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

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.

Markets. Expects that the Cdn$ will descend as commodities fall so the US$ is a good spot to be in. Has used his cash to purchase US$. If there is a correction as he expects, he will be buying US equities. Bigger opportunities over the next 2 next year’s in the US than there are in Canada. Investors should be re-evaluating how much equity exposure they have in their portfolio. Ask yourself, what if things don’t turn out as good as everybody projects. Do you have enough cash? Are you positioned properly? Can I position myself for good opportunities by having my money into relatively short or safe investments that will pay a reasonable return?

Your opinion on borrowing to buy dividend stocks and how much leverage is too much. Whenever you borrow money to make investments, the first thing is to make sure you have some prospect of having some income match it. Also, you should use the income to pay down the debt. You should make sure the leverage is not more than 2 to 1. Using money at a time like this because money is cheap is not a prudent thing to do.

Markets. Investors are going to keep expecting central banks to 'stir the pot'. The economy is not strong. The unemployment rate is coming down because people are leaving the labour force. They need to keep mortgage rates as low as possible so the housing market can recover. Lumber stocks are a speculative trade. They will rally in expectation of things being fixed in housing. S&P earnings went down if you exclude the banks. You are starting to see that earnings momentum is slowing down. IMF said it will be slower for the next 4 to 5 years. We are in for a bit of a harder landing globally and it is because of global debt. More and more S&P earnings are from global earnings so it is a benchmark for the world. If the fiscal cliff comes in we have a GDP recession next year in the US.

Educational Segment. S&P closed last week at a very key trend-line. Last year coming off the lows in October, market came up and held the trend-line for a couple of weeks, broke inter-week and closed above. Trend-lines are interesting because you get an opportunity to put in a trade with a fairly tight stop. Thinks the market grinds higher into the end of the year even though expectations for earnings are lower. If we close back below 1420 then we start to get nervous.

Market. He is a little frustrated because what he is seeing is that the European analysts seem to be little different than the North American analysts. They tend to take a “follow the data” approach and Europe is definitely in a recession as far as he is concerned but they are not writing the price targets down and, as a consequence, prices for European equities are elevated relative to where they should be.

Canadian banks. Doesn’t feel they are a good buy at this time. They are effectively geared to move forward on the back of the Canadian economy, which has done very well over the last couple of years. Feels there are better opportunities in the US. US banks generally are well capitalized and they are at a point where the US economy is starting to recover.

Markets. It is reasonably likely to happen that the year will end positively. Short-term things that are still in front of us are China stimulus and the US fiscal cliff, the 2 big ones. Also, we don’t want Europe disintegrating. If these things were favourable, the market could be up another 5% in 6 months. He is now into the single digits in the cash he is holding.

Fiscal Cliff. In simple terms, if nothing different happened there would be tax increases in the US come Jan 1st along with spending cuts. If that were to happen, the average US consumer could have $1000 less in their pocket to spend. That would affect consumer spending and GDP would be softer. There would be a dip come January and that would be a fiscal cliff. Doesn’t think that is going to happen but is something we need to watch carefully for the next few months.

Markets. Better than expected readings on US consumer confidence and we are back to pre-recession highs but stocks are under pressure. Partly because the markets have had a very good run over the last few months. All the central banks have put in their stimulus packages and that has put away the doomsday scenario but it takes time for this to take effect. Now we have to go back to fundamentals and this is that profit growth is slowing. Companies are not very optimistic and are showing reduced guidance. With the US election, there is still uncertainty. Investors should wait as there is no sense in going in when volatility seems to be increasing.

Markets. It is the same as 2010. He was waiting for the market to break out above the 12,000 level and we could close the year above 13,000. Canadian markets tend to be strong this time of year (Nov/Dec) in energy and metal stocks, which have a lot of influence on the index. He was a big buyer at the beginning of September. He has been trimming interest rate-sensitive stocks like REITs.

Short Interest. A long time ago it had a lot more meaning. If you have derivatives trading against it, or pairs trading, you might have someone shorting but offsetting with options. Now a days short interest does not mean people are bearish on the stock.

Nat. Gas. Beautiful downtrend. When it bottoms it will be obvious. Clear bottom back in April. The last two lows have been higher than the previous. Buy HNU-T with a $15 stop and a 30-day moving average as your exit point (trailing stop).

Markets: Wrestling match between mushy economic conditions on one side and hopeful rallies on the other as banks pushed out stimulus. Savers are looking for something that gives them a little more yield. The core themes has been predictability. You need securities where you know they have the ability to pay and that ability is growing. Each rally that comes on behalf of one of the policy initiatives has been shorter and shorter.