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

Educational Segment. Inflation. They have changed the way they calculated it. Once in the 80s and again in the 90s. Tires today last longer than they did decades ago so the fact that they went up in price does not indicate an actual inflation rate. Inflation is 5.5% using the pre-1990 method but is 2% using today's method. US GDP would have gone way down using the old way of calculating inflation but using today's method it has gone up.

Markets. We could see stocks go a little lower yet. We had a nice run up in the third quarter of the year and we are seeing a little bit of an adjustment here. Short term there are events in Europe and the US election but long term people could look around for buys. He is probably holding a little more cash than he normally would so if he sees some setback in the market then he is prepared to go in and take advantage of it.

Indexes. Index is loaded up with the big, liquid, economically sensitive companies. In Canada this would be lots of resource companies and banks. Thinks commodity prices have had their run and are now cooling-off. Even oil is starting to cool off. Banks have their headwinds too. Consumers are retrenching and bank balance sheets are all about real estate so he doesn’t see a lot of upside for banks.

Markets. Stocks have been pretty fully priced, particularly in the US and he feels this contributed to the sell off after the quarterly earnings announcements. It will be interesting to see if this continues or not. Rather than viewing this as a buying opportunity, he would rather step back. He has been calling for 12,500 on the TSX to be a resistance zone. It has taken 3 shots at it and have failed for the 3^rd time. If we breakout, we’ll probably run another 500 points. If we don’t he expects we’ll be back down to 12,000. Don’t rush into this market.

Markets: Likes farmland. We are into a period of rising government bond yields. The risk trade is on and the safe haven is on. Prefers corporate bonds. He is a seller of higher yield instruments he recommended in the past. He would be buying corporate bonds for now but not for long.

Brascan 5.95 June 14'35s. Don't go for 10 year corporate bonds. Yields are likely to rise in that time. If he really likes a company he may change his view.

Premium bond, real return bond of something else for grandson: Real return only yield about .3 or .4 above CPI. But these are the way to go. Buy for a grandson but not for yourself.

When to sell before maturity. He wrote on it in the third edition of his book. Buy convertibles when they are just about in the money and premium to maturity is less than it would take to pay the premium back. The time to sell them is right now. The premiums are as much as 53% and it would take 17 years to pay it back.

GICs are an attractive place to invest. Favours a laddered approach. GIC world stops at 5 years and to go further you have to use bonds.

407 International 3.87% 11/24/2017. They can raise tolls whenever they feel like it. They are a utility. Giant long term contract. Triple 'B' rating. Probably would carry to maturity. Maybe the only infrastructure bond in his portfolio.

Treasuries. When you look at what has happened since QE 3, all 3 of the previous stimulus, the equity market was significantly higher a month later in this is the 1^st time that it is significantly lower and we didn’t get the big uptick in yields that was expected. Thinks the Fed wants to reflate things. Doesn’t know if they can deal with structural problems with monetary policies.

Markets. He is very bullish. Recent numbers show that Canadian manufacturing came out 3 times better than expected, US unemployment is the lowest in 4 years, housing starts best in 4 years and China’s money supply and exports are going gang busters. 4^th quarter has always been a good time to be an investor. Everybody has talked about the fiscal cliff but with what Bernanke is doing they are not going to let this thing fall off the cliff.

Markets. He sees a firmer tone in the markets. People come back to the market in the fall. The US election is going to come to a close quite shortly, so that ceases to interfere with business. All the ailments of the world are continuing but we are all getting so used to them being there that we can actually deal in investments again, rather than just standing off. That doesn’t stop major collapses from occurring.

Markets: We had a 5% pullback and now it is over. People are surprised by the surge in share prices so far this year. We have a lot of support from governmental but he still thinks lots of cash is piling up on the sidelines. At some point there is going to be an interesting strong move in some direction. The fiscal cliff is reality. As we get closer to the election, Romney is going to have an interesting effect if poll numbers go up. There is some hard medicine that is going to have to be taken soon. Bearish on oil. Nudging into nat. gas but basically he is defensive.

Economy. Thinks economic risks are tilted towards a recession next year in both North America and Europe. Next year we will be 4 years into an economic cycle that bottomed out in 2009. On average business cycles last for 4 years. Certainly with all the risks that are out there and the deceleration of the economy as it is right now, it seems like reasonable odds, about 65%, that we enter some kind of an economic slowdown or recession in the 2^nd half of next year. Stocks tend to anticipate those things by around 6 months and the average decrease in price is around 30%. He is currently about 37% cash in his equity fund.