Equity Strategy November 10, 2007:

North American equity markets continue to be influenced by the uncertainty in the credit markets and that is not likely to change dramatically over the next few months. The turmoil in the credit market is being felt world wide and the revelations of how much exposure the financial services companies have is surprising everyone. The recent multi-billion dollar write downs by Merrill Lynch and Citigroup have been followed by a series of smaller yet large write downs by other US and Canadian banks, rumor has it that London based Barclay’s Bank will announce a write down of approximately $10 billion due to credit problems in their mortgage backed and Asset backed portfolio. When all of the damage has been fully calculated, this will be the largest financial sector loss in history and will dwarf the Savings and Loan fiasco of the early 1990’s.

Investors should continue to be cautious and hold a larger than normal position in cash. The equity markets are not likely to run away to the upside while all of the damage from subprime and asset backed corporate paper has not been finalized. The financial services sector will be an under performing sector over the next 12 to 18 months at least, so stay away.

The energy sector looks attractive as oil pushes towards $100.00 a barrel and the US based multinational companies such as ExxonMobil and Texaco look attractive as the weak US dollar makes the foreign operations more profitable. Canadian investors can now move in to US investments with the least amount of currency risk in over 30 years.

Gold and precious metal producers continue to look attractive as the price of gold remains on the move higher. It will likely break the $900.00 level in the next few months and appears to be on the way to $1,000.00 an ounce in the next year or so. The gold ETF (GLD) that trades on the New York Stock Exchange is one of the least expansive ways to invest directly in the price of bullion. The Gold Company ETF (XGD) that trades in Toronto is an excellent way to purchase a diversified position in the gold producing and exploration sector.

The US technology sector has been showing some strength and leadership since the subprime problems started to surface in the summer. It is not a broad based move and has tended to be concentrated in the companies that have strong brands and are leaders in their respective sectors. The companies that appear to have strong upside potential are Google (GOOG) which will likely hit $1,000 a share in the next 6-12 months. Apple (AAPL) which is burning up the consumer electronics market selling the ipods and accessories in huge numbers. Hewlett-Packard (HPQ) is continuing to build market share in the computer and printer segments at the expense of previous leader Dell. Intel (INTC) is the largest chip maker in the world and has just announced their next series in innovations which includes a quad core chip and the smallest etchings ever produced at only 45 nanometers (45 billionth of a meter).