Inflation. Bank of Canada has told us it has an explicit target of 2% inflation. That 2% inflation, using the old rule of 72, in 36 years your purchasing power is cut in half. Since the Federal Reserve has formed in 1913, inflation has averaged 3.2%. You cut the life of your capital down to 20 years at that rate. A typical individual who retires at 65 today is going to have between 18 and 20 years in retirement. With just that simple 2% number, you need your income to increase by roughly 40% over your retirement in order to maintain your standard of living. To offset this inflation, is to hold dividend paying stocks with reasonable coverage ratios with businesses that have the ability to pass on input cost pressures. He typically looks for businesses that are in rather controlled supply situations, producing goods and services that the broad population typically uses on a day to day basis.

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US REITs? He has been increasing his exposure to US REITs consistently, over the past 3 years. Good cases are high quality assets, well tenanted, good locations, good balance sheets, low payout ratios and a very low cost of capital.

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Producer of legumes and lentils. Quite active in export markets. Stock had a nasty turn down in November, tried to recover, but is weakening again. There is somebody selling. When you see a chart like this one has, every time the stock lifts, someone is feeding the market. Until that rectifies itself, he would not be buying.

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With this and most of the REITs, there has been a slide over the last month or so. There is no specific news around this company that would suggest a material reason for the slide. It could be that REITs have been in a 3.5 year bull market and people were taking profits.

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Most of these types of stocks in the context of today’s natural gas prices and western Canadian oil prices, are distributing more than they should. In his view, the dividend is too high and will likely be right sized to reflect the current reality of a $20 spread under WTI and a discounted AACO (?) relative to NYMX on natural gas.

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Extremely well run. With US gas production, pretty well hitting record levels, we are seeing western gas backed out. Focus on liquids production is now playing into this company’s hands in that they are a processor of liquids associated with gas production. Longer-term, this company will benefit from capacity in the liquids rich shale plays that are targeted to possibly go to export markets, other than the US.

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(A Top Pick Sept 7/11. Up 7.02%.) Feels it is being overlooked because it was so well owned 12 years ago that there is still residual distribution pressure on it as fund managers get redemptions. 11% earnings yield and 3.5% dividend yield and no net debt.

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(A Top Pick Sept 7/11. Down 4.24%.) Do a lot of metallurgical and thermal coal shipping. 3^rd quarter numbers, thermal volumes were down sharply as natural gas is displacing thermal coal in electrical generation. The rest of the business is doing fine. He is still picking it up on weak prices.

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