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

Economy: Believes we are going to have a recession in the 4th quarter, 1st quarter and possibly into the 2nd quarter. The stimulus that has been pumped into the system is designed to kindle the economy. Eventually the banks have to start lending.

Banks’ Preferred Shares: Dividends are safe. He prefers common stocks because the dividend increases. Could take a good 18 to 24 months for a return to the normal credit relationship and a move up to normal pricing for banks’ preferreds.

Gold: One of the problems he has is that we have just gone through one of the biggest disasters financially and gold has dropped. Short-term it could fall further but longer term it has the dynamics to go higher.

GE Bonds 5.73% due Oct 22 of 2037. GE has an AAA credit. Their commercial paper is going to be guaranteed.

Oil: Now that it has been through the floor of $70, it will probably overshoot on the downside. Very bullish on oil. North Sea, Mexico and Indonesia are all coming off in the next year so there is still a struggle for supply. Average development costs globally is about $70 but if you throw in oil sands it could be $90-$100 to give a reasonable 10% return. Production is now being curtailed and puts a premium on to the existing producers may team them even more desirable. Looking for $100 plus in the latter half of 2009 and into 2010.

Resources: You want to pick companies that have a strong asset base and strong balance sheet and the ability to grow without external sources of capital. You then want to pick away at them at an opportunistic basis.

Chart indicates support level now on the TSX Composite and S&P 500 indexes. Market has gone through a capitulation, which gives a very important Low. Was indicated on October 10 with Vicks spiking above 35% with very high volume. Highest volume on record for the S&P 500 and NASDAQ. Should now start recovering from here. On average the S&P 500 has gained 18.6% over the next 63 trading days after capitulation.

Not willing to call the bottom. His view is that the bad news is not over. Nobody knows for sure. If you need the money in the next year or two, don’t invest it, otherwise pick up relative bargains in the next two months. Take little bits of positions in companies as prices are falling. INCOME TRUSTS: This environment hurts the business and energy trusts. He feels it is an over reaction. But even with distribution cuts you are going to get some generous income.CRUDE: If we do get down to $50, it’s not just the energy trusts that will be cutting down programs. You want to stick with the seniors with relatively good balance sheets.

BANK DIVIDENDS: Senior banks would be loath to cut their dividends. Dividend cuts would be a lagging indicator.

We are going to see violent swings either way as people react to news. US Consumer savings rate hit 3%, which is a good trend (Europeans are 10%). The bad economic news you see is what is in the rear view mirror. Thinks it is foolish to pay a 20% premium to get a US stock so there aren’t any in tonight’s Top Picks.

INCOME TRUSTS: When looking at income trusts, you look at the date at which taxes will have to be paid and if distributions will have to be cut.

If there was ever a market in which discipline was important, it was this one. You need a strategy that allows your portfolio to morph as conditions change. When you use stops you can’t just jump right back in willy-nilly. Recently you were better to wait it out on the sidelines.

THIS IS THE BOTTOM: He is beginning to put money to work. He has 53 years of data that he goes back over on the quantitative risk side. In the middle of the depression, markets turned with striking similarities. The market will start to sort the good from the bad. There will be real disparity about what will perform. SELLING vs. HOLDING TO AVOID TAX. When you have a business decision vs. as tax decision, you take the business decision. Try to take volatility out whenever possible.

There’s so much uncertainty. The real challenge is to restore confidence. You are seeing hedge fund liquidation and other things that are exacerbating the volatility. US FINANCIALS: In a slowing economy they are going to be looking at the consumer credit side. They are not finished with the sub-prime mortgage problem.

CANADIAN $: We are considered a commodity currency. A lot of money is moving into US on a fear trade. Hedge funds are bringing money back home and that is creating a demand. Longer term there will be downward pressure on the US dollar. It will be volatile in the short term. Be patient. CURRENCY DIVERSIFICATION: If you held US assets over the last 3 months you have done well. Not much difference if you buy Euros or US$ to diversify.