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

Gold. He is warm towards gold, but not hot.

Markets: Light volume yesterday and today. Could be a combination of those on holiday and those waiting for the Fed’s Friday announcement. There is not a lot of conviction out there. We are setting up for a perfect storm here because the market is really expecting something to happen. Lets not forget there are a whole lot of European meetings happening afterwards. Income is a big focus for him and so he is positioned cautiously. There are some good sectors to hold but for August he is holding more than normal cash values. Big pension plans are still very heavy in bonds.

REITs: Could stall if rates rise. He would have expected them to sell off a little harder in the last month when the 10 year increased but they held in here and some increased. There is just so much appetite for income. So rates have to go up significantly before it affects valuation. XRE-T represents Canadian REITs and has gone down 6 sessions but he is not alarmed yet. Fund flows are more important to REIT values than interest rates.

P.F. Chang’s China Bistro Senior Note 10.25% 2020 Bond. Stock is private since May. Novelty in the US. Casual, Asian cuisine. Locations in all the high traffic areas and high end shopping malls. Clear growth strategy has been laid out. Licensing its brand to frozen food manufacturers. Tweaking its menu between lunch and dinner to drive incremental margins.

Markets. Everyone is hoping there will be a QE 3 but he feels every time they have one it is less effective and it’s to the point it is not worthwhile. We have had a very good move in markets since June lows so a pull back wouldn’t be surprising. Expects a pullback because they are still dithering in Europe and China is still a question mark. The notion that Israel might attack Iran before the US election has given him some fear. He is holding 20%-40% of his portfolios in cash.

Gold. He is very bullish on gold. Within 12 months, he sees it up as high as $2300-$2500. As governments continue to debauch paper money and people are continually asking tough questions about the bonds that the Europeans are issuing, gold is going to come to the fore as something that doesn’t really depreciate in value.

What percentage of physical gold should an account have? For very conservative accounts, he has 5%. As you get to the balance growth models, they can be as high as 20% but with a minimum of 5%. Half of this would be in bullion and the other half in one or more very good stocks that have been wacked recently and where he sees great promise.

Uranium. Feels there is quite a bit of interest returning to the uranium sector. He is not there yet but is looking. If you own, continue to hold.

Markets. We are at the tail end of the reporting season and, thus far, he thinks people are somewhat disappointed in the returns that have been coming in. ROE’s have not been quite as buoyant as had been hoped. This is a reflection of the underlying economy.

Banks. Hoping to see some modest improvements such as 3%-4%. As well, hopefully a couple of dividend increases. Probably from Toronto Dominion (TD-T) and CIBC (CM-T). Financial services in Canada is a pretty crowded play. We are back up to almost 2X book on financial services stocks now. People have overplayed the dividend. Dividends are a good place to be but isn’t expecting to see a whole lot of appreciation for the time being with the economy struggling.

Energy. Longer-term, this is the place to be. Have pulled back a little bit from the multiples we have seen before. Things in the oil patch have been a bit slower as weather conditions have hampered them to some degree. However, you have to take a 2, 3, 4 year time horizon when investing in energy because no one can tell you what the commodities are going to do short-term.

Gold. Has some moderate exposure. Views it as somewhat of a hedge against possible inflation or currency fluctuations that are taking place. Gold is always a tough one for a value investor because of the multiples those stocks tend to sell at but it is prudent to have 5% of your portfolio exposed there.

Base metals. Has been quite a setback in base metals and he is currently scouring looking for where he would like to position himself. Has a small exposure at the moment but would like to broaden it out.

Bank reset preferreds that reset in 2014 are generally renewing around 440 bps over the BOC rate. Preferreds that renewal in 2013 and 2015 renewal of much lower rates. Why? Bank bonds were at a very wide yield spread in 2014. These will reset in 2014, however, the banks have a call on them that will come into effect before that.

Markets: Thinks they are going to institute QE3. Would be surprised if they don’t. Heard number as high as 90% probability. Thinks it has been shown that QE1, 2 and operation twist didn’t issue returns. It will help the market but not the economy. There were some really good data that came out prior to their last minutes and then after. Housing data looks good. You should look at the defensive stocks; the high income stocks with great yields. People are buying income opportunities. If you saw better economic data you would see the income stocks not do as well or maybe even go down. You might want to start getting into the higher beta stocks now.