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

US Treasuries. Inverse tracking ETFs. Regular ETFs rebound in recent weeks. You don’t want to fight the trend, which is to the upside. TMV-N has gone up over the last while. It could be topping.

Educational Segment. How to make money on ETFs on Seasonal Strength. Gold equities – July 27-Sep 25. Returns 8.1% per period 12 of last 16 years. This is the time for seasonality for gold and gold stocks. Extra is bought by India for wedding season. This year is special. Second quarter results are not going to be nice. Once you get past the bad news the stocks will go up from there. There are higher costs in recovering gold so they are all struggling but as soon as the bad news is all out we see gold going higher from there. Gold bullion broke out two weeks ago, which is unusual. Gold stocks were better last year but not the year before. Gold outperforms Silver from now until October.

Markets. Volatility has accompanied the Fed reserve announcements over the summer. Rates in Canada will remain low until the economy improves. We are seeing evidence of a recovery in the US, employment, housing, and optimism in consumer spending. Expectations for growth have been somewhat dampened but we look for growth in EU. People can take advantage of this volatility and pick their spots. You want financial strength and wherewithal to go through periods of weak demand.

In REITs we have generally done well over the last couple of years as people searched for yield. Interest rates put pressure on REITs and it could continue for a while.

Markets. There is likely to be a correction. We have had a near-term top with 7% on the TSX and 7.7% on the S&P since Mr. Bernanke started confusing as all. There could be a 5%-10% pressure on a couple of stocks that have had great moves, but nothing serious. To make his selections, he uses P/E ratios as well as looking to see if there are any dividend increases coming. Doesn’t feel that the US fed will be tapering on their bond buying for a while.

Canadian telcos. Do you like any of these after today’s pullback? He thinks there are more pullbacks to come and the competition from Verizon (VZ-N) will be severe even if the Canadian government allows current incumbents to buy more than one spectrum space.

Of the 5 pipeline related stocks, what would be your 1^st, 2^nd and 3^rd favourite? His 1^st choice would be Inter-Pipeline (IPL.UN-T). His 2^nd choice would be Pembina (PPL-T) and 3^rd would be Enbridge (ENB-T). (He owns all 3.) Once he sees what happens to Keystone and to the Canada East pipeline, he could go back into TransCanada (TRP-T). If the pipeline from the oil Sands to the West Coast ever gets approved, then it could be the Trans Mountain Pipeline (owned by Kindor Morgan).

Bonds. The bond market has not really got the headlines that it should. Feels the bond market is about to take over. This is all about debt and has nothing to do with anything else. What is happening today is exactly what happened in 1976 as interest rates started rising. The bond market is taking over. If you look at just the rise in interest rates over the last year using the 10 year bond, which is what sets the US mortgage rates, mortgages were at 1.1%, the 10 year bond was at 1% and they hit at 2.7% (?). What it means is that there has been a massive selloff in the bond market and going forward, as bond managers start to adjust interest rates, the Fed is going to start to lose control. They lost 230,000 full-time jobs but they created 350,000 part-time jobs but they are not going to create GDP. The bond market is starting to question that as the numbers just don’t make sense. Going forward, if you look at what happened in 1976, $85 billion was not enough to control interest rates and the market at the same time, so you are going to need much more money. In essence, QE has to accelerate. He is set up for stagflation. Looking at the bond market, it is 3 times bigger than the equity market and it just lost 10% of its value which is a 40% decline in the equity market. The people that are getting hit are the pensioners. When the bond market takes over, the Fed loses control and this is what is happening going forward.

Gold. This always follows 2 trends, 1^st the accumulation of the debts. After interest rates rise, gold follows. The question is how are going to pay for all is that and how are we going to and how are they going to control interest rates. If they don’t control interest rates and interest rates rise too quickly, we end up with hyperinflation.

Markets. Earnings season has been pretty good but he thinks there is a trend in the industry to set the bar fairly low. The markets are reflecting this, certainly on the Canadian side. Canadian stock growth is very helpful when they US pushes it higher. In the last week, the TSX has been outperforming the Dow which is pretty unusual. Looking for some quite interesting projections, particularly in the energy sector. Also looking for some very reasonable earnings reports, which in itself will give the market some incentive. 13,000 for the TSX is a reasonable objective.

Markets. Cyclical and growth stocks have underperformed. As long as global growth stays intact, there will be a trade back to these cyclicals. China is an issue still, but the second largest economy in the world ticking along like that is not bad. You add it all up and it is not a bad picture for the global economy. He is switching back to Canada because the US has had a good run. He is buying banks but avoiding interest sensitive’s like REITs. Doesn’t think there will be a big push for higher rates. Thinks it is likely that tapering off of the bond buying by the US will happen in September. If there is a weak number or something they will slow down the tapering.

Pipelines. Doesn’t worry about a cut in the dividend. You could get a better growth in Canadian Banks. But don’t sell.

Markets. Feels that the record highs in the US today are a continuation of a bull market that we are in this year and, as well, a disguised bull market in Canada. It is a brilliant market here as long as you don’t look too hard at the resources stocks. He has been enjoying this great market. Thinks there are a lot of small and medium caps that are going to get taken out.

Gold. He is doing some limited nibbling. The price of gold is pretty well borderline on the level of actual costs. Selectively, very good companies can be bought. You’ll have to be patient and even put up with a bit more decline. Indians have been stopped from their government from importing gold.

Bonds. Yields are normalizing, going back really as they should be. Still going to go higher from here but they reached levels they never should have reached. Bonds were ridiculously expensive but now are just a little bit expensive. By the end of this year he expects to see the 10 year bond rate benchmark, 10 year treasury at 3%. Expecting Bernanke will start easing sooner rather than later. He is optimistic that the US economy will pick up in the 2^nd half of the year and into next year. This all feeds on the housing market. The US consumer has recovered all the net worth that they lost, by virtue of the housing prices improving and the stock market improving so their net wealth is back so that means they are confident so retail sales will go up industrial production goes up. Nice virtuous circle when it starts.