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

Gold. The period of seasonal strength for gold is usually the end of June right through until the 3^rd or 4^th week of September. He was in this one, this year and made a good profit because he started to reduce his positions and actually eliminate them as the technical parameters started to turn negative. Do watch the technicals as well as seasonality.

Is the Dow in for a big reversal or can you see it continue to go up at the same pace? Touched an all-time high recently at around 15,815 and has subsequently backed off from the high of about 2 months ago to a recent low by about 6%. Now starting to bounce back. Technically it is starting to look very interesting. Was below its 20-50 day moving average as of yesterday. Strength today probably put it above those levels, which is an encouraging sign. Trend is definitely on the upside. If it breaks above the previous high, you can see a nice little triangle pattern that is being developed as well. Strength relative to the S&P has been negative in the last while. So you have some mixed technical indicators. We are just entering the seasonal strength of the Dow, so there’s a very good chance it will reach an all-time high very shortly.

Markets. Markets hung in remarkably well with all the bad news over the last little while. The shutdown is a temporary thing. The market is handling it very well. Mid-caps are outperforming large caps. Part of it is seasonal and part is that they are focused on the US economy. Valuation have expanded earnings multiples and so now selection is much more important. There is better growth in the mid-caps.

Markets. Feels the fed has thrown a curveball. The market was expecting a taper and they didn’t do it. With a new Fed chairman coming in January, the best thing the present chairman could do would be to start the tapering. If they don’t get started before she takes over, the politics are going to make it very difficult for her to start it after the fact. Expect they will do it before the end of the year.

Instead of buying a Straddle could I just as well Short the stock and buy a Call or, if the stock is paying a dividend, Buy the stock and Buy a Put? This is not the same strategy. A long Call and a long Put is simply a non-directional trade. If I’m shorting a stock and buying a Call, I’m taking a short bet and hedging my risks. If I go long a stock and Buy a Put to protect myself, I’m actually bullish. A Straddle is not a bullish trade, it is not a directional trade at all.

Any guidelines in buying back “in the money” covered Calls? Let’s say you had a stock that is trading at $50 a share and you sell a $55 Call option and you pick up a couple of bucks. Then the stock rallies past $55 and you are now in a position where the stock could be called away but you don’t want that to happen because you think there is more upside. You Buy the option back and roll it up to a higher strike price. It would be closed out at a loss quite likely and then roll it up to maybe a $60 Call. The point he would do this at is the point where the option has gone in the money and it depends on whether or not he thinks the underlying stock has continuing growth behind it. If it was a gold or oil stock, he would let it be called away.

Markets. Because October is a challenging month on a seasonal basis, plus the freeze up that is going on in Washington, from a technical analysis perspective, it looks like we are in an intermediate correction and he could see an S&P 500 pull back of 6%-10% giving a buying opportunity as there is lots of time left in this bull market.

Markets. Government shutdown & debt ceiling is all noise. His clients are up this month. Clearly good news for Canada as it is smarter this time. Looks like the plan is to do an increase short term for the debt ceiling. A good business is a good business. He is 100% invested. Stocks are the best place to be and he is also in some bonds and convertible shares. You cannot be in cash. Valuations on companies he is interested in are very constructive. Stay away from emerging markets because they have not done well, although he likes companies that have some exposure to emerging markets. He stays away from gold, base and precious metals as well as resources. Avoid anything with a PE over 15 or 20. He increased US exposure to 30%.

REITs’ Recovery. Interest rates have come back off a bit but we all know they are not going down to 2%. REITs will have to prove they can raise rates, get good retainers into Canada and show the Canadian economy is improving.

Economy. IMF lowered their growth outlook for the global economy from 3.1% to 2.9% for 2013 and 3.20% to 2.6% for 2014. This is because of the Washington induced uncertainty that has come out which is creating uncertainty globally. This is not the 1^st time that Washington has had challenges in terms of debt ceilings or budgets. If the market sells off between 3%-7%, it is a healthy level to get back in.

Crude oil. Believes $103 price is sustainable. Geopolitical tensions (Syria) pushed the prices north of $110 a barrel and then once the Russians and Syria struck a deal so that the US would not invade, the price pulled back to $103 level. $95 to $105 level is healthy for oil. As global economies recover this bodes well for oil.

Economy. Debt ceiling problems in the US shouldn’t have an effect on markets, but it certainly can and is starting to show up. Rate of interest on one month treasury bills is way above what a three-month treasury bill is. There are signs of legitimate stress in the system, but US government is not going to default on their debts. This is an opportunity for investors if things get carried away and people start to panic and run for the exits. Seeing some signs of stabilization of the global economy. Europe has stopped going down. China seems to be basing and their electricity production and rail traffic is increasing.

Markets. If you look at the 3 major credit rating agencies, they are averaging AAA for the US but if it goes down below AAA then many pension funds can’t invest in US bonds. He would not be surprised if this debt ceiling thing is with us for the next 20 years. They are not doing enough for the unfunded liabilities. We are all aging and we cannot change that. 5 people are working for every one retired (3 in Japan) and that will go down as time goes on. There won’t be enough people working to fund retirement in future generations. Earnings season is coming up and that could be another fly in the ointment. Growth in many sectors is starting to turn negative now. Revenues on a year or year basis are peaking out.

Russia – corruption, overspending – is there an ETF to short? RSX-N is a long ETF on Russia. It is 41% oil and gas, 12% telecom, 11% banks and 9% mining. You are shorting oil and gas and not Russia if you short this one.

Educational Segment. In 7 weeks the portfolio has had a return over 1%, with the benchmark being up 0.4%. We ‘should’ get a pull back in October in equities. If stocks correct, junk bonds go down as well. ZCM has a 4.3% yield. Over the next two weeks he wants to roll out of ZCM, taking bond profit and roll it into the US stock market to get the next up leg there.