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

Gold. Gold price has moved and moved but the stocks have lagged. Historically gold stocks have snapped catching up to the price of gold. Gold stocks have been getting cheaper and cheaper. If you own, stay with them. (See Top Picks.)

Market. Was amazed when it went through 14,000 so easily. Now it’s backtracking and building and volume is down. Thinks we are in for a rest period as it will have to build a base. Also people are waiting to see what happens politically both in Canada and the US. Now there will be a sorting out period to see who is real and who isn’t. Some good 1st quarter results will help stabilize the market. Could be a sideways market for the next 3 or 4 months. Doesn’t see growth slowing that much in Canada.

Rails. A little nervous about both Canadian National (CNR-T) and Canadian Pacific (CP-T) as he is uncertain how the economies are going to be growing. Of the 2 he would be a bigger fan of CNR because of their US position where he can see a bigger recovery but is still nervous for the next year as he is not sure of the growth of the economies.

China. Has been growing at 10.5% a year and believes this is going to fall back down to 7%-8% range and will have significant impact on Chinese demands for materials. 50% of demand for copper is going to China today. 100% of this demand in the last 6 months has been for inventory building and financial purposes and speculation. Inventory buildup and speculation is because banks have stopped lending to medium and small size businesses. Indications that speculation is stopping which could create real global reverberations.

Oil. Tunisia had very little production so it’s not an issue but Libya was producing about 1.8 million and exporting about 1.6 million barrels of light crude. Europe refineries were configured to handle that light crude. Losing that required Saudi and others to create product that would be applicable to those refineries. Given the shortage people were prepared to pay a premium. What’s next? Yemen and Syria each export a couple hundred thousand barrels a day. What happens if something happens to Saudi and that’s what the market is starting to price in. If it all settles down, we’ll be back to the $70-$80 oil but it will take a long time.

Natural Gas. Bullish. In Oct/Nov at $3.20 of the NYMX contract he felt it was way under the value that was needed economically. Since then he has seen the US production is beginning to slow down. Seeing conventional going down and shale production, that was ramped up massively in 2010, is beginning to peak. When we get into the air conditioning season, he thinks the price moves up.

Market is not as bad as last year when a shoe would fall and it would drop a thousand points in one day. Seems to be confined to 400 or 500 points, but it is still a very skittish market. Cdn Market trades a little bit more than it should on the price of oil.

Oil. Volatility has been insane. He tries to look at the medium and long term fundamentals. Feels oil fundamentals support a $95 to $100 band. Going to experience record high demand of 89 million barrels a day, the highest in human history. This resulted in an erosion of OPEC’s capacity, which was 5.7 million last year. Libya’s oil production has come off line, which has resulted in a further erosion of 1.3 million leaving them at 3.5 million barrels. Not only is there now a political risk placed on the price of oil, but strong demand is also there.

Natural gas. Fundamentals are very simple to analyze. More rigs drilling than there needs to be to balance supply and demand. Current number is 890 and only 800 are needed to balance the level off. Supply is up 5% in an already over supplied market. Ability to switch between coal and natural gas has been propping up the price currently.

2 recent significant developments, especially in small/mid-cap space in energy. 1) Had our 1st takeover in the space in quite some time when Spartan Exploration was acquired by Pembina (PPL-T). There was a cash component and they also spun off some assets, which existing Spartan team will still manage. Expect this will be a model in future. 2) Advantage (AAV-T) spun off some assets and many companies are watching to see how successful it is.

Top Short Short 10-year Gov’t of Canada Bonds. (Canada and US Bonds move in lockstep with each other.) Likes this short because of 1) inflation, 2) currency devaluation, 3) fiscal stimulus and 4) potential for a sovereign debt crisis. US government has embarked on a policy of inflating their economy and devaluing their currency as a way of getting out of their debt problems.

Buy Cdn$ versus US $. US government plan is to inflate the economy and devalue the US$. Put this trade on when the Cdn$ drops to $1.01.5 or $1.02 area. Believes the Cdn$ will stay between $1 and $1.12 over the next 18 months.

A Pairs Trade by going Long Shaw Communication 6.75% bond due Sept/11/39 and Shorting the Equal Term Cdn Gov’t bond. Likes the cable and telecom sector.

(A Top Pick Dec 13/10. Up 5.34%.) Buy Cdn$ versus US$.

Sell off a bond mutual fund? Bond mutual funds are Long only bond funds, which prevent the bond mutual fund manager from having the ability to protect the fund against rising interest rates. He expects interest rates are going to rise. You would be better in a long/short fixed income fund.