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

Real Return Bonds. With the recent pullback, should I Buy or wait? Real Return Bonds were never intended for individual investors. They are a struggle to hedge. These are issued primarily by the federal government but are very, very long dated pieces of paper. They are meant to be inflation protected. If you are afraid of inflation, why buy a long-duration instrument?

Perpetual Preferred Banks? Canadian banks are well run and well-regulated so he has no real concern about the credit quality of them. Given where we are in the interest-rate cycle, he would suggest that on a near-term basis they are fine as they have been re-priced by this back up in interest rates over the last 3 months. On a 5 plus year view, he would be concerned about rates being higher in 5 years and putting pressure on perpetuals issued by the banks that are going to have below market coupons potentially.

Market. The feds are going to talk about tapering until you are sick of hearing about it. Then, when you are sick of hearing about it, the market will have fully adjusted for the eventuality. Doesn’t think the economy is strong enough right now to do it. They just want to make sure that investors en masse are completely comfortable and it’s in the market already. Doesn’t think it is and if they did stop, we would have a bit of a correction. Doesn’t see rates going up real high anytime soon.

Markets. Sees a lot of dividend increases, which is great. Also is seeing a lot of stock buybacks. Valuations are not too bad. Corporations got in really good shape in terms of their balance sheets post-2008 so balance sheets are looking really, really good. What is really encouraging are the top line revenues starting to increase. The past 4-5 years, you’ve had great margins and great profits because everybody cut costs. Now if you can get that top line number up, you are going to get a margin expansion and some really fat profits. Thinks that small-and mid-cap stocks will become the place to go as investors become more confident that we are not going to fall off the cliff again. Risk/return is starting to look better. You probably need a couple of good quarters to get that confidence fully in place.

Markets. He continues to see range bound price action. Doesn’t see it breaking out well into next year. With ZEB-T, banks, he sees an attempt to breakout and it failed. It also is ranged bound. With Gold, there is a bottom developing. There is a 20-25% bounce potential. A few sectors may bounce and the rest could go down a little and the TSX will be flat. The US economy is probably the best economy in the world for the next couple of years. Japan and Europe are probably basket cases and China has some headwinds. Sept. 22 is a German election.

Nat Gas. Favourite way to play is not the commodity, but rather the names. FCG-N is broad basket of Nat Gas players. He likes Nat Gas. There will be slow conversions for the next 10-30 years. We have a lot of it. We will be range bound for the next few years. He owns ECA-T.

Educational Segment. Signposts in the market that are pointing in different directions. NYSE cumulative advance decline line. Mid-May line peaked. Market made new high in August but this line did not. You have less stocks participating in the advance of the market. Next chart - % stocks trending above 200 day moving average. In May 94% of stocks were above 200 day M.A. In August, there is a decay in the number of stocks that are trending above 200 day M.A. Recently we are seeing lots of stocks make 52 week highs but more and more are making 52 week lows. You have high sentiment and decay in the fundamentals. You need to use caution.

Markets. The timing is about right if BB-T wants to put itself up for sale. He owns little. It is a very competitive market and there are lots of players with lots of money. They cut themselves in a the beginning because they had some technology that allowed themselves to cut out a niche. There is a huge short position so it could be interesting. They did their best but now they are throwing in the towel to some extent.

AIM-T may involve the sale of half of Aeroplan from CM-T to TD-T.

Markets. The portfolios he manages are up about 25% so far this year and he has been trimming his positions. This is the time of year when he normally takes positions off of the table. His US stock watch list at the height of the recession had over 350 companies but is now down to about half. The Canadian side has not been cut that much. It is going to be harder for him to find things to buy in the US.

Energy. Regarding the spread between Western Canadian Select and WTI prices there has been a massive change in the last 6 months. At the turn of the year, it was horrible as we were suffering with very low net in Canada prices and watching what Brent and WTI prices were doing and we could only dream. Now, with those prices coming back really sharply, there has been a huge change in the rail abilities to get around pipeline bottlenecks and other types of market clearing mechanisms. There are a lot of refinery turnarounds that take place as we go from the summer driving season into the heating oil season. There is less demand from the refineries around the Gulf of Mexico so expects we will go through a little softer time, but not very much.

Natural gas. The big blow out we had in the differentials between the Canadian and US oil prices is also taking place between Canadian natural gas prices right now. NYMEX is at $3.50 US and AECO pricing is about $2.30, which is a huge range. This happened because TransCanada (TRP-T) had some interruptible services on their system that moves gas from Western Canada to Eastern Canada and the US. National Energy Board changed their tolling procedures and increased the tariff to $0.50 MCF. That automatically reversed the gas flow back to Alberta so storage caverns in Alberta have been filling up at a very fast rate and it looks like we are going to be going into another one of these very distressed prices for natural gas in Alberta. There will probably be a 5%-10% selloff in most of the gassy type of names and this would probably be the time to be buying them.

Markets. The US market peaked on Aug 2/13. We are in an intermediate corrective phase. Will last until the beginning of October. Between now and then, there is Tapering, analysts revising earnings estimates and hurricane season. Now is the time to be careful. Dow has decline 5% in other years at this time of year. You might want to be in energy (middle of July until beginning of October). We are in the period of seasonal strength for gold. Gold/gold stocks go higher. Tech stocks normally weaken. A number have rolled over.

Regional US Banks. Since November of last year, regional banks in the US had phenomenal growth. Now we are getting signs the sector is starting to weaken. First warning sign of them going into a corrective phase. Seasonality turns positive in January. Get back in then.

Gold – When to get out. Went above its 20 day average for a buy signal, took off and then went lower. Just yesterday we got a reversal. The key is that you had a second opportunity to buy for a seasonal trade (July 12 – Oct 9)

Silver. Above 20 day moving average. Outperformed TSX, and is in a trading range. When it gets above resistance level you have the third requirement for a buy signal. Play it through SLV-T, SIL-N or individual stocks. Keep it until the first week in October.