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

Banks are holding up Canadian Stock Market single handedly. Their history is somewhat uncertain. He owns 3 banks and that is enough for now. Probably earnings will be better than analysts forecasted. The American economy is not our of the woods yet.

Short 2 year Canadian government bond 1.33%. This is very difficult for a retail investor. Minimum million-dollar transaction.

6 months ago we were in the position where there was inflation fears. There are still huge deflation fears in the world. This recovery is very fragile and lead by government stimulus only. Sweet spot on yield curve is 3-7 year term in corporates where they find value. The out performance trade on corporate bonds is over. Next opportunity is the high yield market. Huge fan of laddering.

STEP-UP BONDS: They are a structured product from the banks where annually or semi-annually, the bank can call them from you or the rate steps up to a higher yield. They are in the bank’s favour and not for the investor. Can be an alternative to the money market funds.

CORPORATE BOND FUNDS: There is no drawback in buying a corporate bond fund. Prospects of yield widening is low. The only reason to not buy one is if you think we are going back into deep recession.

(Top Pick May 08/09, Up 1.5%) Gov’t of Canada 1.25% 06/01/2011.

(Top Pick May 08/09, Up 14%) Bell Canada 5 02/15/17 Bonds.

REAL RETURN BONDS: Apposed to them because he thought they were expensive, but they have been selling off. They are risky securities. Suggests tracking the spread between these and government bonds to get an idea of the inflation rate.

BOND ETF RISKS: Pay their interest quarterly. There is a reinvestment risk. The yield of the bonds assumes reinvestment of coupons at the same rate.

CORPERATE BONDS WITH MATURITIES OUT TO 2035: He would not buy a corporate bond that long a term. Only buys long-term government bonds. Nothing longer than 5 or 7 years.

MIN INVESTMENT IN CORPORATE BONDS: $10,000 would be the absolute minimum for the minimum commission. If you need to invest less, go for the ETF market. E.g. XTB.

PH&N High Yield Bond Fund: Likes it. It’s really a medium yield fund. Closer to investment grade securities in it. Good money managers.

A lot of people were looking for a strong growth year, but this has been called into question. He has been in the pro-growth camp but is watching the market grind sideways. He is getting ready to change his mind.

We are going to wait a long time for the US to raise rates (9 months to a year). The problem is the economy. 10% unemployment. There is a massive de-leveraging going on in the world. A lot of people with credit card debt are just paying down debt. A long, slow, grinding ride. There is going to be growth because inventories are low. There is a risk we see in China and India. They were building inventory on commodities. Even emerging markets are going to have a tough time.

Preferreds trade on their own dynamic. There are different kinds. When you have a negative market and liquidity dries up a bit, preferreds may under perform.