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

Stock Selection Process: He has 3 criteria and they are very simple. 1) Buy good balance sheets. How much debt, equity and the quality of the equity 2) Fair Market Value – Value of the future earnings. 3) Trends. Historically stocks will fall to old lows and rise to old highs.

Canadian Banks: Slowly and increasingly managed to increase their leverage by getting more stuff off their balance sheets and into investors’ hands so they don't have to use up their own capital to guarantee it. In doing so, their ROE has gone up and up. That trend is now done. Banks now have to take this back but they can't because they don't have the capital.

India and China: India's economy has been growing and is based on technology and service. Stocks have been expensive so he does not own any in India. China's economy has been down this year so he is holding his current stocks.

Decoupling of the Global Market: Thinks the markets are somewhat decoupled. There is quite a difference in performance between the various global markets. Asia right now is highly dependent on what happens in China and their growth is going to be around 9%. If it really slows down it will go down to around 7%.

China: After a 55% decline in China markets, valuations are much better. Chinese economy over the last 15 years has grown between 7% and 15% per year. Doesn't see a major decline and thinks this growth is sustainable. You have to be very selective in the companies you own.

Inflation Hedge: Gold bullion, gold fund or gold stocks? The core of anybody's exposure in gold should be gold bullion. If you are going to get into smaller gold companies, you should be in a fund. Larger gold stocks are somewhat efficient so you should have a balanced portfolio.

Gold/Oil Correlation: Historically an ounce of gold was worth about 15-17 barrels of oil. That has changed with the high price of oil and the holding back of gold. Not terribly concerned about demand destruction of oil and the oil price drops. If oil goes back up there will be more printing of money and people will be going to gold as a refuge. Eventually we will head back to the relationship of 15 to 1.

Gold or Silver: Gold has always been acknowledged as real money while silver is called poor man's gold. In the long run, gold is the safer one to be in because of the huge industrial component to silver. However, he feels silver is more under priced than gold and in 2 to 3 years the percentage gain in silver will be better.

Junior Golds and Base Metal Markets: This sector has been a dreadful experience. There have been a lot of factors contributing to it, not the least of which has been naked shorting issues. Needs a significant breakout to new highs in gold and silver prices over what was there earlier this year. This will start to refocus the interest in the sector. Also need a less attractive environment for other financial assets.

Derivatives: How have these affected the prices of precious metals? One of the ploys being used by the anti-gold cartels is the use of a lot of derivatives. There is $1 trillion in gold derivatives, which is preposterous.

US$ and Gold: Thinks the recent strength in the US$ is more weakness in the euro because of all the news coming out of Europe that is sort of devastating economically while the Americans are really fudging their numbers. All currencies are under pressure. When the real gold bull market gets going it will be against all currencies.

Will gold companies grow through mergers and acquisitions rather than exploration? 75 million ounces of gold is dug annually but they are not finding anywhere close to 25 million on a reserve basis. Life index of the gold is shrinking. This shortage will also support much higher prices.

Small Caps: In a market of risk aversion so anything perceived to be risky is avoided and shunned so they are just throwing stocks out these days. You don't want to buy a company that needs financing. You want one that has cash flow and earnings and has been through a recession before. You can find 40 or 50 names that can triple in a 3-year environment. He can't find any names that are going to do well this year but with a 3-year time horizon, it's free money.

Natural Gas: Thinks $8 to $10 is where we want to be. Likes the sector right now. Not too worried about oversupply.

Silver: Thinks sober has more upside potential than gold. There is not very much physical silver out there. Marginal cost of production is about $10.