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

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.

Markets. We have seen this movie before on the US debt ceiling. The market gets nervous but each time it gets less so. Everyone expects a resolution at the 11^th hour. But he would recommend buying on any good dips in the coming weeks. He thinks the bond buying tapering was a little pre-mature. We will be in a low interest rate environment for a very long time. Most stock markets have gone too far, too fast, however. You want to be cautious and defensive. You want to own high yield defensive stocks. World economic growth is very fragile. You have to be careful.

Is a stock cheap? It depends on the industry, each one of which has different metrics. Price to earnings, price to free cash flow, etc. See how they stack up to other companies in the industry.

Markets. US markets and, Canadian markets to some extent, are trading at very full valuations. There is not much value in North America. There is much more value in Europe, Japan and other parts of Asia.

US REITs. With the government shutting down, should he stay away with interest rates possibly going up? This is the 18^th shut down since 1976. They have all gotten settled before and he suspects that this one will too. Rising interest rates are negative for REITs and interest rates are certainly poised to go higher over the next couple of years. He would stay away from investing in REITs. Thinks there is more selling to come.

Markets. He is looking beyond the US government shutdown and debt ceiling and just looking at companies, balance sheets and earnings prospects. Companies perform in the environment they are given. They have no choice. His job is to find those companies that are going to do the best job and are best protected in that environment. Any future gains for the markets are going to have to come off earnings growth and not multiple revisions higher. He is looking for earnings growth and acceleration of profit margins, etc.

Twitter IPO is coming on soon. What is your opinion? Is the same thing going to happen that happened to Facebook (FB-Q) or will it be dealt with a lot differently? It all comes down to valuation and whether you are pricing your IPO correctly. He does not buy IPOs. There tends to be less information in the public market off an IPO than if it’s a public traded company that has a history. Be patient and let it come public and be willing to pay a higher price for greater certainty.

Economics. The longer the US government shutdown exists, the bigger the issue is for economic implications. Thinks there have been 11 shutdowns since 1981. Most of them have only lasted a few days and we are right up against that limit now. If this drags on significantly longer, it ends up being a worry. Bond buying tapering has not happened and he thinks Washington can’t figure out what they are doing right now with the budget and the debt ceiling. It is hard to imagine that they are going to taper this year. He is expecting some disappointing earnings results in the next couple of weeks. As a result, many investors will have an opportunity to pick up some of their favourite names a little cheaper.

Corporate bonds in view of the pending rise in interest-rate? If you want bond exposure, he would be very cautious of investment grade of high-grade bonds. There is a tremendous amount of interest rate and duration risk out there so as rates rise, the prices of these bonds is going to fall significantly. Likes corporate bonds, but he would play in the high-yield space, but stay within 5 years for protection from a rising rate environment. One high-yield bond that really sticks out in the last couple of weeks is a big financing that occurred at Air Canada. These are very attractive bonds.