Equity Strategy March 6, 2008:

The commodity markets have been heating up over the past few weeks as the US dollar continues to decline. The US economy is slowing and now there appears to be little doubt that a recession is underway. The financial crisis started by the subprime lending fiasco is having a much broader impact than any one had forecast when things started to turn down last summer.

The US financial markets woes have spread to many other countries and the excesses of the US financial services sector is causing pain globally. The tightening of credit standards and the fear that has gripped the lending community will cause the US economy to go though a much deeper and longer lasting recession than would normally be seen. The Federal Reserve is trying to limit the damage inflicted on the economy by the subprime mortgage problems but is having limited success so far as lenders and investors are holding out for higher returns to off set the increased potential risks. The Fed can lower rates but if the market participants will not follow then their efforts are for naught.

In the mean time the rest of the industrialized world is holding rates level or increasing them due to inflation concerns. The only country to follow the US is Canada which lowered rates by half a percent this week. The new Governor of the Bank of Canada, Mark Carney, is convinced that the slow down in the US economy will have a dramatic and lasting impact on the Canadian economy as well, he does not appear to be concerned that the over heated economies in Alberta and BC will have an impact on the country over all nor does he appear to be concerned about potential inflation as energy and food prices increase.

The commodity sectors in Canada have not looked this good in over a year as the central banks in North America lower borrowing costs and demand for commodities from the rest of the world continues to grow.  The Canadian commodity producers should see strong earnings growth over the next 12 to 18 months.

The energy sector appears to be very well positioned as crude oil continues to surge higher setting new record prices regularly, once the $100.00 per barrel price barrier was broken higher prices will be much easier to obtain and $100.00 may end up being a support level going forward. Companies with exposure to the tars sands such as Suncor (SU-T), Petro Canada (PCA-T) and Canadian Oil Sands Trust (COS.UN-T) appear to be most attractive due to the incredible reserves available in the tar sands.

Natural Gas has been moving higher as demand for cleaner burning electrical power is becoming more pronounced and a colder than normal winter in eastern United States has helped to increase demand on a seasonal level. The long term fundamentals in the gas sector look quite attractive and companies such as EnCana (ECA-T) and Anderson Energy (AXL-T) are attractive for long term investors.