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

Natural Gas. Period of seasonal strength for natural gas is from September into December, basically before the cold weather sets in. Has shown some strength over the past few weeks but the overwhelming trend is still lower. Wait for a higher low before getting into this.

Markets. This is a time to be careful and pick your buying spots carefully. It is very normal for us to have a rough September and October and then typically to get into a fairly reasonable market in the November through May period. He wouldn’t be as aggressive on financials as he would be on other sectors.

Markets. Expects 2013 will be the same as 2010, 2011 and 2012 where expectations will come down and markets will provide better opportunities. Going forward, he is shifting his focus from Canada to the US.

Loblaw’s (L-T), Sobey’s, Canadian Tire (CTC.A-T), and Hudson Bay (HBC-T) are thinking of spinning off their real estate into REITs, which one would you purchase? Would you suggest the company stocks or wait for the IPO? (Loblaw’s is the only one that is trading at this time under the name of Choice Properties (CHP.UN-T)) Everyone is doing it and who knows what is next. It really comes down to the interest-rate environment. When rates are going up, these types of investments go down. He found that Choice Properties was a little bit more favourable to the parent company. Would prefer to own the common shares of the underlying company.

Oil/gas. The majority of the Junior sector, especially if they are natural gas, have had a really tough time. Trading below BV and significantly below NAV. Access to capital when your stock is below BV is pretty hard to do. Companies have had to grow from within cash flow and many companies have not shown the growth and have been penalized by the markets. Also, if you are gassy, you are in trouble because US gas price is in the $3.40’s but the Cdn price is even below that at $2.40. Nobody can make money at $2.40. However, economics still work for liquids rich gas, but the gas as a by-product, doesn’t really count. Demand for energy in the US is not very robust and US has increased its capacity to about 7.6 million barrels so the demand for foreign sources is not there. His bottom line is that 1) we have too much oil 2) we are ending the summer driving season in a couple of weeks 3) we have much too much oil in inventory and 4) too much supply by OPEC. All of this should drive the price of oil down and expects to see a correction in the Oct/Nov window along with some tax loss pressures. This will give a fabulous buying opportunity. Expects he will go from the neutral/bear camp to the bull camp at that time.

Markets. The great rotation out of bonds and into equities – he thinks it doesn’t matter. Markets are up because earnings are going up. The bond market has collapsed but the equity market does not care. He thinks the great rotation will be within the market. Sees rotation into materials, tech, industrials. There could be a pause that refreshes, rather than a correction. Advance/decline line of the S&P is showing a top. But it is not a breakdown. The price trend has not been broken. It's just a bit concerning.

Hindenburg Omen. Has to do with advance/declines. He thinks it is a lot of nonsense. The next crash will probably not happen for another 15 years. Focus on reality.

Markets. The correction is not overdone. Many people have been expecting a correction for many months. They are normal and happen fairly often, at least every couple of years, 10% or better. There has to be a balance of risk and reward in the marketplace. The skittishness is rather healthy because it keeps the market grounded. He is more interested in what the companies do. It gives stock prices a solid floor. There is a danger of being underinvested in this market. There are those on the sidelines that try to time the markets. You need to set the proper asset mix as a foundation for your portfolio.

Markets. Some of the regulations around capital requirements cause banks to hold fewer treasuries. The fed has noticed spreads on prices for bond dealers are widening out a bit. AGG-N represents the bond market. He finds bonds attractive in the short term.

[Caller asked about debt ceiling affecting Dow] Thinks there will be a prime time debate in Sept/Oct. and could contribute to a correction (5-6%). Step into this with DOW below 1600. Consider ZWA-T instead.

What do you hold to protect against US going into default? Varies with each investor. Depends on whether you need income. Maybe use a bear ETF, or put options.

Educational Segment. Chart of global equity index and fixed income index. Stocks were at the top of the channel, during May, 2013. We got some correction but now they bounced back. Stocks are expensive relative to bonds. Looking at the last 4 tops, the corrections were sometimes significant and sometimes not. Keep some powder dry but don’t sell everything, or move all to fixed income.

Markets. Volatility over the next few months. Markets have come to terms with the fact that rates have gone higher. We are a year away from really higher rates so the market is reacting 6 months to a year ahead. More traditional dividend paying names have been devastated. Resource sector is going to suffer and we would rather be elsewhere. You want to be in the US in early cyclicals.

Energy. Warren Buffett buying 500 million shares of Suncor (SU-T) shares last week was a really exciting development for Canadian investors. There has been a fund flow issue for years with US selling because of concerns of Canadian infrastructure issues and the differentials that Canadian oil has been selling at versus the US. Behind the scenes we have had a pretty big improvement on the infrastructure side and also on the currency side with the loonie dropping 4%, which boosted the realized sales price of Canadian producers by 4%. Hopefully, Warren Buffett’s move is the beginning of the shift. We are in a pretty strong seasonal period.

Short selling. When Shorting, do you match it with a Long of roughly equal $ value or do you sometimes match multiple Longs to a Short and vice versa? What is your rationale? He does Short at times but not often. If he places $1 of Short, he has to have $1.50 of cash. Makes it a little cumbersome. He is especially not doing this too much, seeing as how out of favour the sector has been. Always remember, when you are shorting, you have unlimited downside.