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

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.

Resources. Feels most leverage for greatest opportunities is in natural gas with a correction in the prices from about $3.50 down to about $3. We are seeing new uses in natural gas in things such as fracing equipment and some of the producers. This coupled with LNG terminals moving forward on the West Coast where gas will be shipped to Asia where prices are 5X higher than North America. You have to take a long-term view on natural gas because equities will move well ahead of the actual price moving.

Oil. Expects oil to trade within a $15 band on either side of where we are today. Crude oil is driven by positive demand factors and the IAEA just came out and increased their demand by 1%. This is a 600,000 barrel per day increase in 2013 and is led by China. There are also geopolitical concerns of the Middle East, which will strangle supply. This looks good for prices between $90 and $115.

Base Metals. The most sensitive to economic growth. The Chinas of the world are going ahead with their global infrastructure build. China is building a 15,000 km high-speed rail network, which will require a lot of copper and metals to put in the ground. Nuclear power plants are under construction. Feels that once China and the rest of Asia picks up, this will bode well for base metal prices.

Gold. With quantitative easing from central banks and, at the same time, governments, individuals and companies trying to deleverage, these 2 things are battling. Not bearish in the short to intermediate term of nominal prices of risk assets. There is Chinese fiscal stimulus, QE 3 and Infinity in the US and, in Japan it looks like there is another major round of stimulus coming. In terms of real economic growth and real growth in risk asset prices relative to underlying monetary inflation, he is still quite bearish. This leads him to be very, very bullish on precious metals and the underlying equities. This has been a switch for him. Gold is the place you have to be to play this increase in quantitative easing globally. There’s been 2 solid years of underperformance of gold stocks versus bullion. With QE 3 fully in place and with not only 40 billion of mortgages per month but the additional 45 billion in unsterilized in treasury purchases, plus the major news out of Japan with the new prime minister favouring a 3% inflation target, the Bank of Japan is going to have to do some major increases in their balance sheet.

Housing. Prices, in a gradual way, may fall 20 to 30% in various areas across the country. Long-term trend lines indicates this would just get you back to the trend line. Normally, in the long-term, housing prices should rise 5% a year in real terms. Because we had a doubling over a 12 year period, once the peak occurs (he believes occurred sometime this fall) you now have inventory building.

Small Caps. Market is feeling there will not be a resolution to the fiscal cliff situation so the market is selling off. From a macro environment, he is really looking at individual names and is getting opportunities with the selloff. Really not so much of a sector selection as it is a company by company choice depending on management, balance sheet, etc. Holding about 8% cash to be able to make purchases when the opportunity arises.