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

Markets. The stimulus announcement today was a real surprise. It’s not a huge program, though. There are at least two countries in Europe with bonds having negative yields. You are going to see rate hikes happening over the next 6 to 12 months. This is priced into the market. The long bonds have been outperforming.

ETF? A lot of the European rally has finished. You have to worry about the Euro’s value as it can wipe out your returns. You need currency hedging, but he is not aware of a European Bond ETF that is currency hedged.

Preferred Shares or Bonds? Prefers preferred shares. Five year rate reset are best.

Preferred perpetuals. Fixed dividend rate that never matures, but company can call it. There are very wide credit spreads.

Ville de Quebec. 2.3% bond due Dec 4/18. (Top Pick Nov 22/13, Up 3.5%) It was a short term play.

Time to buy Convertibles? The US market is very different than the Canadian one. In the US they can have 0 coupons and it is just about the option to convert. They can sell off quickly. In Canada one of them is a Top Pick today.

The Big 5 Bank Preferred Shares. Ratings have recently been reduced. The new rules allow shares to count as Tier 1 capital if you have the ability to lose all if the bank goes belly up. The banks have not changed, but the structure of the share has.

Bond Ladder. You should go out 10 years. Longer term yields are higher. Equal weighting per year and 50/50 government / corporate.

Markets. Canada has been hitting all-time highs. We haven’t seen a correction yet and he is still looking for one. He would view a 5%-7% correction as positive for the market. Likes the supply/demand fundamentals for global energy. With the change in technology, such as horizontal drilling and fracing, the companies are able to go explore existing fields that were mature before and find new stuff, which is great. He builds a portfolio based on a 3% inflation rate and tries to get a yield of about 3% and growing, so looks for companies that consistently increase their dividend year in and year out. Currently holds 29 names.

A DRIP program, especially if they entice you with a 5% discount? Typically he won’t do a DRIP in a portfolio, but they make a lot of sense in his own personal portfolio. If you don’t need the income and you like the company, you may as well reinvest in the company. If you can get a discount, that is even better.

Interest rates. If they rise, is it better to buy financials rather than capital intensive dividend stocks? If rates go up quickly, the whole market will get hit temporarily, like we saw happen in 2013. If they go up in a gradual fashion, that is good for financials, both banks and insurance companies.

TSX Venture. This still has room to run. It is up about 25% over the last year since February 2015, and earnings estimates keep rising. The last estimate is for $1,058 for 2015. The strong US economy is helping the Canadian economy turn around. The weak Cdn$ is helping on the export side. Resource sector is getting paid in US$ meaning the top line is growing as the Cdn$ is weakening. Financial sector is pretty solid as well. He would recommend looking for sustainable and growing dividends within companies.

Gold. There are 2 catalysts for gold. Either a crisis or inflation. As we saw, the Russian and Middle East situations did not move gold very much. Inflation was going up at the beginning of the year, but is now going away. Right now we are range bound other than the seasonal rally somewhat linked to the Indian wedding season. Wouldn’t be surprised if gold tested lower over the next couple of months, maybe the $1200 level. Lower prices may force gold companies to be more efficient and cut costs a bit further. (See Top Picks.)

Markets. The reality is that equity markets are still predicated on what central bankers globally are doing. So far so good. There was a bit of a correction in August and looking a little dicey with geopolitical tensions in Iraq and Ukraine. However, the market came right back and continued low interest rates in the US and ECB will still be in place. Seasonally September and October are the weaker months. It doesn’t happen every year, but given how strong August was in both the US and Canada, he would not be surprised to see a little bit of correction. After that he expects we will have a good finish to the year.

China. Seeing stabilization, but a lot of that is brought about by government minimal stimulus. However, this does not get them fundamentally out of the slow growth period, so you will see some relapse. Growth will still be relatively steady, rather than accelerated.