CANADA

ITS GOING TO GET WORSE, BEFORE IT GETS BETTER

Someday it will be better - natural resources pricing will recover, select exporting manufacturing companies and tourism will be highly profitable. Until then, be prepared to buy WHEN THERE IS BLOOD IN THE (BAY) STREETS.

Until then, our Canadian Star picks are limited to: International Hi-Tech Industries (V.IHI / BB:IHITF), coupled with continued accumulation of gold majors ABX (American Barrick) and PDG (Placer Dome).

On our Watch list:

NT (Northern Telecom), Four Seasons (FS),and POT (Potash Saskatchewan).

What should be done? While we continue to recommend Canadian clients to remain sidelined and Americans to visit beautiful Canada,

We counsel the Canadian government to:

1) Raise Interest Rates to 6.5% when the CD$ breaks 1.60,

2) Immediately LOWER Income taxes to no more than 33%,

3) Rethink Nafta,

4) Encourage foreign investment and of course,

5) Hire a first class financial astrologer in the planning ministery.

[7/01]A not so happy birthday to my northern neighbors. This year's Canada Day is our forecasted year of the Canadian Crisis. Not only is the Canadian Dollar as historic lows (and going even lower), but its meandering stock markets are under performing world markets and will continue to do.

Again, we recommend a 50% international diversification. Previously all to Europe (todate the best of the world's markets), fresh money is better allocated 50% to cash, 25% to Europe and 25% to Asia. Later next year, if/when "blood is running in the streets", be prepared to buy and hold. A revised watch list of recommended Canadian natural resource and property stocks will be given in our 1999 reports.

THE WORST IS YET TO COME!

[02/16] Canada's chief justice is calling it the country's most important legal case ever. The Canadian Supreme Court has opened hearings on whether Quebec has the right to secede unilaterally and declare its independence from Canada. Quebec separatists say the issue should be decided on by the voters, not judges. But a lawyer for the Canadian government began today by arguing that the court does, in fact, have the authority to decide this issue.

1. Canadian $ now at lowest level in 140 years.

2. Royal Bank of Canada and Bank of Montreal proposed merger is a SECOND, and perhaps LAST chance to sell ALL Canadian Financial sector stocks. We repeat

THE WORST IS YET TO COME!

1. Canadian Interest Rates are up .75%

2. Canadian $ at lowest rates in more than 12 years.

3. Damage from the recent ice storm will undoubtedly be the most costly natural disaster in Canadian history with over $500 million Canadian in claims.

Unfortunately all this is ONLY the tip of the iceberg,

THE WORST IS YET TO COME!

[11/24] Just as in 1997 the world focus was on the Asian Market crisis and in 1995 on Mexico, beginning mid 98, the world may well witness a major Canadian ECONOMIC/POLITICAL CRISIS that will take at least a year to resolve. While nothing is certain in this world except death and taxes, and not always the latter, the risk/reward for investing in Canada before the Fall of 1999 is EXTREMELY POOR. Canadian Bonds and the Canadian Dollar are MAJOR Sells.

We strongly recommend that Canadians internationally diversity their RRSP to the maximum 20% allowed, and as much as possible diversify their entire portfolio to 50% non-Canadian assets. Those Canadian stocks one continues to hold should be in those industries which will benefit from cheaper Canadian dollar and have low debt as Canadian interest rates will obviously have to rise to defend its dollar. However, companies with major international holdings will have some protection, while those that are highly export driven with low debt may prosper from this crisis. Also not adversely affected will be agricultural or natural resources holdings. While I believe the end results will be an incredible bargain in Canadian banks, bonds and real estate, until then, much serious damage may be done to individual portfolios.

SEVEN RECOMMENDATIONS:

1. DIVERSIFY Stock Portfolios internationally, preferable to Europe more than Asia, or the Americas.

2. SELL Canadian bonds, bank stocks, Reits

3. Buy POT (Potash Saskatchewan), which is a favorite of many portfolio managers as it may benefit from El Nino.

4. Buy JEM (Journey's End/Unihost) as the tourist industry will continue to benefit both from the cheaper Canadian dollar and an increased number of American visitors who wish to avoid terrorist attacks abroad.

5. Buy IHI (International Hi-Tech Industries) for obvious reasons.

6. Into the longer term (1999), natural resource stocks will outperform e.g. N (Inco) and

7. If you have no current gold exposure, buy majors such as ABX ( Barrick Gold), which are also in a position to benefit from the current low price of gold (by buying distressed gold assets and mines cheaply).

{3/29} Canada has for some time been one of our favorite countries re: investment. I therefore hope it will weather our forecasted upcoming political/economic storm of mid 1998 on. From the viewpoint of my many Canadian friends, I strongly suggest diversifying at least some of your investment capital OUTSIDE OF CANADA by this time. 20% of RSP portfolios can be invested in foreign stocks. It will be my recommendation to foreign investors to REDUCE CANADIAN HOLDINGS A MINIMUM OF 50% BEFORE THEN.
 
 

Now with that "cheery: forecast past, there is still plenty of play left in Canada in the short term. The BRE-X disaster (forecast by us a year ago privately) is helping to create some short term trading bargains in natural resource stocks. In addition nervous investors may well consider income. However, Canadian bonds portfolio should be reduced or hedged by mid-1998 for obvious reasons. I like Canadian Real-Estate, and real-estate stocks and specialty real estate mutual funds are an obvious choice for perhaps another 20% of your longer term portfolio. And of course, there is ALWAYS IHI.

Remember however, always to check with your licensed financial planner or broker before acting upon the recommendations of the Astrologers Fund, Inc. This is just the starting point of your research. and you must carefully investigate before you buy/or sell.

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