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

Markets. The majority of QE is behind us and not ahead. China – there is some uncertainty of what growth is ahead of them and that has affected copper. Some think the Fed will ultimately reverse course in tapering. But data points regarding the economy have been constructive. As they slow down in China it is not positive for base metals in Canada. It will crimp demand where China accounts for 40% of it. Inventories are at a 10 year high. If copper goes down, stocks will certainly correct further.

Markets. There was an overreaction to the message Bernanke was trying to send. It was very clear.” If things get bad, I’ll continue to do this. If things get better I’ll taper QE.” He said he was going to still keep short rates very low and will look at the numbers. The harder part for him will be to manoeuvre the environment the other way. He manoeuvred it down, now he has to manoeuvre it the other way, which is going to be much more difficult. People should get used to what is happening. Interest rates have to go back to some normalized levels. Expects the aggressive rise in bond yields is going to cool off and then you will see a more gradual thing in the future. This is a very healthy sign that the US economy is getting better. Also, in other parts of the world, even Europe, there are certain signs that things are getting better.

Gold. With prices dropping, is it a good time to buy and should they be looking for physical gold instead of paper gold? Gold has broken down to $1200, which is a real problem because the next level technically is $1000. It is in a very bearish kind of trend. You need to see it move sideways over the next little while. If you think that this is an important issue because of inflation, banks, etc. he would just own a gold ETF.

Markets. He is seeing a buying opportunity now for high-quality yield instruments. There has been a lot of speculation on the recent backup on yields and where it is going to go. This recent backup makes sense. Yields are artificially low levels, non-sustainable for the longer-term and he is looking forward to getting back to normalized levels. He has been looking at the pullback that some yields have, which have high quality management teams that can sustain their yields. Opportunistically he will buy some of these stocks. Has been quite negative on emerging markets for some time, especially with what we have seen recently in China. A slowdown was inevitable. He’s been constructive on the US consumer for quite some time.

Canadian Financials. Not all that constructive on this sector given the economic environment in Canada. Their ability to generate and grow their businesses is going to be challenged as a result of what we’re seeing on the housing side as well as the rate side. They do carry quite attractive yields (5%-6%) and he doesn’t think they will be cut but capital appreciation he feels, is going to be challenged. Prefers US financials that have the potential to get leveraged from the recovery in Europe, the stronger recovery in the US as well as the ability to raise dividends in the near to medium term. This allows you to not only get dividend growth but capital appreciation growth as well.

REITs. Not extremely positive on this space in Canada. Given the selloff, there are unique opportunities in this area for investors to play. Despite the selloff, these REITs are trading very expensively at well north of their NAV. He doesn’t like to play things that are expensive just for the yield. Names that he does like in this area are Choice Properties which pays 6.5% as well as Boardwalk REIT (BEI.UN-T) and Dundee Corp (DC.A-T).

Markets. He is long term, value driven, small, mid and large cap. He is very different than the index. Very low resource and financial sectors. He likes sectors that are underweight in the index. He likes telecom, renewable energy and energy infrastructure, industrials, consumer staples, and consumer discretionary as well as less liquid companies that are less followed by analysts. He is lower risk and lower volatility than the index. Investment decisions are guided by the fundamentals of the companies.

REITs. The sector has really got whacked. Very interest sensitive. Some were terribly expensive and others were cheap but they still went down. He owns three of the smaller ones. High yielders and solid in their space with great growth potential. Hold for the yield for now. They are oversold as a group.

Markets. A month ago he said it was going to be everything US for the next little while. Money is going back to the US, from the EU and BRIC countries. We now see the reversal of that. The impact it astonishing. We have been waiting for 5 years. Normal markets with normal supply and demand metrics. His model is about earnings and earnings estimates. Analysts are caught here because they don’t know where to go in terms of earnings. Public price is an independent variable. As markets come down he sees prices going through EBV lines. EBV is economic book value and comes from the balance sheet. The balance sheet should be more stable than the market value according to the markets.

Markets. We have seen a lot of volatility since the Fed’s comments over the last few weeks. What is important to him is the movement in the 10 year bond yield. He has been predicting this for a while, trying to back out of REITs and so on but didn’t think this would all happen in such a short time. He thinks this change is permanent. Likes health care, industrials, consumer discretionary. Resources are tough to understand right now. He sees too much risk there. Likes names with exposure to the US and aren’t so much energy and materials-driven. Tax loss selling season is going to be ugly in resources. Sometimes you have to bite the bullet and get out.

[Caller asked if Obama care would involve people not being able to afford insurance and health care workers getting laid off.] He doesn’t see that as a huge risk on the horizon and in fact is taking advantage of Obama care coming, for example with CI-N.

Banks. He generally does not hold the Canadian banks in his funds. He holds a little BNS because of their exposure outside of Canada. He is not wildly optimistic about the sector.

Markets. France. Europe is relying on German and stronger economies. France is a tragic basket case. Social benefits are 30% of GDP. French GDP is struggling back after the bounce back in 2009. Significant arrow pointing to the downside. Recession there will get worse before it gets better. Support for the EU is falling. Bond rates are rising. Europe is not going away. It is not getting better. This summer the market is going to force yields up. EWQ is the ETF that tracks France. It has not bounced back. 14 people working for every 10 retired. Retirement in world needs to be in the low 70s. Math doesn’t work in the 60s.

Covered Calls affecting markets. The strategies have kept the overall supply of options less volatile. That is something that we will have for the next 10 or 20 years to enhance returns for shareholders. It is part of the deleveraging of global economies.

Markets. Beijing gave us the shakes and the TSX is off triple digits. The Fed was misunderstood. They want the housing boom going. In the next few years there may not be much in the way of negative equity in US housing. He wants rates to stay low to stimulate this as well as US car sales. Slow growth in China was going to happen anyway because of a trend from capital spending to consumer spending. He would not buy in this sell off because he wants to see some sort of basing. He is constructive and once the correction is over he will re-invest. The US is the place to be.