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

Owns an inflation protected fund with the thought of holding long-term and is up about 15% in 2 years. Stick to my original plan or take my profits? Real return bonds have done very well in the last 3-4 years. If you hold until maturity you’ll get that return over the CPI.

Real return bonds have been trending downwards. What is their future in the TSX marketplace? These are here to stay until the government decides it is too expensive to issue them. Real return bonds have a big role to play with most of the institutional investors.

(A Top Pick Aug 2/12. Up 4.71%.) Province of Ontario 3.15% bond maturing 2022. This is a little long for him and if he owned them he would trade them for a shorter-term corporate bond in order to get more defensive.

Target Bond ETF. Is there any way of knowing the face value at maturity? A Target Bond ETF would be one where a 2015 Target would only contain 2015 bonds. He doesn’t know what your face value was going to be but you are going to get your money back.

Canadian government bonds maturing in about 5 years. Pros and cons if sold now? If you sell now, the pros are that you will make a nice fat capital gains. The cons are if you sell too soon and the yield keeps falling. Feels you can find something else on the equity market that would be better than this.

Bank perpetual preferred shares? These are similar to long-term bonds. They have a very long duration so they are at great risk when yields are about to rise. We are in a period of time when we think interest rates “may” rise, not too much this year, but eventually they are going to rise. These preferreds will sell down in price at that time.

Brascan Bonds maturing in 2035. Is it safe? He doesn’t like long-term corporates. So many things can go wrong between now and 2035.

Reliance LP 4.574% maturing March 15/17. Have performed well and he thinks they will continue to produce positive returns.

Markets. Expects the volatility to continue. There is a lot of macro uncertainty, whether or not it is in Europe, the US or China. Feels the market is being driven by headline news, policy decisions and she feels this will continue. She is holding between 5% and 10% in cash that she’ll use for opportunities.

Markets. Smart Money confidence and Dumb Money confidence chart (Institutional investors vs. retail investors): When Dumb is high and smart is low, it is often a sign of a market top. The opposite is often true. Right now the smart money is becoming a little less confident. Commercial hedgers are actually shorting right now and the retail investors are pouring money in long. From looking at history, we could be looking at peaks in the market.

Gold. June contracts. Broke the $1550 level and down we went to the next level of support. It is bouncing off that. Seasonality is July to early or mid Oct. Thinks it has a chance to get back to the old neckline closer to the end of the summer. He is a little nervous about gold because it broke the support level.

Markets. When he looks at the Dow, he looks back to the 80s. You went a while before you got any consolidation. We have a good head of steam for the equity markets. He predicts a rest for the US markets before a return to the acceleration. But when it does, it will turn quickly, so you have to have some exposure now.

Markets. We are coming into a seasonally weaker part of the year. He is probably feeling a little more positive than average. Sees evidence that the US economy is doing quite well and expanding nicely. China and the US, the 2 biggest economies globally, are moving forward in a very progressive fashion. Those 2 ships by themselves should pull the whole world along with them. Economically we are looking at a fairly decent year. His portfolios are fairly long-term oriented. He looks for really undervalued well-run companies that are growing their earnings over time.

Economy. Economy is recovering and companies are doing wonderful things. Thinks a lot of people are putting too much blame that it might be just government intervention that is supporting and propping it up. Feels corporate America and corporate Canada have turned the corner. You see this in all the earnings in the last 6 months. In addition, if you look at this 1^st quarter, there is a pretty strong beat rate both sides of the border. Obviously we still have issues we are dealing with such as Europe and China’s impact on Canada’s resource space. Canadian market in the resource area is down about 13% in the last year but without resources it is up about 6%. Underneath the surface, the Canadian market is doing quite well.

For a long-term investor and for his RRSP, would he be better off to buy an ETF or pick 3 of his favourite Canadian banks, which he knows will do well over the next 15-20 years? Banks have been pulling back in Canada and this is a pretty good entry point. Regarding ETFs, there are some out there where you can buy the 5 or 6 large banks, make sure they are in an equal weighted basis, and you will not do poorly with this.