get their money and lines of credit. Money is being printed all over the world, which is very positive for equities. Even if they taper a bit, she is still a bull on the stock market. Global growth will pick up next year.

Financials. Likes Canadian financials, particularly because we have a new Central Bank Chairman. Our banks have done pretty well on their bottom lines. They are up 50% or more since before the crash and stocks really weren’t any higher by July. New Central Bank governor came in and has totally changed the tone of how easy our monetary policy is. This is very positive for financials.

Energy. There are a lot of refineries in the US that want Canadian oil, especially the heavy stuff. They are trucking it, railing it, etc. Doesn’t know if Keystone XL will get approved or not but they are finding ways around this. She is seeing that the backlog is starting to drain. Just on that alone, she bullish on Canadian equities.

What bank would you suggest to take advantage of US housing? The US housing rebound is continuing. There was some backup in interest rates in May and June, but it is still quite strong and she thinks it has years ahead of it. US banks is a great way to play it. There are banks, you could play, but are expensive. Prefers the money centers, the bad banks during the downturn. There are fresh management teams in there and there has been time for healing their balance sheets. They are not perfect, but they are certainly better and they are really cheap. Bank of America (BAC-N) and Citigroup (C-N) are trading at less than BV. There is the steep yield curve as well as the housing market and these 2 things are a great way to play a recovery in the US economy and in the housing market. She owns these 2 banks.

Markets. They are hoping to get a US budget before this Friday when they go home. If they get a deal together the market might see that as a small positive. They are going to come up with some kind of a deal but it will be the bare minimum. They have some serious long term problems that they just cannot address. The market expects tapering to begin between January and March of next year. He is looking for a modest consolidation sometime.

Fixed income for 2014. 10 year bonds could go to 3.50% by the middle of the year. Tapering would push it there. So a 10 year bond bought now would get a capital loss of about 3.5% - 4%. He suggests shifting to preferreds or ETFs with senior debt. If you cut your duration (1-5 year corporate laddered ETF such as ZCS-T) there is less risk. Short term bond ladders are the best place to be. As interest rates shift up you can then move out in duration.

Natural Gas ETFs. Some hold underlying futures contracts. Double leveraged are not good to hold for more than a couple of weeks. The rebalancing is too hard on the net asset value. HNU-T participates when natural gas goes up. FCG-N is a basket of larger Nat. gas players and ZJN-N is the juniors.

Educational Segment. Effects of QE over the last 5 years. 2007-2012: There was a global wealth transfer from savers to the governments and the banks. Ultra low interest rates benefitted the governments because debt financing costs went down. If a lot of the money has to go back as we unwind it, there will be increased volatility. Low quality balance sheet companies will suffer. Can the US unwind this? He bets they can`t and have to step on the gas sometime next year.

Markets. Media is talking about tapering in December, but he doesn’t think so. Thinks there is zero probability of tapering in December and unlikely for the first six months of next year. Thinks you will have very strong returns in equities in the near term. Ultimately we are shifted towards growth and you should be focused there, eliminating defensive and cyclical equities. The resource sector will be fairly attractive. It is a longer term story. Energy looks quite attractive because it is linked to global growth. It has been phenomenal recently compared to the long term. Precious metals are the flip side of his growth argument. The safe heaven argument falls apart. The run has been over for two years.

Markets. No one thought it would be this good of a year in the US. The economic power house of China, Brazil, and India are actually down. We are at the lowest number of stock market bears since 1987. It has mostly been P/E expansion. Usually you get another good year after a blowout year. He sees mid to high single digest next year and Canada plays catch up.