Asset Allocation April 15, 2008:

The current Asset Allocation is quite conservative with only a 20% exposure to equities, 50% in bonds, 30% in cash and will remain that way until there is more clarity regarding the depth and breadth of the current credit crisis.

The equity portion should remain allocated 30% Canada, 30% Asia, 20% Latin America, 10% Japan, 5% US and 5% Europe. Equity sectors to avoid include financials, home builders, consumer durables, autos, travel and tourism.  Sectors that have positive potential are gold, agricultural products and equipment, base metals, alternative energy and energy.

The bond portfolio should hold only government issued bonds with 30% 1-3 years, 30% 4-7 years and 40% 20 years plus, in anticipation of lower rates going forward.

The bank of Canada is expected to lower interest rates by 50 basis points on the 22nd in reaction to the lower than forecast growth in the US economy which will lead to lower growth in eastern Canada. The provinces of Ontario and Quebec are very dependent on US economic activity for their own growth. The export sector in these two provinces is a major driver of the economy and this sector has been under severe pressure over the pass couple of years as the strengthening Canadian dollar has reduced the economic advantage Canadian manufacturers have had over the past decade or so. Canada has really become a tale of two economies, with growth stagnating in central Canada and growth continuing to remain strong in the western provinces due to the strong global commodity markets.

The western provinces are going to experience dramatically higher inflation over the next few years as the Bank of Canada continues to add fuel to the economy in the form of inexpensive money in an effort to stave off a severe recession in Ontario and Quebec. The western economies run a very high risk of becoming over heated similar to the recent US experience, the cost of the over heating will be much higher over the long term than the short term costs of having a slowing economy in central Canada.

The US economy is still only at the beginning of a recession and it will likely be next year before the US starts to rebound. There are very few interesting sectors in the US, the technology sector appears to have some support over the short term and the energy sector remains the most robust as crude oil moves higher. The increase in energy and food prices will have a dramatic impact on the US consumer who is still trying to dig out from under a huge debt load. The US economy will not have much to look forward to until the excess from the housing boom has been worked off which will take years to complete.