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

If economy does well and central bank raises rates, shouldn’t it be positive for corporate bonds?: No. 3 things impact corporate bond yield: Inflation, real interest rate, and credit spread. But if economy does well, interest rates should rise it is pretty negative for all bonds. Any rise in rates is not going to be good for corporate bonds.

RRSP Portfolio of 30-year Canadian corporate bonds yielding 6.25%: Long bonds are a very important part of a life insurance company’s portfolio. 6.25% beats equity portfolios over the last 30 years. The portfolio value might take a hit at some point but then you get it all back at maturity.

GICs: Are in fact the fixed income market. It is just a matter of percentages. He suggests moving to a Bond ETF as a first step.

Tier 1 Bonds: rate further down the ladder. With Canadian banks you don’t get too concerned. With European banks we have seen some converted into stock. 10 years and less they will likely get called at their first possible call date but longer out they will probably get called early.

Bond ETFs: If you have the bonds outright you can hold to maturity and get all your interest and capital, but the ETF can go down. ETF is simpler to trade, and bonds outright are good for buy and hold.

Markets: They are very conservative. Capital preservation, beat inflation, and grow assets slowly. Wants good quality equities that have current yield and ability to increase dividends over time. With what’s going on in the middle east and Japan, they are not that active at a time like this. He is trying to find companies that are going to increase their dividends. He is hoping gold stocks will popup, but dividends are low. He likes telecom and cable stocks – they have nothing for a year and half.

Banks: Believes in dividend growth coming from the banks. There was a moratorium on dividend raises through the financial crisis. He sees growth although it will not be the punchy numbers we saw previously because of the new capital requirements from the new regulations.

The Canadian way of investing is spreading around the world. Income or dividends has been a big part of the returns of investing. The Canadian way is to go with growth, payout and stability/growth of dividends. Investors around the world are focusing on dividends more and more. We should focus more in the increase in shares outstanding for companies.

India/Emerging Markets: As a Canadian you cannot invest directly in India, but you can invest in ETFs that invest in Indian stocks. Another way is ADR. You can buy some of the bluest of blue chip Indian stocks to expose to India. India has a higher beta. Money moved out of Emerging Markets in the second half of last year and now he sees it going back into emerging markets.

American: As a global manager this is the first time in 7 years he is going American. Things are starting to things change in a very positive way. Don’t read headlines – look at the fundamentals. US Banks have started to raise their dividends. This is a very good sign that certain structural changes in the US are going to be cery acredive to stocks. Growth/Payout/Sustainability in US is starting to grow and increase. After sub-prime you have seen more US companies become very global.

Markets: Isn’t it great! You want to be buying when the markets are low. You want to wait until you are in this kind of correction before you buy. Look at technical indicators. Stochastic came down and are starting to recover. We got a buy signal two days ago. This is the point in seasonality for the markets to go higher. From here until the first week in may. With these events [political+Japan], then happen and the markets recover quickly. You don’t try to predict them. When first quarter reports come out, they are going to be very good. This is when companies have annual meetings and they like to say they had a great first quarter. They are sitting with a lot of cash on their books and are going to want to reward their shareholders. There will be stock splits, share buy backs, dividend increases – lots of good news. Markets will slowly anticipate this good news. In this year related to US elections, markets extend their usual spring up trend. He will play one month at a time.

Gold or Platinum: Seasonally, normally platinum is stronger until the end of May. Gold during Jan/Feb, then sideways until end of July, then you get in until next Feb. But now Gold is forming a bit of resistance. Nothing serious but it is having difficulties. He loves the up trend in Gold. Historically Gold has trouble at this time of year.

Market: Buy and shorts a stock and tries to achieve a definite rate of return. He can have relatively robust returns even in this market. He plays mergers. Trade around event driven strategy. This market has been challenging because of the volatility. He says to stay diversified and stay on the side of where companies are experiencing positive change rather than negative.

Market: After an 8-month upward move, we are now in a correction but still within a bull market, not a bear market. Certainly when there are things happening in the world there are opportunities. He is looking at cyclical names that have come down more than others. Fertilizer, coal, copper, agri. Selectively choose your names. At the end if the year, the markets will be positive. Thinks Japan will not be a big impact. Is not looking at Japanese companies because they are too close to the core and the North American economy is improving quite well.

It’s a difficult situation with the Japanese Nuke situation. You can’t price what you can’t understand, but the market has to do it. He has had 5 of 40 companies in his small cap take out since October.