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

City of Toronto 4.95% due June 27/18. Canadian municipalities are AA or better in general. Yields are generally more than some of the bank deposit notes.

Canadian Banks: Dodged the credit bullets but will not be able to dodge the real economy bullet, which will have to be dealt with over the next 6 to 9 months. Thinks they are vulnerable but not to a major extent.

Gold: Has seasonality. Moves down in the summer and picks up in the fall. This is a pretty wide view and there are a lot of diverging influences that affect it. ETF levels are extremely high right now. Thinks $850 is its bottom.

Canadian Banks: The banks have done very well. He looks on them as a leading indicator of the economy. Earnings are still a bit challenged because there are a lot of loan losses built into analysts’ estimates for this year and next. Dividend yields are very attractive right now. 15% ROE is forecast for this year. (See Top Picks.)

Copper: this is his favourite commodity because it is the one commodity that China needs. Currently trading at about $2.50 a pound, which is significantly ahead of where the market is expecting. If the Chinese stop building their inventory there will be a material reversal on pricing. Given his outlook on the economy he would be surprised to see Copper fall below $2.

Silver: Has never been a big fan of precious metals but does prefer gold to silver. Silver had a lot of good industrial applications, particularly photography, x-rays and electronics. Digital photography has eliminated a huge amount of the need and a lot of x-rays are now digital.

Redecard. Processes credit cards for Brazilians. $8 billion market cap. 5% dividend. Forward P/E of 13. Estimated growth of 14%.

Natural Gas: Thinks this is the best risk/reward on the market right now.

Gold: Coming into a weak period seasonality wise. Thinks gold will do reasonably well on the back of a weaker US$. More economically sensitive commodities are going to outperform gold so he prefers to own other things.

Uranium: Thinks uranium direction is up, the same as all commodities. Energy needs for the world as a whole and China in particular are increasing.

Alberta is raising $5 billion through a new issue of provincial bonds. This is a province that 3 years ago had absolutely no debt and was hit by falling commodity prices. Very strong province and the bonds will be very well received. They will become very expensive.

Yellow Pages Group Holdings bonds. Rated BBB. They're in a high margin but high leverage business. Their model is to be fairly aggressive in leverage on their balance sheet. Their spread is relatively attractive for the BBB space. Yielding about 7.75%. There is a bit of refinancing risk in the next couple of years. Doesn't particularly care for this name.

Canadian bank bonds. Credit fundamentals of these banks are very sound. Even though there has been a significant rally in these bonds there is still a great opportunity here. Average yield on a 10 year A rated bank bond is still between 6%-7%.

If we have general price stability (deflation), fixed income assets perform very well. To take advantage of the very steep yield curve that is here, find bonds in the 7 to 10 year area of the curve. iUnits Cnd Bond Market ETF (XBB-T), which includes 70% government and 30% corporate with a yield of about 3.5% would be appropriate. If you want to just focus on corporates, the iShares Cnd Corp Bond ETF (XCB-T) has a yield of about 4.5%.

Greater Toronto Airport bonds. Greater Toronto Airport Authority collects landing fees, parking fees and concession fees. Have complete pricing authority. In the defensive sector of the bond market. Recently suffered because of concerns on Air Canada and declines in air traffic.