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

(Worst call ever made.) Campo (?) in 1988. Robert Campo was a very successful real estate developer and decided he wanted to get into the US department store business. Levered up the debt in order to acquire all kinds of department stores. Retail sales were weak and the companies couldn’t pay the interest.

Energy. There has been a remarkable narrowing of the differential between WTI, Brent, and even Western Canadian Select, as the loonie gets played into the factor. This is a dynamic that he has been talking about all year. Oil has done remarkably well. US bench price is up about 14% this year. As the US$ goes up against the loonie, it benefits oil producers. Every 1% change in the currency is, effectively, a 1% increase in top line revenue. When looking at the differential between the WTI and Brent, he had it around $19 for a light barrel and this is now narrowed to about $4 today. Expects it to widen just slightly. Going forward we are probably looking at a $5 differential between WTI and Brent. The US has been very active in building out their infrastructure network, both from pipeline and rail. There has been close to 1 million barrels a day of capacity built this year and there will be a further million constructed in 2014-2015. There is still a disconnect between the current price of oil and what oil stocks are discounting.

(Worst call ever made.) This would have been investing in pure exploration companies in oil/gas. When you buy a company that has no underlying production, you are paying forward for future success. If you have no drilling success or underlying production, the value of your company then comes into question.

Markets. As the market sets new highs, we are starting to see fewer and fewer companies that are setting new highs. We are just coming to the end of the 2^nd quarter earnings season in the US and they came in pretty good. 56% of the companies beat on the top line and 68% beat on the bottom line. The fact that more beat on the bottom line thousand and that it is not so much that the economy is doing really well but companies have been able to get some contraction in terms of costs. None of those things are particularly great for the economy as a whole longer-term. There is a real good chance that the Fed will start their quantitative easing by year end.

Interest rates. The market is going to price rates, perhaps a little higher. When Bernanke came out with his statement on tapering, the next day five-year fixed rates in Canada jumped by 40 basis points. There wasn’t a real big shift in the GIC rate that the banks were paying, so that is very positive for the banking sector. Although the Fed will still have its zero interest rate policy, he feels the market will start pricing in rates. If they pull back on their quantitative easing, there is a view that one of the first places that they will start cutting back on their purchases will be in the mortgage market. As they do that, he believes there is a chance that some of those rates will start to go up a little bit and you could probably look for another 20 to 30 basis points higher.

An ETF with a monthly income as a retirement supplement that is safe? BMO has 2 Covered Call funds that are very interesting and pay monthly. One is a Covered Call utility (ZWU-T) and the other is Covered Call banks (ZWB-T). Particularly likes the Canadian bank one. There are also ones that pay quarterly such as (CPD-T) which is essentially preferred shares were dividends are fixed.. (XDV-T) is also quarterly and is a good common share group of companies and common shares can raise their dividends. He would suggest a combination of these. Not real comfortable with bond ETFs right now because he thinks interest rates may actually go higher.

Married Puts? If using the strategy, do you place the puts? This is probably referring to US market, which is at an all-time high. Let’s argue that you think there will be a potential downturn and you own Spiders (SPY-N). Rather than selling and taking your money off the table, you could buy a Put to take out some of the downside risk that could occur for a short to medium term risk in the marketplace. This is a Married Put. The alternative to that strategy is to simply sell your shares and replace them with a Call option, which does exactly the same thing for you.

What is the difference between a Covered Call and a Put? A Covered Call is when you own the underlying stock and Sell a Call Option against the shares that you own. You are going to collect a premium for the sale, which is taxed as a capital gain. If the stock rises above the Call price, it will be called away. If the stock declines, the option will simply expire worthless and you keep the stock. You collect the dividend while you are holding it. Being “Covered” means that you own the underlying shares.

When you Buy a Put, this gives you the right to sell shares at a certain price. If they go down in value you profit. If they stay where you are, you lose. If they rise, the Put will lose money.

If you Sell a Put, which is the equivalent of the Covered Call, you are taking on the obligation to Buy shares at a specific price.By writing a Put, that says you will be willing to Buy a stock at a certain price and you collect a premium which is yours to keep. If the stock falls below the specific price, the Pur will be exercised and you Buy the shares at that specific price.

The returns on both stategies, the Covered Call and the Short Put, are identical in terms of risk and reward.

Markets. Saks being bought out at a time when the whole sector is being overvalued. We are at the top of the sector for the sector. We are just entering the time of seasonal weakness. We are leading to Christmas when the retail sector does very, very well. OBV is the volume added when stock goes up and subtracted when stock goes down. Tells you if a security is being accumulated when stock goes up. XRT-N, the US retail ETF has been going flat while the market has being going up. Gone below 20 day moving average. Sign that sector is going into a time of seasonal weakness. Gold is up 6% last week. Sell point is the end of September. Oil goes through to the end of September.

Educational Segment. Transport Sector. Up over 36%. On average from Aug 1 to Oct 9, it has declined 4.6% on average. It has a lot to do with economists changing estimates on economic growth going unto the 4^th quarter. CP and CN came out with second quarter results last week. Classic head and shoulders pattern. It could drop to the $95 (18%) level easily. Sector is impacted by higher energy costs, accident in Quebec, for example. You want to sell your transportation stocks on August 1^st or possibly even short them.

Markets. We are a little expensive on trailing earnings on the Dow and S&P. Almost all the sectors are overbought. If you look at the S&P we had a MACD up against it. The TSE is still down a couple of digits. Very low volume here. There isn’t conviction for the higher prices we are seeing. There is a warning that something is not confirming and that things should not push higher from here.

Investing. In January he called that yields would tease higher and his Top picks were Power Financial, Manulife and Magna. One never knows things are going to happen and you don’t know if it is going to go in a straight line. Continues to try to sell old areas (bond proxies without growth, utilities or no compelling growth features) that probably won’t do as well over the next couple of years and tries to stimulate areas that probably have the wind at their back. You can sell everything right away but a lot of them continue to have really good value. REITs as a group are probably trading for Canadian bond yields for around 2.75%, so at these levels they’re actually quite attractive but the question is, were are those bond yields going to go over time. His view is they are probably going to go north of 3% over the next 12 months. That will hurt the REITs a little bit, but even more than that, if yields come down a little bit, they are over owned. On any sort of relief he expects people are going to be lightening up. Expects there will be an opportunity for the group of them but probably at lower levels from here.

Markets. Towards the 4^th quarter, you could see signs of Europe starting to dust itself off. China is a little bit more troublesome but ultimately he believes you are looking at a soft, not a hard landing. Who knows what the Fed is going to say this week. At the end of the day, they have been trying to engineer this thing all along so they are going to be very sensitive so it should be market friendly. His main focus is to look for the good companies and try to buy on weakness.

Markets. S&P 500 seems stronger to him but he doesn’t really watch indexes. US is starting to get better and percolating. A lot of naysayers are saying that the market is disconnected from reality. Doesn’t believe that because in his experience, markets really only get disconnected when the retail, naïve, innocent investors pile in based on stock tips from all sorts of sources. Doesn’t think that is happening. There is still a lot of retail money on the sidelines. The low interest-rate policy that the Fed is pursuing seems to be working.

Auto sector. He would probably stick to the parts makers. They are smaller and he likes small companies. You have to be careful because big carmakers have a lot of power, so you want to find one that is not in the commoditized product.