Growth Portfolio January 15, 2008:

Equity markets globally have been extremely volatile so far this year, there is growing uncertainty regarding the credit markets and the economy which has resulted in a reluctance to buy. The US housing market continues to slow as buyers are not willing to step up in a declining market with foreclosure rates moving higher.

This could be a long drawn out economic slowdown as the excesses of the past 6 years are wrung out of the economy. The super heated real estate market has an enormous amount of inventory to work off before prices are going to stabilize, this is not going to support consumer spending over the next 12 to 18 months. The real estate market has a much broader and deeper impact on consumers than the equity market and as prices fall consumers feel poorer and will slow spending as a result.

The major banks and financial institutions in North America are going to be reluctant to aggressively lend over the next year or so, risk has become a dirty word in the lending business so a lot of financial institutions will be avoiding risk in all forms going forward. The massive write offs of subprime mortgages and collateralized debt obligations are far from over, there are still billions of bad loans and CDO’s outstanding. As credit continues to dry up the economy will slow faster than expected causing a more severe and longer lasting recession.

The result of this economic climate is a bear market in equities which really began in August and is just picking up steam now. This bear market could be a lot like the bear of 2001 when the S&P lost half its value over an 18 month period and the NASDAQ declined over 60% from its high. The Federal Reserve is way behind in reacting to the economy, but it has had to deal with the concerns expressed by many pundits, participants and politicians that to reduce rates at the beginning of the credit crunch would bail out all of the high risk lenders and reward them for ignoring risk. Now many of those same people are trying to get the Federal Reserve and the Government to bail out the economy and stop a recession, go figure. I will not be betting that the Government or the Fed can keep the economy from slowing and the inevitable recession from happening.

The bear market has begun and over the next year or so investors will have to stay focused on the idea that the markets will keep going down until they stop. The process will be volatile and stressful and ultimately expensive unless you prepare your portfolio for the bear.

On any rallies in the market lighten up do not try to buy the dips this will be a very expensive and ultimately futile attempt to catch the proverbial falling sword. This is definitely not the time to average down either, it is never a good idea to average down, the market is telling you you are wrong and you should listen. This market is going to go down a lot further than you think, so save you capital until there is a clear change in direction then you can start to rebuild a portfolio. The reality is that most times a bear market also causes a change in the leadership sectors so what has been the best sectors over the past 4-5 years may not and most likely will not be the leaders over the next 4-5 years.

So what does this all mean for investors over the next year, batten down the hatches over the next 12 months keep the phrase “return of Capital” in the forefront of your investment strategy rather than concentrating on your “return on capital”. It is always a challenge to achieve positive returns but in long bear market it is very difficult, so focus on maintaining your capital so that you are ready when the bull market returns. 

In this bear market it seems that financial stocks are likely going to be the leaders on the downside as write offs mount and uncertainty grows regarding the ultimate size of the global credit problems.

The base metal markets are likely to remain elevated but the surging prices we have seen over the past four years is not likely to be repeated over the next four, it will become a stock pickers sector rather than the broad moves we have been seeing, investors will have to be much more selective going forward.

The energy markets are likely to remain buoyant as the global demand continues to expand while supply stagnates. Energy companies focused on the tar sands such as Suncor (SU-T) should trade at a premium to other companies over the long term due to the huge reserves they control.

The agricultural sector should continue to perform going forward as US politicians continue to push for increased ethanol production and Asia continues to add millions of middle class families, companies such as Agrium (AGU-T), Potash (POT-T) and Deere (DE-N) are very well positioned to benefit from this long term trend.

Investors may want to increase their exposure to gold over the short term as a possible hedge against political and economic turmoil going forward, other than that I would be very carful and conservative for 2008 getting ready for 2009.

Growth Portfolio as at January 15, 2008:

Original cost as at April 15, 2004

Company Profiles:

Cameco (CCO):

Cameco is the worlds lowest cost producer of uranium and supplies approximately 20% of the world’s production. The company has total proven and probable reserves of 550 million pounds of uranium. The company operates three mines in Northern Saskatchewan, McArthur River, Key Lake, and Rabbit Lake along with two properties in the US, Smith Ranch-Highland in Wyoming and Crow Butte in Nebraska. Cameco also owns 31.6% of Bruce Power which is a joint venture with TransCanada Corp and BPC Generation Infrastructure Trust. Bruce Power has leased eight Candu reactors located in Ontario, six of which are operational; the six reactors can produce 4,700megawatts of electricity enough to supply approximately 20% of the provinces power requirements. The company recently split the shares 3:1 and increased the annual dividend by 20% to a post split $0.24 per share.

Target Price: $60.00

HudBay Minerals (HBM):

HudBay is a Canadian zinc and copper producer. HudBay is the third largest producer of both zinc and copper in Canada and is the third largest producer of zinc oxide in North America. The company has the annual capacity to produce 115,000 tonnes of zinc, 100,000 tonnes of copper, 100,000 of gold, 1.4 million ounces of silver and 45,000 tonnes of zinc oxide.

Target Price: $25.00

Teck Cominco (TCK.B):

Teck is the largest zinc producer in the world and the third largest refined zinc producer. At facilities at the Red Dog mine in Alaska and the Trail metallurgical complex in BC. Besides zinc the company produces copper at its 64% owned Highland Valley Copper mine in BC and the Antamina copper-zinc mine in Peru, gold at the 50% owned Williams and David Bell mines in Ontario, and coal through its 41% interest in the Elk Valley Coal Partnership which is the worlds second largest producer of metallurgical coal. This diversified company has exposure to most of the metals that are increasingly in demand globally. 

Target Price: $55.00

Canadian Western Bank (CWB):

CWB is a schedule 1 bank operating with 31 retail branches in BC, Alberta and Saskatchewan. The bank operates an insurance subsidiary and offers commercial lending services and trust services as well. The region in which CWB operates is the growth region of Canada and this offers the bank an excellent opportunity for growth. Target Price: $35.00

CN Rail (CNR):

Canadian National Railway Company is a leading North American railway, after acquiring Illinois Central in 1999 and Great Lakes Transportation in 2004 along with the partnership agreement with BC Rail in 2004. The company has 19,560 miles of track in Canada and the US operating from coast to coast and down to the Gulf of Mexico serving the ports of Vancouver, Prince Rupert, Montreal, Halifax, New Orleans and Mobile Alabama.

CN transports a variety of products including petroleum, chemicals, grain, fertilizers, coal, metals, forest products and autos. The company generates revenue from the US (56%), Canada (25%) and international traffic (19%).

Target Price: $63.00

EnCana Corp (ECA):

ECA is one of the largest independent oil & gas companies in the world. Focusing on natural gas production from properties located in Western Canada and the US Rockies region. ECA has the largest land holding of any gas company in North America. Low natural gas prices have created a buying opportunity for investors. Target Price: $75.00

Suncor (SU): Suncor Energy Inc. is an integrated oil & gas company with operation focused in the Alberta oil sands, one of the world’s largest petroleum reserves, which represents 85% of current production.

The company has operations concentrated in the oil sands areas near Fort McMurray, Alberta, mining bitumen and upgrading it into refinery feedstock and diesel fuel. Natural gas is produced in Western Canada and managed from Calgary, Alberta most of the natural gas is produced for internal use in the recovery process in the oil sands operations. The company operates a refinery in Sarnia, Ontario and products are marketed in Ontario, Quebec and northeastern United States. Suncor operates 500 service stations in Ontario and recently acquired 43 Phillips 66 service stations along with a refinery in Denver Colorado.

The company has huge potential reserves the oil sands estimated at 10 billion barrels of oil. This positions Suncor as a long term supplier of petroleum products. Target price: $115.00

Gold Corp (G): Gold Corp is one of the world largest gold producers and one of the lowest cost producers as well. The company recently acquired mid tier producer Glamis Gold which increased reserves and production. The acquisition also diversified the company geographically as well. Target Price: $40.00

Kinross Gold (K):

A Canadian gold producer with 11 mines operating in The US, Canada, South America, Africa and Russia which produce 1.6 million ounces of gold annually. The company is a now one of the ten largest gold producers in the world. Kinross is a low cost producer of gold with a cash cost of production of only $265.00 an ounce. The company is well managed and well positioned to take advantage of the current high price of gold. Target price: $25.00

Agrium Inc. (AGU):

One of the largest fertilizer manufacturers in the world, Agrium is currently the largest agricultural retailer in the US offering farmers seed, fertilizers, pesticides and herbicides. The company sells a combined 8 million tons of nitrogen, potash and phosphates globally, most of that in the Americas. Target Price: $80.00