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

Markets. 2^nd quarter has been a little more positive than what he expected. In the last 3 years, the economic data has rolled over in each of the 2^nd quarters and we have seen negative markets down about 5% on a total return basis in Canada. So far this year, we have been flat in the 2^nd quarter year to date. He continues to be optimistic and feeling pretty good about the dividend growth he is seeing in his holdings.

Interest rates. Since about 2010, he has been looking for interest rates to move higher. It appears that we may be finally seeing the 1^st signs of a sustained move upwards. However, we have been faked out on this before in the last 2 years.

Has the investment community just created a bubble in dividend stocks? He doesn’t agree with this. He understands the logic but the numbers just don’t bear it out. Looking at the dividend yield on the TSX, it is right in the middle of its average range for the past 30 years.

Bonds have gone up about 50 basis points in interest. What is happening with dividends on financials, REITs and utilities? On utilities, earnings could be hurt on a near-term basis but will ultimately catch-up. Not as positive on the REIT sector. Doesn’t feel it is a great diversifier. Regarding financials, it is mostly a spread game for the banks so it may compress margins in the near-term but ultimately they will figure it out and it doesn’t put any of the bank dividends at risk.

Comparison of dividend return on a large CAP such as Ensign Energy (ESI-T) to a small CAP such as Esential Energy (ESN-T)? You can buy a lot more shares on a small cap. In order to compare them, you have to just compare the dividend yields. Obviously a higher dividend return is more money in your pocket. You also have to be aware that for a smaller CAP, it takes less to go wrong to sink the company. He does take this into account.

Markets. We are in a long-term bull market, 5 to 8 more years, for the US. Thinks it starts with a bull market in the US$ and then spreads to all US assets. Every day there is a piece of good news, certainly for the US$. Sees the Cdn$ trading down to $0.90 or even $0.85. When world investors catch on, people will allocate portions of their portfolio into the US$ and US equities. He sees a power shift in Canada from the West Coast back to Ontario.

Markets. Bond market just sold off enormously. We were at 2.2% on the US 10 year and then in the last hour it was basically “let’s take some risk off the table” so the money flowed out of equities and into the bond markets. The selloff in the bond market is now starting to accelerate so we have had a big reversal in the last hour or so. Therefore, equities remain the place to be. You want to have some fixed income in investment grade corporates, perhaps some inflation protected government bonds as well as some good dividend paying stocks.

How would I achieve the best results in using a small percentage of a portfolio in emerging foreign markets? Using a global diversified front year markets fund would be a good way. You could use iShares MSCI Frontier 100 (FM-N) or Guggenheim Frontier Mkts (FRN-N).

Markets. We have had a very strong move since the bottom in 2009 and he market is now fairly valued. It is hard to make money now in the market. A more concentrated portfolio is recommended. Bottom up approach. 1. How much you have to pay for the asset. 2. Balance sheet - no credit stories. 3. Management; and 4. Overall operating environment. Both Canadian and US environments are fairly valued, slow growth.

REIT Market. There has been huge demand. Has been a great play. But everything comes to an end. Possible end of QE3 has affected them. She has only one REIT, BOX.UN-T.

Markets. Had run up a lot and he had been hoping for a pullback, which never happened. A lot of positive things going on in the US. Relatively low rates, low unemployment rates. However, long end of the curve, continues higher which tells you something about what is going on in the world. Inflation slowly coming back. Companies continue to make a reasonable amount of money and he feels dividend yields will continue to go up. However, there is a specific type of stock that is going up. Dividend paying stocks and companies that continue to buy back their stocks are the ones that are doing incredibly well. Valuations of some of these companies is getting very, very high which is what people should really think about.

In the next year do you see a 3%-3.5% 10 year U.S. Treasury? If so, what impact is it going to have on utilities and dividends? Expects there will be higher yields over the next several years. One of the problems is that people concentrate on the short end of the curve which the Fed has the ability to change. It is really the long end of the curve, 10-30 that makes a difference. Doesn’t think rates are going up substantially so if you see a large pullback in any these companies, he would look to buy them.

Is there any arbitrage advantage in holding Canadian stocks out of the US exchanges because of the currency valuations? He would feel that any advantage would be arbitraged away by sophisticated traders who buy the currency, etc. Brokerages charge you a lot of money for foreign exchange so make sure you are not getting ripped off.

Markets. Looks like bond yields are going up and we are going to touch 2.50 on the 10 year US treasuries and perhaps something similar in Canada but he doesn’t think they are going to go up enough in the short term to cause much damage to stocks. Technically, markets are overbought. Bull/bear ratio is close to 3 and that traditionally calls for a correction. Margins are at record levels which is worrisome. However, price/earnings ratio based on forward earnings on the S&P 500 is 14.3 which historically has been between 7 and 22 since World War II. Looking out 2 to 3 years, he is very bullish.

Gold. Likes gold but thinks we have to see some basing and we are in the process of seeing that between $1300 and $1400. Because of the continuous printing of money, which has been a total debauchery of the currency, at some point, they are going to have to have a new currency system and gold will play a key part and the price of gold will be very much higher.