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

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.

TSX is up over 1000 points, perhaps this is the bottom, but would not put huge amounts of money on it. It’s too early to know if it is the bottom, but it must be close. The volume yesterday in New York was not as high as it was going down.

Key is to watch what happens in the bond market. TED spread narrowed in which suggests some liquidity in the markets, but there’s still along way to go. This is the kind of market where everything looks like it has great value, but they stay disciplined and look at companies with lots of free cash flow, strong balance sheets and leaders in their industry. They have been picking away over the last couple of weeks.

Last week was as close to a capitulation as you are going to get, because there was a big spike in volumes – a final sell-off, big panic by governments to try to solve problems, we were no longer complacent – our finance minister had to admit something was going wrong in the world. He things we had the capitulation last week, but that doesn’t mean things will go straight up. We will trade sideways for a while.

Doesn’t think there is any support level for the market. There is too much fear – it’s irrational and uninformed. We need a 1000-point gain in a day or two before it goes back up. ARE WE GOING TO SEE A DEPRESSION? No. We are diversified enough. There will be regional difficulties. Gold could trade below $700 in next 6 months. There’s a lot of fear. He will be entering the markets over the next three months and has started already.

Market anticipated good news from G7 today. US is now buying equities so are now turning into a hedge fund.

SHORT SELLING: Current problems are not the fault of short sellers. Still viable and still fair. Has a lot of cash on sidelines. Portfolio hit hard. Short selling is a margin type of transaction. Short sellers can make up rumors but so can long buyers. GOLD: Likes gold. There’s a lot of money being printed. Gold could do well, but gold stocks are tricky. Their profit picture has not been good; costs are high, labour shortages. A recession might help them.

Be careful in Bond market because there is not a lot going on. There are some attractive yields. Canadian Banks are the best of breed compared to US banks. There was a mass exitis out of money market funds when a US fund broke the buck. DEFLATION: It is bullish for the bond market initially.

BEAR ETF: Will rise if Bonds fall. Inflation is not such a concern now, but rather deflation.

HIGH YIELD BONDS: Is it time to Buy? No. We are 6-12 months away from having the dust settle.

VANILA Bonds: Bond with no options, not convertible, callable, etc.

SCOTIA BANK CAPITAL TRUST BOND, due 2013, Single ‘A’.

ROYAL BANK 5.45% Due 2013

PROVINCE OF ONTARIO 4.3% 2017