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

REITs Rebound Sustainable? BOC last week said they were not expecting to raise interest rates until at least sometime in 2015 and so the bond market is reversing the trend. In the US tapering will resume once the debt is under control at the end of January, although he expects the can to be kicked down the road into 2015. The Fed will own 50-60 percent of all long bonds by then. He sold his position back late last week.

3:1 ETFs. If they are going up they rebalance to your advantage, but if not then they don’t. Fine for short term trading strategies. Don’t average down. That behavior means you should run from these as they are toxic for you.

Banks. Have had phenomenal runs. The most overbought he has been in years. Should be taking money off the table but he has been saying that as they charge higher.

Markets. Growth is being able to grow faster than the industry and faster than the economy. Focus on revenue growth as they are bringing something new to the economy and then for the ability to do that profitably, with better margins than competitors. In emerging markets we may find lots of revenue growth but it is a different benchmark than the US companies. Canada has the potential to grow faster than the US. It has to be driven by golds and commodities and it is interesting to see if we get that super cycle.

Economy. Does not expect the US government will proceed with tapering. There may be some evidence of weakness of US numbers in the last few months and the feds credibility was severely damaged. If they weren’t going to do. Tapering, why did they freak out the market and push up long-term bond rates by 1%. It may well be that we are seeing the feds starting to lose, at least, in the long end of the bond market. People are now going to look at anything they say with a very large grain of salt. Tapering could very well be delayed until this time next year. The Fed essentially goes on hold usually after August or September when there is an election year. The new Fed chairperson has about 6 months. Margin debts are back to record highs. This is all looking dangerously close to at least an interim peak for the S&P 500.

Markets. Looking dangerously close to an intern peak for the S&P 500. TSX is way better because we have been the big laggards. Emerging markets are down over the last year and we are up only 7%-8%, and every thing else is up 20%-25%. $85 billion worth of bonds and mortgage-backed bonds are being purchased by the Fed every month. Bank of England, European Central Bank and the Japanese central bank are all purchasing bonds. That money is going to the stock market, but is also starting to feed back into commodities. Chinese leadership is now starting to loosen up again. He would say the emerging markets 1^st and Canada. 2^nd as a play on that.

Twitter IPO? As a retail investor, you won’t be able to get in right at the beginning. That doesn’t mean necessarily that it is a bad thing to buy right after it pops, especially if it is reasonably valued which he understands this one to be. With something as hot and high profile as this, the pop will probably be fairly large. He wouldn’t be chasing this one personally.

Markets. US is officially in bull market territory. There was a threat of war, a complete shutdown of the government and came very close to having a debt default. Meanwhile, the market just chugs along. There are a few reasons why we might get a better market. Low interest rates, good earnings, confidence and too much cash. We have all 4 of those items in place right now. Stocks are better than cash and better than bonds. If the economy does gain any more traction, you could actually see a multiple increase and that is what a bull market does. Cdn market has been killed by the gold sector. Fourth quarter is typically good for the gold sector but is kind of slow in starting this time around. In energy, oil has kind of rolled over a little bit. Cdn market has to play in a lot of catch-up with everything other than resources. Feels Cdn market will do okay but will be better in the US.

Markets. S&P is at an all-time high and it is blue sky above there. Markets are responding really well. It is overbought, but keeps going up. Bad news comes out and it keeps going up. Very interesting times. The breakout on the TSX is very convincing. The last spike up this fall is a positive sign. The S&P 500 chart shows that on the RSI, we are overbought and stretched out as far as the number of stocks above the 50 day moving average, but that doesn’t mean it is not a good time to get in. He’s not saying a correction will happen, but it is less likely and also won’t be as severe.

TSX. Before, the macro environment was making a huge difference and all stocks were moving in the same direction. Over the last 12 months or so, especially the last 6 months, companies that are doing well operationally have been rewarded with higher multiples and those that are not are getting entrenched. It is better now for “stock pickers” like him. He looks at fundamentals of each individual company, looking for growth at a reasonable price. When the market becomes more comfortable overall, it trickles down to the small caps and this has really been shown in the US where the Russell 2000 has really outperformed. In Canada, small caps have underperformed in the last couple of years. As the TSX moves higher, money is going to start to flow to small cap names. Likes Canadian small caps but, on the resource side, you have to be very, very picky because a lot of the companies in the resource sector may run out of money. Make sure that they are low cash cost and have a half decent balance sheet and able to fund themselves.

Natural gas. Kind of range bound here. Has tried to break out a couple of times but hasn’t really moved up to much.

Markets. Looking across portfolios, most equity investors have done really well. Stocks are close to 5 year highs. You have 1% growth in the US, a euro zone that is still in trouble, Asia is slowing down but the feds just keep pumping money into the markets, which is driving markets higher. Very puzzling. Thinks we are starting to see a chasing of the growth stocks. There are some pockets, but you have to look for them. The banner headlines of the indexes are up hugely. He is using geographical shifts. His positions were in the US and Europe 2 or 3 years ago and Asia less so. Now he is looking to Asia, which is a big opportunity. India is very attractive.

What are the tax indications when a Canadian investor invests in equities on non-North American stock exchanges, with respect to both capital gains and losses, dividends received and gains and losses on currency exchange? Canada has tax treaties with most countries. You only pay tax on a triggering event, such as selling a stock with either a capital gain or capital loss. There are also other implications such as is it registered. You should discuss this with your advisor and/or accountant.

International fertilizer industry? In terms of fertilizers, he has always looked at this as a very strange market. Believes that a lot of the food inflation that we have experienced has largely been driven by the US Food for Energy trade that has demanded large amounts of potash fertilizers to drive the corn volumes in order to get ethanol. Feels the trade is getting a little long in the tooth. Also you are starting to see South America having some challenges in getting high yields for food commodity products. He would be wary of this area.

Oil. Canadian oil has suffered a big discount to WTI and global prices looking back 12-18 months ago. There were transportation issues and we just simply couldn’t get our crude to market. The big terminus Cushing was overloaded with inventory, which caused the price to decline precipitously in Canada. That scared a lot of investors away, particularly foreign ones. Discrepancy has been corrected and feels we have smoother waters ahead in Canadian oil and natural gas prices.