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

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.

Markets. We are in a reasonably constructive environment. Investors are slowly moving from fixed income to equity camps. This provides opportunity in the dividend camp as the fears of interest rates are overblown. Interest rates head winds will be less significant in the last half of this year. Housing market has pent up demand for renovation and that half of the housing market is not interest rate sensitive, whereas homebuilders are.

Markets. The last few years have been a Fed induced rally, not really an earnings generated one. Forcing people to take on more risks because interest rates are so low at the short end of the curve. Basically Bernanke has said to retirees that you are going to have to take on some more risks because if you sit on GIC’s or cash, you are going to run out of money during your lifetime. Doesn’t expect there will be a major correction, because we are slowly grinding forward but, there is that outlier that if GDP in the US is running at 1.7%, as well as inflation, then real growth is negligible. It is nice to be invested, but at the same time have a little bit of cash on the sidelines just in case which he can put it to work when needed. The growth rate now is in the US, but we are starting to see some upticks in other countries such as Great Britain.

Economy. We got better than expected export data out of Germany today and even the Chinese had more import/exports on the go. Those numbers of course get revised and can change from quarter to quarter very quickly. Thinks that a lot of corporate profits are growing on the backs of a deflationary environment where technology is helping them keep costs down, where they don’t have to pay full-time benefits and hiring a lot of part-time people. You are getting a lot of stickiness in the labour market. It is usually wage increases that really spike inflation so he doesn’t see a whole lot out there right now.

Proportion of a portfolio that should be in non-North American based companies? To what extent can one globally diversify through investing in North American corporations and what is the minimum of a person’s portfolio that ought to invest in non-North American corporations in order to have adequate global diversification? Because we live in Canada, if we decide to retire in Canada, we can’t be 100% foreign because we would be exposed to currency risks. He tries to have about 2/3 of a combination of “stocks and blends” that are in Cdn$ and the other 3^rd would be outside. In equity portfolios he has about ¼ in Cdn$, ½ in international and the rest would be in the US. Look at where the revenue stream is coming from, not where companies are domiciled. Most Canadian stocks on the TSX have almost 100% of their revenues in Canada and the US despite the fact that long-term returns of international stocks are about 2% higher, compounded annually over a 20 year timeframe.

Interest rates. The Fed has released so much money supply through buying the outstanding bonds and literally quantitative easing the whole situation. That was the last 3 years. Now that we are in healing mode and reaching normalization of the economy, you have to adjust for higher interest rates. The bond market has already adjusted for higher rates. With the employment numbers out last week, the Fed is going to take out its buying program of 30 year bonds.