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

Markets. China’s activity in factories has dropped for the 5^th straight month. DSUM continues to drop also. The government is challenged with some fiscal constraints and cannot stimulate. China’s growth dropping could be the next financial contagion. US factory numbers have bounced around quite a bit, but today’s number was a little weaker than expected. There is still risk of us going into a weaker period. It is not a good sign for the markets that we did into make a new high Friday and are selling off again today.

Bonds will always attract a flow of funds if stocks are weak. This year is probably the 10-20% correction in equities. The challenge is where the money going into bonds goes into the bond market in terms of term. You are better off with a laddered bond portfolio or ETF.

Educational Segment. Deals that might be too good to be true. Avoid fraud, identify theft and scams. His guest would have been duped by Madoff too. The rates were attainable and reasonable. Thought other people than her would have done her due diligence. The key was the lack of volatility. He would not tell people exactly how the option strategy worked. In the case of Earl Jones, he was not licensed. You need to make sure they have errors and omissions insurance.

Markets. Has concerns you would get from continued slowdown in China. If you saw a few more bankruptcies, some people say that would be good, rather than bailing them out. The number of stocks in the US has reduced due to M&A and so supply has reduced. That should be good. Capital spending is lagging. You could see more Cap-x spending and that would be good for markets. He is very picky about what he buys right now.

Markets. Roughly playing out as he expected. Had a bit of correction in January, but there is still a lot of money on the sidelines at very low rates and people are starting now to feel they are missing the boat. There are still a lot of spots that have good value. Feels economic growth will be more of the same. Ever since 2008 we have all these people worried about the world changing and things are never going to be good again. Every year, for the last 5 years, there is a slow, grudging growth around the economy. Initially it was powered by China and emerging markets. This year, you are really going to see the US pull the world forward, and that is pretty exciting. Consumer confidence is now starting to come along and he thinks the US is actually going to surprise us.

Markets. Still thinks we are long overdue for a healthy correction, but the market keeps wanting to chug along without it. Not selling anything, but not buying anything new. Has some healthy cash positions waiting for a correction. People should not be afraid of a correction. When the market has gone up, especially the US market, pretty much nonstop for 5 years, it is long overdue for a correction, but that is an opportunity to buy some stuff that you want with a little better valuation. Technology stocks will be the first to fall. Some other things will come down but money will flow into other things that are better value. Doesn’t expect Canadian market will fall as much because we are different. Our market is about 75% materials, commodities and financials whereas in the US, materials and commodities are a very small part of their market.

Markets. Fed’s talk on interest rates does not cause him to do anything. He was looking at Europe until two weeks ago. He has been buying VGK for some time and is comfortable, but on other ETFs he is holding back until we see what happens with Russia. Because VGK is Europe and 18 different Fed chairmen you can’t coordinate things that well. You are buying good global brands. He is glum on Canada. It is spring, but the dollar is tumbling. He does not see that halting any time soon. Has been buying XSP for years because of hedging, but last year switched to unhedged.

Dividends for companies in an ETF are normally paid out. ETFs pay distributions of various kinds, but issue statements later than the companies whose dividends they pay out.

5 or 6 months horizon, he would just do money market as opposed to laddered bonds. Prefers XSB-T to bonds directly.

Money Market Funds. Prefers over bank paper. Not a lot to differentiate them from each other. More liquid than a GIC.

This is a minor correction, not a crash.

Markets. Fed just announced at the end of Q4 that US household wealth is now at $80 trillion, which exceeds the old high in 2007 Q2 of around $68 trillion. This is a Fed that still, very much, has your back as an investor. Europe continues to get off the ground. China is still growing, maybe not as much. With investors being so pensive and willing to flee at the first sign, this is still a very healthy signal that this market still has a ways to go. Valuations are becoming a bit of a problem and things are more expensive than they were previously, but there are plenty of places for new investments if you look for them. He like companies that are cheap relative to their peers and companies that are more likely to boost dividends. Feels the oil/gas space in Canada is pretty compelling.

Hedging. The best way to hedge a portfolio is to first do it before you need to hedge, i.e., have all the facilities in place. Have the ability and understanding to sell Covered Calls and Buy Puts if you need to. If you have a large portfolio, have a futures facility in place where you can just strip out beta if you need to. For example, if the world is going down the tube, you would start with the most liquid name with the S&P futures and you would go opposite. The other way for most people is to just have good asset allocation. Be diversified, have your bond, have dividend stocks. If markets go down, collect the dividend and interest and use it to buy more when nobody wants to.

REITs. 2013 was a difficult period for REITs. Coming out of a financial crisis investors were looking towards stability, income, visible cash flow growth and their REITs benefited from that. In 2013 risk appetites increased and people looked towards businesses that were more economically sensitive so the allocation of capital moved away from sectors like real estate. Coming out of the talk of fed tapering and the reaction of interest rates, it made investors reassess their real estate holdings. What they wanted to get from their holdings was some sort of buffer with respect to a rise in interest rates. Wanted to make sure the internal growth from the real estate businesses they were buying was high enough, such as occupancy, rent increases and redevelopment, were going to drive the average free cash flow growth. Those REITs that are poised to deliver above-average free cash flow growth have performed better than those doing below free cash flow growth. Feels 2014 is going to be a little bit different.

Interest Rates. His view is that while you saw a sharp rise in interest rates in 2013, going forward the share prices are going to be somewhat more difficult to see. There are some headwinds to US economic growth as well as global economic growth. Right now we are seeing many emerging markets decelerating with respect to growth. Also, the fed is very acutely aware of the US housing market. They realize that any material rise in interest rates is going to affect applications for mortgages or the secondary home price increases that we have seen in the last 12 months or so. In the last 6 months of 2013, we did see home price growth slow including mortgage applications.