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

Economy. Longer-term, the fixes that are required for the banking system in Europe are going to be a long time. US took the pain two years earlier and that is slowly starting to come out. Europe still has a long ways to go. China stimulating their economy will be a good thing, but let's hope they don't overdo it. He is hoping to see Europe have some conclusion and then he would like to put some capital into Europe. Likes Asia longer-term. His portfolio has about 10% cash waiting to be deployed.

Banking. What surprises him is that the regulators really know what a Pandora's box they are about to open with Libor. One of the problems with the system is about debt. The biggest chunk of that debt is the credit derivative swaps. The spreads of these are all based off of Libor. If they start complaining that it is too low because bankers have been manipulating things, if they go higher it is going to unravel.

Brazil. Are investments there safe? He thinks Brazil is great. He would rank this up with Chile. The big negative was that they had increased royalties from 2% to 4%. The average is 8% so it could probably go a little bit higher.

Gold. What percentage of a portfolio should be in actual physical gold? Thinks there is much more value in the companies then in physical gold. His strategy on the overall portfolio is at least 20%-25%, mostly through gold equities.

Would an over supply of natural gas impact uranium prices? No, because we have no nuclear plants in North America. Natural gas is a North American issue.

Economy. Central Banks globally are cutting their interest rates, which indicate there aren’t that many strong places of growth at the moment. Canada saw much larger housing starts than were expected and house prices continue to go up. To the extent that the main concern that the Bank of Canada has on the housing bubble, not sure that interest rates are going to go down so fast. Feels the market has already factored in that global interest rates are going to continue at these record lows for at least another year and a half.

Market. Environment remains entirely challenging. Market has no clear direction and doesn’t see this changing any time soon because the uncertainty that is going on in Europe will spill over into 2013.

GIC’s at 2-4% or go into stocks? Depends on your age and time horizon. However 2%-4% in GIC’s in today’s environment is actually pretty good. If there is a 10%-15%-20% drop in the market there would be a Buying opportunity and that is when he would make a move.

Simple explanation of the difference between an ETF and a Mutual Fund? Not an “either/or” binary decision. He uses them in combinations. Mutual Funds trade once a day at the end of the day. It’s a basket of different securities and about 90% are actively managed 80%-90% have embedded compensation. ETF’s are 90%-95% passive and only a small percentage have embedded compensation.

Net worth is about half in home and vacation property and half in stocks and bonds. Portfolio allocation and level of REITs? You don’t need any REITs or investment in Real Estate. 10% is about as far as he would go.

Good strategy to construct an RRSP solely using ETF’s? Yes it would. Most people with an RRSP, it is bulk of their nest egg. You are a lot more diversified as a typical ETF has 40, 50, 60 or more companies in it.

Markets. Investors are fatigued with all the headlines and don’t know where to go. Front page news has not been positive. There is less and less conviction out there. Has been buying a little more than what he has been selling in the last 2 months when he sees opportunities. For the mot part his focus has been on dividends. A key area he has been focusing on lately has been Cdn banks.

Economy. Talked about a credit bubble and its ramifications in the past. 2 ways this is going to be resolved. 1) A default of all debt, whether sovereign, corporate, public or household or 2) it’s going to be inflated (printed) away. Default solution is not politically palatable so it will ultimately be inflated away by central banks. Since March/09 we have had a liquidity recovery driven by central bank intervention. China is slowing, Europe is in a deep recession and he thinks US is heading for a recession. Canada will ultimately be pulled along. Over the next 6-12 months this will become pretty clear. Risk assets are going to fall in the 20%-30% range over the next 18 months. The one asset class that he thinks will survive and do well is gold. Looking for significant correction on Canadian housing over the next 12 months.

Better to invest in the emerging market or in North America? Stay away from the emerging market. They get hurt first and much harder in a downturn. Thinks you will see China and the BRIC countries lead to the downside.

Markets. This is a Sell on Strength and Buy on Weakness environment. Market has been overreacting to good news on the upside and bad news on the downside and thinks we are in this channel for some period of time. With the events in Europe taking up everyone’s attention, appearance of a slowdown in the US in terms of manufacturing and not so robust gains in employment, and the fact that the Chinese have stepped back from the buying of commodities.