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

(Top Pick Oct 6/09, Up 14.30%) Gov’t of Canada 5.75% 2033 Bond

Every week has volatility. We have discounted potash. QE2 is pretty well priced in. Money velocity is dropping. This is one of the ingredients of deflation. He is neutral between bonds and stocks.

QE expectations were a big reason for the run up in the markets. Doesn’t think the Fed even wants to do QE but they are boxed in. There might be a little bit of a sell off on the announcement. Usually after the election it is a great time to be in the market, but this time might be a little different. He is expecting a strong 6 months, though. Doesn’t see a big correction at this time. The markets are too strong. He is 95% in cash in his HAC fund – since May. His finger is on the trigger.

Shorting: in his book he has included a few strategies. He shorts using ETFs.

Currencies: US$ has a weak December because countries repatriate their currencies. Then US$ has a strong January.

Natural gas. Expects it will continue to stay cold. There has not been the massive conversion from other fuels.

(A Top Pick Oct 30/09. Up 11%.) US treasury 3.625% maturing August 15/19. There were more deflationary pressures than most people thought with a good chance that longer-term yields would fall, which happened. Now starting to see a spreading recovery. (See Top Picks.)

Top Short US treasury 2.625% maturing August 15/20. (See Past Picks.) 1) Rates have gone too far down and shouldn't be this low. 2) There is a recovery coming, which will cause some demand in credit to pick up. QE1 and QE2 is pushing on a string. Pumping money into the system but no one is borrowing it.

Government of Canada 4% maturing June 1/41. This has given a good ride and you should take your profits.

Foreign debt? He is a “stay at home” guy with fixed income securities. He would recommend you keep your money in Cdn$ bonds as foreign bonds are too risky.

Real return bonds (RRBs) as a long-term investment? Interest and principal payments are both indexed to CPI. If you buy one today with a yield of 1.15% and you hold it to maturity you will get 1.15% after inflation. If you want to sell in 2 years and yields have risen to 3% you will love lost a lot of money.

Cdn Bank Tier 1 bonds and the Call feature? When Basil 111 comes into being, high yielding capital trust securities issued by the banks, 10% a year will not be allowed after 2013 so will be phased out by 2023. Could be called at par. He would be nervous and would look to see what the bid is. He doesn't have an answer.

TD Real Return Bond Fund? Expensive fund because it charges a higher management expense ratio than if you bought the ETF that iShares has (XRB-T). Has had a great track record because real yields have been falling and bond prices have been rising but there is no guarantee this will continue. You pay more in fees than if you buy an ETF or your own individual RRB.

Ten-year bond ladders. He is a staunch advocate of maintaining the discipline of laddering because you don't know what rates are going to be in the future. You always have a 10th of your money maturing every year and that protects you from inflation as well as credit risk diversification.

Brookfield Renewable Power Bond. 2018 @ 5.25% or 2020 @ 5.14%? Likes Brookfield as an equity investment and their bonds. He would buy the shorter term Bond, 2018.