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

Canadian banks. What should retail investors pay most attention to with regards to Canadian banks’ annual reports in preparation for attending annual meetings? You should be looking at earnings and consistency throughout the operations. You should be holding a selection of Canadian banks in your portfolio. You should not be without them if you are conservative and a long-term investor.

Oil. Sees a fair amount of M&A activity in this sector as dividend paying enterprises emerge. They build a healthy level of cash flow and have to continue some degree of growth. Their intent is to get their stock values up, which reduces their cost to capital. If that happens, that means the smaller enterprises will look relatively attractive and he feels that is where we are heading in the next 12-18 months.

Heavy oil. Has been a combination of very bad things happen to heavy oil producers, one of which is the transportation bottlenecks in the US which has been followed up by a big new influx of light oil production in the US. This meant that Canadian crude prices got hammered. Also, the difference between heavy and light oil prices got hammered. Heavy oil differentials right now are at all time record highs. There is reason to be optimistic. The pipeline expansions underway that will show up in 2013 will add basically a million barrels of new transportation capacity to the crude system in the US. Have been refinery turnarounds that have slowed the need for product and these are now complete. Feels that the 2^nd half of 2013 sets itself up for a big narrowing of the heavy/light differential.

Markets. Starting 2013 optimistically but is cautious. Some of the clouds have been lifted. Feels that in the 2^nd half of the year, companies will finally start spending their cash hoard. US is coming into a renewal cycle and if they keep selling cars at the rate of 14-15 million a year, there is going to be a lot of reinvestment in manufacturing. How much will happen in the US is still an open question, but even if it happens in Asia, it does have benefits for the American companies that are making those investments.

Markets. Presidents tend to do the most difficult things after they are elected. The first quarter of a post-election year is normally a down quarter. The good news is what happens through April/May (over 20 elections cycles / TSX) and another movement into the summer time.

Silver. Moves in January and February, average 12% up. Silver is in the process of bottoming, wait for it to cross the 20 day moving average.

Markets. Thinks the fiscal cliff will drag on. You might sell into a rally on any good news. He has been a bull for years but he is not a bull anymore. We are almost 40 months into this bull market and they are usually 36-42 months long. This bull is aged. Each advance on the S&P has had less momentum and there have been 3. We could get a bear, even if a shallow one. The advance decline line is not rolling over. Thinks money managers will sell the leading sectors into a rally and move into the laggards to stay invested.

US markets. People often confuse the economy with the markets. US has economic problems but they also have some very profitable bull businesses. There are businesses that the banks have deleveraged and companies that are making money globally so he sees no reason to be negative. Feels the US economy and global economies will chug along at a reasonable pace in order for these companies to have decent profits. One of the problems is that a lot of these companies are keeping their profits offshore because the US has such a high tax rate.

Money covered calls. Do you have any guideline you use in buying these? If you bought a stock at $50 and sold the $50 Calls for $2.50 and all of a sudden the stock has gone up to $55, the option is worth at least $5. If the stock is going up that much, you might be thinking you should buy back the Calls, take a loss on them and at least have a profit on the stock. He has found that whenever he does this, he ends up with egg on his face because as soon as he buys back the Calls, the stock immediately drops. As a general rule of thumb, Don’t.

Looking for a Canadian ETF that shorts the S&P 500. Horizon Beta Pro website for HBP S&P 500 Inverse ETF (HIU-T) is one you can look at. They also have leveraged ones but he suggests people not buy into these because they are very complicated. You can be in the right side of the market and still lose money.

When does a premium become taxable if, for example, the premium is collected in the 2012 calendar year but the transaction settles either by expiry or assignment in the 2013 calendar year? Basically it is treated as a taxable gain in the year that it is sold. If you should buy back the option, then you’ll have to make an adjustment from that year.

US small Financials ETF? iShares have several different sectors that you can play including some of the regional banks, some of the lifecos and different combinations. There is a whole group of them.

What will be your sector focus for 2013 and what ETF would you use? He is looking at the one that is doing quite well right now and that is the US large-cap. Also, likes some of the sectors that have been beaten up like mining. Would also take a look at emerging markets and China.

Diversify into the US by allocating 10% of RRSPs into equal amounts of HDV and ZWA? HDV is actually US$ dividend so if you do this, you are taking on the risk of the US$. He doesn’t know if he would be that keen on this. ZWA is BMO’s, which is based on the Dow and he quite likes this one, because it is only 50% based on covered calls. The rest of it you are long. Great way to get income coming into your account from the US market without having to worry about withholding, etc.

Markets. Fiscal cliff is more of a fiscal slope to him because it can drag on for another couple of months. If there is no resolution in the short term, it could be negative for resource stocks given the leverage that resource stocks have to the general economy.