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

Markets. We are seeing a continued search for yield. Some of the utilities, telcos and pipelines today have extraordinary multiples. Investors clearly understand that they are not going to get rich in bonds or preferred shares, so are looking for something else and prepared to take equity risks. They are bidding up prices. We are seeing movement away from precious metals and from materials in general and some movement into cyclicals such as industrials and consumer stocks. Expect in the next few months there will be a significant pullback because people get over exuberance, buy stocks and then you have a 5%-10% pull back. But with interest rates this low and with the multiples on the major indices really overextended, you are paying $7 for $1 of earnings but $50 for $1 of interest when you are buying bonds.

Markets. Markets are going up and he has never seen people so worried. We just went through an answer to the fiscal cliff and on March 1 they will get the sequester. We are actually seeing a secular move in the change in the US federal government in terms of trying to balance the deficit. They don’t have to do it all. They may have 1%-2% of GDP. The market loves the fact that the government is getting a hold of their budget deficit. Equities, in terms of valuation, are enjoying this fact and this is what we are seeing. His shop is looking at this as the start of a bull market that could last 5-8 years.

Markets. There are 9 insiders selling for every one buying. Some of this was tax changes in the US. The last time it was like this was last March and it lead into a market correction. The previous time it was this high was 2001. They are looking at their company’s own share prices and wondering if this isn’t a good time to take some money off the table. Dumb money (least sophisticated) is buying. The Russell 2000 is outperforming the S&P500, which indicates the market is taking on more risk. Risk is returning to the market. This is usually an indication of a top - sometime over the next couple of months.

Market Correction. S&P peaked around 1550-1565 several times in last few years. A typical bull market is about 4 years. The typical bear market is less than a year. We are at 3.8 years so are due for a bull market peak (next few months). Expects 10-20% correction and then it will be a great buying opportunity again.

Gold. He has a 6% position in his equity portfolio and is unhappy with it. $1600 support level hopefully will hold, otherwise it is at $1550. If it gets below that then sell it. He is holding for now. There is a big cycle of gold that is coming to a peak right now but you can trade it in the short term.

Markets. We are in a strong market but there is very good relative performance from companies with stable cash flow and likelihood of a growing dividend. Energy and resources are not the sectors providing returns. Now it is financials in the US for dividends.

Pipelines have been a big part of his portfolios and continue to be. It is all about finding revaluation candidates. There is an army of people that will tell you how expensive pipelines are. Most mid-stream energy infrastructure companies will grow their flash flow 10-20% in the next year because of the boom and the long life contracts they have. Likes IPL and KEY.

Is it time to get out of low risk bonds, which grew very little over the past year, and get back into mutuals? Mutual funds by themselves are not going to help you. The real question is, do you want to stay in income i.e. in bonds or something else. Bonds are going to remain disappointing as an asset class for the foreseeable future being at a pretty much all time low in interest-rates. Would recommend you move into stocks primarily but it doesn’t have to be mutual funds. It could be individual stocks or ETFs.

Monthly income funds? A lot of people like regular monthly income but he is not a big fan of them. You can do something similar by having a withdrawal plan (SLIP) through mutual funds. It is usually more tax effective for the 1^st 5 or 6 years than a monthly income fund.

Need some bonds in a portfolio and is looking at CLF-T, CBO-T or CFD-T). Your opinion and suggestions? Of the 3, he would prefer CLF-T and CFD-T. CBO-T is going to be a little bit more riskier because it is going into corporates. CLF-T is a plain-vanilla laddered and very low cost. Doesn’t know that you’re going to make any money on this one in the cycle though. You might be just as well off keeping the money in cash or in a GIC or, just buying a bond to maturity in which you would be guaranteed to make something.

What is a “Flow Through” and how can it reduce income tax? Government allows companies to “flow through” deductions that they would otherwise have. If you want to put money into small, Junior oil companies, you can buy a special kind of share called a flow through, which allows you to deduct 100% of the money that you invest, against all sorts of income. E.G. If you have a taxable income of $150,000, you are in the top marginal bracket. You put $10,000 into a flow through limited partnership or flow-through share, your taxable income goes down to $140,000, just as if you put it into an RRSP. In a year or 2, that limited partnership will roll into an open ended mutual fund, a non-taxable event, so you can sell it if you want.

Focus on paying down student debt or on retirement? You should be paying down student debt. As a student, you have lots and lots of time to start building for retirement. Most student loans are costing 4.5%-5%, which is pretty expensive compared to other debt products.

Portfolio allocation for some one in their 50's? Depends primarily on whether or not you have a pension plan. If you have a pension plan, especially with defined benefits, you can be a lot more aggressive. If you don’t, and you are in your 50s, you should have an equity bias divided between Canadian, US and international stocks. Also, a little bit of some kind of tangible items such as real estate, commodities, gold for diversification.

Converting RRSP into RIF, do I sell all stocks to convert? You don’t have to do anything differently at all. You just sign a RIF application at age 71, or sooner if you wish, and the money just transfers, in kind from your RRSP to your RIF.

An opinion on individual stocks for pension income, compared to ETFs/Mutual Funds. If you have a really, really big account, maybe individual stocks would work. He is talking $2-$3 million. He doesn’t think you can beat diversification that you get with ETFs and mutual funds. Also, feels ETFs usually beat mutual funds hands down on the cost side.