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

Shipping Stocks? If you look at the overall freight rates or any name in the industry, it is understandable that you could lose faith. However there are select opportunities but it takes time. You’ll have to be patient. Diana Shipping (DSX-N) is one with practically zero debt and $373 million in cash. They won’t do large-scale acquisitions but will be very selective.

Markets. He wants companies that make more money every year and give some of it back to the shareholders in the form of dividends. If he can Buy them at a reasonable price, he will do so whether the market is going up or going down. Sees some really good entry points emerging from stocks he has been watching.

Strategy, in light of the high Cdn$, of owning large cap US equities, especially those with high paying dividends? As a strategy it works better inside registered plans because of the dividend tax credit and the withholding tax by the US government.

Market. Everyone’s concerned about the soft patch in the economy due to the oil price spiking to $110 and the Japanese supply disruption. Now the Greek fear is now endemic. Also Bernanke scared everyone with his comments on the debt limit problem. Bond market dropped dramatically but Bernanke’s remarks started the bonds to lift as the flight to quality started to take place. Thinks the soft patch is now over and the worst is past.

Corporate Bond Ladder. You take a lump sum of money and divide it into 10 equal pieces and buy a 1-year bond with the first part, a 2-year with the next part, etc until the money is exhausted. You are now diversified by maturity. Also likes to put in different credits in a 1 to 10 year ladder to spread credit risks out. After the first year, you re-invest in a new 10-year bond so you always have something coming due.

Real Return Bonds. This is not a good time to buy them. If you buy one that offers you 1% real return, you will get that if you hold to maturity. They’re long duration so are very volatile. Current rates are 1% and should be 2%.

Barbell Strategy. Splitting a fixed income portfolio between 3 month T-Bills and long dated corporate strip bonds. Likes this approach as you have half your money safe in 3 month bills. Wouldn’t choose a long term corporate strip because so many things can happen to a corporation over the long term. You could use long-term provincial strips instead.

Bonds for a deflationary environment? Answer is long-term government bonds. Corporates could find it difficult for them to pay their interest as they are chasing downward spiral in prices. We are a long way from a deflationary environment.

(A Top Pick June 7/10. Up 2.25%.) US Treasuries 30 year 4.375% 5/15/40 and to exit the position in 3 months. Sold these last fall at $112.82. His return would have been close to 10%.

(A Top Pick June 7/10. Up 10.2%.) Brookfield Renewable Power 6.132% bond 11/30/16. Likes this credit and what it is doing.

Canadian bank preferred shares for retirement? The new Basel capital treatment rules are going to change the landscape for preferred shares. Also preferreds that have been issued in the last 3 years have been the reset preferreds are coming due in 2 years for resetting.

Floating rate corporate bonds? Work well in a period of rising interest rates. He expects the Bank of Canada will be raising rates in the next 6 to 12 months by a full 1%. Also available through ETFs.

10-20 year strip bonds at 4.6%? He likes strips. Make sure your basic portfolio consists of other things as well. Strips are ideal for retirement vehicles and RIFs as well. Inflation is the enemy of every bond, so diversify. Wouldn’t recommend having everything in 10-20 year strips.

24-Year Ontario Bonds @4.6%? This is the time in the cycle when it is very dangerous. People are all looking for yield. The most yield is in the longest-term securities. Your principal is at risk.

Natural Gas. Bullish on this commodity. As oil prices continue to run up, there will be more conversion of electricity coming out of natural gas. Prices are cheap. If you can find companies that are paying good dividends and have good cash flow, they will survive through this trough.