Equity Strategy March 17, 2006 :

The TSX composite index reached a new all time high of 12,123.85 and closed the week at just over 12,000. The consolidation range between 11,300 and 12,000 will likely take a few more weeks to complete. The underlying strength in the fundamentals in many industries should continue to push the TSX higher over the summer and into the early fall, after that it will depend on the pace of economic growth in the US .

The commodity markets have started to move higher after the slide in early February. The seasonal set back that has taken place over the past three years appears to have run its course for this year. The price of crude oil, copper, nickel and zinc are all showing signs of movement higher.

The Canadian market has been driven by higher commodity prices and it would appear that for 2006 it will likely be pushed higher by the same factors as last year and the year before.

Canadian investors should continue to focus on the commodity producers such as Inco (N), Cameco (CCO), Teck Cominco (TEK.SV.B), Aur Resources (AUR), Suncor (SU), Shell Canada (SHC) and other similar companies. The leaders will be in these sectors and those companies that supply them.

Strong global demand has been and is still the diving force for higher prices, this demand has the potential to maintain the current pace for a number of quarters into the future.

Remain focused on Canadian companies and the changes taking place in Asia which will be the main investment story for this year and likely next as well.

The story in the US is not nearly as positive as that of Canada , the US economy is losing out to competitors from many regions. The auto industry which has had a huge impact on the US economy over the past 50 years is losing out to more efficient and innovative producers in Asia . The leadership in this industry seems to have moved permanently out of the US .

The recent announcement from General Motors (GM-N) that they will have to delay their financial reporting and that the loss for 2005 will be a least $2 billion more than initially reported is one more indication that this industry is in real trouble.

GM has been forced to restate their earning for 2000-2004 due to errors at their mortgage subsidiary, this is indicative of a company that is trying anything to show improvement and then is caught using very aggressive accounting procedures which only postpone the pain.

Unfortunately for GM the only subsidiary that has been showing a profit now has to restate their financials and if there is a dramatic change in the bottom line GM will be in a serious situation. The main concern at the moment is that the only way GM can get back on track will be to go through bankruptcy reorganization. If this proves to be true all of the major auto makers will be under stress and the potential fall out from them will be a huge blow for the US economy.

If you think Enron and Worldcom were disruptive to the US economy then hold on, the impact of a GM bankruptcy will have dramatically more impact and it will be very widely felt. This could be the signal of the end of the bull market in the US . Investors should avoid the US market entirely until the situation in the auto industry clear up.