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

US Currency. Outlook for the US$ over a very long term (50 years?) isn’t great. 10 years ago the US accounted for almost 2/5 of global GDP but is now down to 1/3. More countries, such as China, India and Brazil are gaining. However over the next year or two the outlook is not too bad. When the Fed raises interest rates, it will support the $.

Airlines. One of the worst businesses. Every time things go well, oil prices go through the roof and they have to deal with jet fuel costs. A lot of fixed costs such as unionized costs. You have to Buy when they are either close to bankruptcy or close to coming out of a recession. He avoids this sector.

Middle East. These countries need the revenues, such as tourism. Getting a decision on how governments will go on, on a going forward basis, needs to be done fairly quickly. The problem is that 50% of the population in these countries is under 25 years of age and most are unemployed. This is what caused them to go to the streets. Governments were subsidizing the staples such as food and energy. Once they removed the subsidies or raised prices, you had cost pressures at the same time as a very bleak job picture. Thinks there will be a positive resolution and there will be a job market again. There has been no problem in the area where oil is being produced.

Today, problems in Libya were an excuse to sell off. Investors took some money off the table – it was the fear trade. Oil price is starting to get to the point where it restricts growth. The middle east and north African problems do not impact his investing strategy. A possible outcome is simply the spread of democracy in the middle east. It could be as big as the Berlin wall coming down. Economy continues to improve. Sees money moving away from the developed markets. We are seeing a little of a slowdown in the economy but it is just bumping along its bottom. Sees growth in technology. Looks at companies that export to developing economies.

Has to dig a little deeper in the current market to find value stocks. Gold, Real Estate and Commodities have all moved and he thinks it’s finally time for common stocks. Expecting this rally will continue in a saw tooth like fashion. Depending on what news comes out, Corporate, Political or Economic; there will be sell offs, which will look like a big decline. Finds that a lot of stocks are not terribly expensive but you have to look at individual companies piece by piece.

Canadian Banks. Doesn’t own them as they are Value plays, not Deep Value plays. Trading at 2.5X book. Prefers other non-bank financials. However, there is a lot of cash sitting on the sidelines and, as a consequence, they are a “go to” destination for a lot of cash.

Devaluation of currencies will affect on precious metals, commodities and the world around us. The spread today is about the US$. Over the next 2 years he will price in the reality of what the US$ is really worth. Investors can benefit from figuring out where it is going and how to position themselves.

Industrials. He is 10% underweight. Industrials are very expensive. Would shy away from that group and look to energy and health care (in the US). In Canada he would look at technology (RIM) and the gold stocks.

Suggestions for dividend stocks? Cdn bank shares still look attractive long term. Expecting dividend growth and there will be increases some time this year. Also some of the telecom stocks, such as Manitoba Tel (MBT-T) still look reasonable. Bonavista (BNP-T) is an oil/gas stock that has a very nice distribution.

Strategy has not changed much at all since the 2007 crash. Dividends have always played a roll. They have been tremendous performers since then. We are in the phase of the market where people are afraid of missing the rally. It can be the most exciting, but people focus less and less on risk. Valuations are getting pushed a little bit. Inflation pressures are more of a problem in emerging markets. Now inflation is starting to creep back into North America. He has mostly been trimming around the edges and getting rid of things. It’s time to be careful and cautious.

GOLD: His sense is that there is a huge amount of demand for gold. China allows citizens to purchase it now. India has always been huge purchases of it. The way he looks at it, if you can own a large company that gets it out of the ground at $450, it is a good business.

Oil. Likes the energy complex. We have gotten used to $90 and $100 but the next $100 is going to be a lot more difficult to swallow. Could result in demand destruction.