Asset Allocation September 15, 2006 :

The Asset Allocation for September is 55% equity, 25% bonds and 20% cash. The equity allocation remains 55% Canadian, 35% Asian and 10% Latin American.

The commodity markets have been under pressure over the past month as the geopolitical situation settles down. The dramatic premium that had been in to the price of crude oil in anticipation of continued uncertainty in the Middle East has been taken out of the market and has brought prices back to levels not seen since the early spring.

The rest of the commodity sector has taken a breather as well and will likely be much less bullish as concerns regarding the pace of global growth come to the forefront of investor's minds. The US economy is starting to show signs of slowing and that has created uncertainty regarding the pace of global economic growth going forward.

As the uncertainty and confusion plays out it is prudent to hold some cash in reserve. September and October have a history of being weak months and this looks like it will be the case again this year. The coming weakness will create opportunities and patience will be required in order to capitalize on those opportunities as they develop later in the fall.

Canadian Equity:

The Canadian Market has been under a lot of pressure over the past few weeks as the commodity markets correct. The prices of crude oil, natural gas and gold have come under extreme pressure as the world reacts to the reduction of tension in the Middle East .

The Canadian financial services sector has been doing very well and has helped to offset some of the weakness in the commodity sectors. The major Canadian banks all reported better earnings than the year before as a strong Canadian economy helped to dramatically reduce the potential for loan losses. The only concern going forward in this sector is how well those loans will do if the economy slows down. The flat yield curve will make it more difficult for the banks to show strong growth in their traditional lending business as margins get squeezed.

All that being said the Canadian economy appears to be well positioned to remain one of the strongest of the western economies. The equity markets should continue to offer better than average returns over the next 12 - 18 months, although there will be more volatility and lower over all returns than we have become use to over the past year or so.

US Equity:

The US economy is showing signs of slowing this should not be a surprise as the economy has been growing consistently over the past 4 years and is due for a breather. The Federal Reserve has been on a tightening trend for over two years and this is finally having the desired impact on inflation and the economy.

Higher interest rates have reduced demand for homes and the red hot real estate market is rolling over fast. This will reduce the ability of the consumer and also reduce over all confidence resulting in a more severe slow down than many are willing to forecast at the moment.

As the economy slows corporate earnings will decline making the US market unattractive until the Federal Reserve starts to reduce rates later this year or early in 2007.

Investors should avoid the US market until early 2007 when the impact and depth of the slow down is better understood.

European Equity:

The European Central Bank (EBC) has started to increase interest rates due to increased inflation concerns. The growth in the European economy has been fragile and higher rates are likely to knock that growth down quickly.

Consumer confidence has already started to decline and the ECB has only just started to increase rates. The consumer in Europe has been feeling the same pressures as those in North America with higher fuel costs adding to the pain of higher interest costs.

There is likely to be more pain as the unemployment rates increase and create the potential for increased civil unrest similar to that seen last year with riots in Paris . The politicians have not addressed any of those underlying problems and they will be forced to if the economy slows down.

The potential economic and political turmoil makes this region an unattractive area for investor and should be avoided.

Asian Equity:

Growth in Asian economies continues to lead the world and this trend is likely to remain in place for years. The move to industrialize is only just beginning and will take a number of years to unfold. The Central Bank of China has been trying to keep the economy there from getting completely out of hand. The recent interest rate increase and increases in bank reserve requirements is having the desired impact of keeping growth from getting to extreme levels.

Theses changes have so far not created an environment where growth is slowing down it has only kept a lid on the expansion. The Government does not want to slow growth dramatically just to keep the levels down to a sustainable level.

This region offers the most opportunity for investors as there is a real and fundamental change taking place in this region which will over the long run change the global economic landscape.

Remain invested in Asia through all of the ups and downs as this region will continue to out perform economically for a long time in to the future.

Latin American Equity:

The Latin American economies have been much stronger over the past couple of years due to the same fundamentals that have been in play in Canada . The increase in global demand for commodities has helped to fuel economic growth in this region.

Investors should be selective in the countries utilized for investment as the entire region has a history of volatile governments. The four largest economies Brazil , Mexico , Argentina and Chile also have the most stable governments and investors should focus on these four regarding investment opportunities.

Latin America will come under some pressure if the global market slows down but should remain relatively buoyant due to the lower production costs. Investors should limit exposure (10 -15%) due to the political uncertainty inherent in this region.

Bonds:

The Bond allocation should be 20% short term (2-3 years), 20% medium term (3-7 years) and 60% long term (10+ years).

There is a much higher potential for interest rates to decline over the next year than we have seen in over three years. Economic growth in North America and Europe is positioned to slow down over the next few months and as that develops there is an excellent opportunity for capital appreciation in the long end of the bond market. This strategy also allows investors to lock in the current high yields creating higher income while they wait for interest rates to fall.