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

Markets. Globally, there is good reason to be somewhat optimistic. Business conditions are improving in the US. Housing is stabilizing in the US. There is some stabilization in the European situation and last quarter had positive growth. The decline in China’s growth may be stabilizing and is still up at around 7%. With this, the markets have run to the extent that it is getting harder to find things that you want as a value investor. Debts are continuing to grow however, and these are longer-term concerns. Expect there will be inflationary pressures down the road.

Markets. A lot of people think we are way over bought but we are actually lagging, based on 1932 and 1980 cycles. The Dow is supposed to reflect the economy of the time. In 1932 we manufactured everything we used. The Dow was similar in psychology. We have not recovered as much as we did in other downturns. The US market leads and is leading the market. China is the best economy but when you look at financial services markets, the US is still where the money is. We are not over extended and the correction is much further down the road (another year or so).

TSX. This has been outperforming the US since early July. US markets in general got overpriced. Also, he had a hard time understanding why the Canadian market was lagging so much. Part of it was because a fair amount of Canadian portfolio money was heading south. That got to a certain limit, and then slowed down. Canadian market looks very strong and he feels the 1^st resistant zone is at about 13,500 and he hopes it keeps going. When markets first break out, one of the first places that money comes back to are the financials and the banks. Not bad places to put your money as you get paid a good dividend and he expects more dividend increases. US market looks pretty reasonably priced but with the political turmoil, Canada ends up as being a pretty safe haven.

Share buybacks. What is the advantage to shareholders? He is not really in favour of share buybacks as he would rather they increase the dividends. However, he would rather have a share buyback than nothing at all. This reduces the number of shares outstanding, meaning that the EPS goes up and shows that management feels the shares are undervalued.

Markets. Could this rally fizzle again? Look at the weights in the TSX. There is not a whole lot of upside. The preferences for the dividends are overwhelming sometimes. Thinks there is another correction coming but might not be until they talk of tapering again in January. The Fed is not going to do anything until they settle the fiscal house. Oil prices have been getting weaker for a while and think they will settle in the mid-90s for the first half of next year.

ETF to park cash in short term. HVPW he likes. High volatility put write. Naked puts 15% below current market. Yields 8-9% a year. Relatively low downside risk, just that some companies might get put to you. There is also a potential for a couple of percent on the currency.

Educational Segment. Putting Foreign Exchange Content into Your Portfolio. JNK-N, ZHY-T give this. Cad$ is 4% weaker now than a year ago so if you held in US$ you are 4% better off now. XSP-T is hedged or ZSP-T is not hedged and he prefers unhedged, as he is bearish on the Canadian dollar.

Markets. When a stock falls into his value range then he buys it regardless of what the market is doing. He looks at the PE ratio of the market. He doesn’t buy stocks with PE higher than market without good reason. We are at 13.4 times next year’s earnings. There is a simple solution to the US fiscal problems. There is a Simpson Bulls report from 3 or 4 years ago. They put together what he thinks is a pretty good plan that Obama shot down.

Markets. This market is a different market than the mid ‘90s. There are some elements of momentum, but the valuations aren’t anywhere near the levels of back then. Going forward we have to rely on stock earnings to drive valuations instead of increasing multiples. This season has treated him very well. The average market beat of companies reporting has been about y70% and that is about where we are right now. Industrials, tech, will do well and consumer durables will suffer a bit. Clients’ portfolios change because of life changes, such as lotteries. Asset allocations stay the same otherwise.

Markets. Europe is a problem zone, especially in the periphery. Germany has really supported the European economy. The EU market is almost as strong as the US market. In the periphery, it is not going any more negative. Turn-arounds in housing, just like we saw some time ago in the US. Free trade agreement with Europe can’t be anything but good for us. A recovery in housing would be positive for the banks. In those regions, banks should improve. He is constructive on the US, slow and steady. He is not as focused as most on the tapering. He is more focused on the outlook for the economy, which the tapering will follow. Short term, it is a buying opportunity. He is focused on 5 years.

US Listed Indian Bank? He has nothing in India at the moment because of twin deficits. Tapering will be negative for the emerging markets. If you are nervous about the economy in a country, don’t own the banks for sure. A top holding is MS-N in global banks, which he feels is still a buy with a $35-38 target.

Chinese Banks on Hong Kong exchange. They are basically government. He has not enough vision on what the government wants to do. They use the banks to command the Chinese economy. Absence of transparency.

Japan debt 250% of GDP. It is going to get even bigger. They need to have a growth strategy in Japan. Consumption taxes going up. It is all internal debt so it is like they all owe each other.

Markets. 55 months is a lot for a bull market. 50 – 65 months is normal. Interest rates are what usually bring a bull market to an end. Deflation is the problem so this bull market has legs, certainly for the next 6 months. We are in a stock picking market. There is still a lot of value in Canada, but he does not buy in to the idea of the resource sector catching up. The yield curve is not suggesting this market, nor the economy, is going to slow down.

Lanexess (LXS-AG) EU is having this labeling law so tires are labeled according to noise, etc. and synthetic rubber demand should increase. Unloved right now but has great recovery potential. Now is an entry point.