In This Issue

UP, DOWN OR SIDEWAYS?

By Gordon Pape, Editor and Publisher

Just when we thought that our next worry would be inflation, along comes some economists who say “no way”. What we really need to be concerned about is deflation, and there are already signs that it is taking hold in some countries.

One of the main proponents of a deflationary scenario is David Rosenberg, chief economist and strategist at Gluskin, Sheff + Associates, a highly-respected money management firm based in Toronto. He was quoted by The Globe and Mail last week as saying there is “no doubt” that we are already in a deflation situation.

Most Canadians are not familiar with Mr. Rosenberg but he has an international reputation as one of the leading economic thinkers of our time. He held senior positions on Wall Street for several years including the posts of managing director and chief North American economist of Bank of America and chief North American economist of Merrill Lynch. He has also held senior positions at the Bank of Canada, BMO Nesbitt Burns, and the Bank of Nova Scotia. So when he has something to say, people pay attention. They have to because sometimes his views seem counter-intuitive and even self-contradictory.

For example, right now he is saying that we should be preparing for falling prices rather than rising ones and that the recent stock market rally has been overdone.

“There is too much growth and too much risk embedded in the equity market right now,” he said last week in a commentary to Gluskin, Sheff clients that was quoted in the National Post. “The market is basically discounting an earnings stream that even the consensus does not see for another two to three years,” he said. “In other words, this is more than just a fully priced market at this stage.”

If he’s right, the year ahead will be brutal. Prices will fall, markets will seize up, and people will be in full panic mode again.

There is certainly some reason to be cautious. Consumer prices are falling in several Latin American countries as well as in Japan, where deflation has been a chronic problem for several years. Some European nations, including Germany, are also showing deflationary symptoms. And in case you hadn’t noticed, Canada has not been immune. The Consumer Price Index in this country fell 0.8% over the 12 months to the end of August according to Statistics Canada. The main drag was a 19.1% drop in energy prices during the period but the cost of cars, homes, clothing, and footwear was also lower.

The Bank of Canada has not sounded any deflationary alarm bells yet but Governor Mark Carney warned in a speech last week in Victoria that the continued rise of the loonie would have the effect of keeping prices subdued in this country by reducing the cost of imports.

“A persistently strong Canadian dollar would reduce real growth and delay the return of inflation to target,” he said.

Lest anyone doubt his meaning, Mr. Carney went on to say: “One constant is the Bank’s unwavering commitment to price stability. The single, most direct contribution that monetary policy can make to sound economic performance is to provide Canadians with confidence that their money will retain its purchasing power. That means keeping inflation low, stable, and predictable. Price stability lowers uncertainty, minimizes the costs of inflation, reduces the cost of capital, and creates an environment in which households and firms can invest and plan for the future.”

The Bank of Canada’s official inflation target is 2% and the Governor stressed that he is every bit as concerned “about inflation dropping below the target as about inflation rising above the target”. In other words, deflation is at least as great an evil as too much inflation.

In reality, it’s an even greater evil. In a deflationary economy, no one buys anything they don’t have to. Why should they, when they know it will be cheaper if they wait a while? Business grinds to a halt, stocks collapse, the real estate market crumbles, and cash becomes king. Carried to the extreme, deflation can result in government instability, with unpredictable consequences. We don’t want to go there.

For the past several months, we’ve been conditioned to expect inflation to be the next big problem in what is seen as a logical consequence of the injection of trillions of dollars into the global financial system in an effort to pull the world out of its terrible slump. Inflation is good for Canadian investors because the prices of our major commodities, from oil to potash, will naturally rise in tandem with, or perhaps ahead of, the cost of other goods and services.

Deflation, by contrast, would logically result in a steep drop in the price the rest of the world is prepared to pay for our resources. But here’s where Mr. Rosenberg surprises us. In an opinion column he wrote for The Globe’s Report on Business on Thursday, he suggested that although U.S. equities are caught up in a secular bear market that may have another nine years to run, commodities are in the midst of a secular bull market that could last until around 2018. The implications of this would be continued outperformance of the TSX and on-going strength in the Canadian dollar – he notes that there is a 65% correlation between the loonie and commodities indexes.

So what should we do? Do we prepare for inflation, deflation, neither – or does it even matter? On balance, I think inflation remains the greater risk. There’s a lot of money sloshing around out there and sooner or later people are going to begin spending it. Even if we have a bout of deflation, Mr. Rosenberg seems to suggest that commodities will still be okay. Although I find it hard to reconcile those concepts in my own mind, the bottom line is that we should stick with our resource stocks.

But I have never been an all-eggs-in-one-basket type of investor and I certainly don’t intend to start now. As we said in last week’s issue, it’s a good idea to raise some cash, both in anticipation of a market correction and as a buffer if deflation does take hold. Continue to hold some bonds as well, giving priority to top-quality corporates (which Mr. Rosenberg likes a lot). Government bonds are safer and will do very well in a deflationary climate but their yields are very low at present.

A well-balanced portfolio will give you the flexibility to change directions quickly by shifting asset weightings as conditions evolve. No one can afford to take a rigid position in uncertain times such as these.

Follow Gordon Pape’s latest updates on Twitter: http://twitter.com/GPUpdates

BUY BOMBARDIER

TOP

The fortunes of Bombardier Inc. (TSX: BBD.B) have improved dramatically recently, capped by the recent announcement of a US$4 billion contract to build 80 very high speed trains for China.

The trains, which have a top speed of 380 kilometres per hours, will be constructed at Bombardier’s Sifang Transportation production facilities in Qingdao, China. Delivery is scheduled from 2012 to 2014.

Contributing editor Tom Slee follows Bombardier closely and has previously recommended the stock to IWB readers on two occasions. He feels that Friday’s closing price of $4.76 fully reflects the stream of encouraging news from the company. However, he believes that investors have not yet realized the boost the Chinese contract will give Bombardier as it pursues deals in other Asian markets.

As a result, he believes the company’s fundamentals have improved to the point where we can reinstate it as a buy, but only on a price pull-back to the $4.60 range. Tom will be providing a detailed update in his next column, which will appear in the issue of Oct. 19. In the meantime, aggressive investors should keep an eye on the stock and if the price drops to the target range, buy. – G.P.

 

  • IRWIN MICHAEL SEES DAYLIGHT

    We are pleased to welcome back contributing editor Irwin Michael, one of Canada’s top value investors and the founder and president of the ABC Funds. He has a new pick for us today, an energy trust that he feels offers a great combination of current cash flow and growth potential. Here is his report.

    Irwin Michael writes:

    Interestingly, in spite of the considerable investment uncertainty and concern about a precarious W-shaped economic recovery, worldwide equity markets continued to climb the proverbial wall of worry – at least until October blew in.

    The S&P/TSX Composite Index climbed approximately 10.6% in the third quarter, the Dow Jones 30 Industrials Average was up 15.8%, and the Nasdaq gained 15.7%. Although there are continued worries by investment pessimists that equity markets are considerably overextended and are due for a significant price setback, company earnings reports, economic data, and a growing number of corporate takeovers, mergers, and acquisitions bode well for 2010. Clearly, the extraordinary worldwide monetary and fiscal stimulus of the past 12 months appears to be finally kicking in.

    Of particular importance to economic resurgence, corporate earnings, and a stock market recovery is the fact that worldwide short-term interest rates remain at exceptionally low levels. For instance, with three-month Canadian Treasury bill rates under 0.25% and two-year, five-year, 10-year, and 30-year Government of Canada bond yields at approximately 1.25%, 2.5%, 3.33%, and 3.875% respectively, these modern day record low interest rates are powerful drivers toward economic recovery. More importantly, however, despite rising North American unemployment, there appears to be a growing sense of business and consumer optimism contrasted to the extreme pessimism of early/mid winter.

    Another significant factor has been the relative stability of worldwide stock markets which, in turn, has enabled equity research analysts and portfolio managers to actually analyze common stocks. This circumstance is compared to the frenzied, irrational stock markets of 6-8 months ago which made it virtually impossible to function. Overall, while considerable economic and financial repair must still be carried out within our global economies, it is our view that the worst is over. Nonetheless, while it is our belief that the glass is half full rather than half empty, we do expect continued financial market price volatility and periodic sell-offs within the context of a saw tooth-like upward stock market recovery.

    Buy Daylight Resources Trust

    Amid the volatility, Daylight Resources, our latest stock pick, should provide a reasonably attractive return. Daylight pays a distribution of 8c per month, or 96c per year, which yields 11.6% at current price levels (the shares closed on Friday at $8.28). Essentially, investors are getting paid to wait out any short-term equity market gyrations. As we move closer to the seasonally stronger period for natural gas and Daylight executes its game plan, investors should be rewarded.

    Daylight Resources Trust is a mid-cap conventional royalty trust that is anticipated to produce 38,000 barrels of oil equivalent (boe/d) of natural gas and oil for the balance of 2009. The trust was formed as a result of the merger between Daylight Energy Trust and Sequoia Oil and Gas Trust on Sept. 21, 2006. The recent acquisition of Highpine Oil and Gas Limited created a more balanced production mix by increasing the oil and liquids weighting from 28% to 42%.

    The traditional link between natural gas and oil prices seems to have broken down. Historically, the ratio of the oil price to the natural gas price moved in a broad range of six to 10 times (i.e. the price of a barrel of oil was six to 10 times the price of 1,000 cubic feet of natural gas). Today, the ratio is roughly 20 times and it probably peaked earlier in 2009 with oil 30 times the price of natural gas.

    This relationship decoupled for two key reasons. First, there has been a tremendous amount of new supply of natural gas due to technological advances, such as multi-stage fracturing. Second, oil is a politically-sensitive, global commodity while natural gas is a localized, North American commodity. To put it simply, North American economies are still weaker than those in Asia. However, we believe that natural gas prices will recover from seasonal lows and strengthen as we get closer to winter.

    From our perspective and despite today’s weak natural gas price, Daylight’s acquisition of Highpine Oil and Gas gave us the confidence to build a meaningful position in the trust. The $530 million acquisition was accretive to cash flow, rebalanced the production mix from 28% to 42% oil and liquids, improved the debt to cash flow ratio to 0.9 times, and created a much more substantial entity with an enterprise value of approximately $1.8 billion.

    Operationally, Daylight has conventional production and extensive land holdings in Alberta, including assets in the West Central, Pembina, and Central regions of the province. However, the trust’s core Deep Basin properties could hold significant resource potential. Importantly, cash flow from Highpine’s Pembina light oil and Daylight’s conventional natural gas, with a significant amount hedged at an average price of $8 per 1,000 cubic feet (mcf) AECO (Alberta gas spot price), will be used to develop this resource play.

    A resource play has to have a large, repeatable drilling inventory, with low geological risk and very attractive economics. Development becomes almost “cookie-cutter” over several years, with hundreds of wells drilled if sufficient capital is available. Therefore, the importance of Daylight’s cash flow from oil production and hedged natural gas production cannot be overstated.

    Essentially, the trust’s Deep Basin, Elmworth assets are prospective for the Cadomin, Nikanassin, and Montney formations. The area contains 130 net sections of land with the potential for four wells per section, or 520 wells total. Even with capital costs of $7 million per well, and assuming a $5 AECO per mcf gas price, each well has a net present value of $5.1 million according to Daylight’s internal estimates. If we consider the number of possible drilling locations, the appropriately risked upside is quite exciting, to say the least.

    Pro forma the Highpine acquisition, Daylight is still in excellent financial shape. With combined bank credit facilities of $550 million and $205 million drawn at the end of the second quarter, the trust has ample flexibility to pay its distribution or even consider a smaller, tuck-in type acquisition. An acquisition larger than $300 million would require converting back to a corporate structure, which we believe is likely to occur anyway some time in early 2010. Finally, under current assumptions, the trust’s payout ratio should remain around the 50% to 55% range, which is quite conservative.

    Using the trust’s 2008 year-end financial and reserve data, we believe that Daylight is still trading below its net asset value of $9.78 per unit. Although adding Highpine increased proven and probable reserves from 76.9 million boe to 108.1 million boe, the net asset value per share is unlikely to have changed materially. However, accelerating the development of the trust’s resource plays has the potential to significantly increase the NAV per share going forward.

    We believe that Daylight’s management, led by Anthony Lambert and Steve Nielson, are building a significant medium-sized company. Through organic growth and perhaps additional acquisitions, we believe that Daylight could become a much larger entity. Conversion back to a corporation is inevitable and even if the distribution is reduced we believe that the market would positively focus on the growth opportunities that would become available. In the meantime, we are getting paid to wait for the natural gas price to recover and the development of trust’s key assets to play out.

    The shares trade primarily on the TSX but also trade over-the-counter in the U.S. under the symbol DAYYF. The closing price there on Friday was US$7.68.

    Action now: Buy at current levels.

     

    IRWIN MICHAEL’S UPDATES

    Morguard Corp. (TSX: MRC)

    Originally recommended on Oct. 6/03 (IWB #2336) at $20.55. Closed Friday at $29.49.

    Since our last update in early May, the shares of Morguard Corporation have rallied approximately 50%. At the 52-week low price of $12.91 in March, the stock traded below 0.4 times book value, the lowest multiple in ten years.

    Today, at 0.75 times the current book value of $39.81, some rationality has returned but the shares are still relatively inexpensive. Further, the stock’s dividend yield of 2% is reasonably attractive, especially when benchmarked against historically low interest rates.

    The catalyst for the share price move, other than a general improvement in the appetite for risk, was the anticipation and subsequent release of the company’s first-quarter results on May 7. Despite the turmoil in the economy, Morguard reported an increase in total revenues to $88 million from $80.9 million a year ago. Funds from operations increased to $27.5 million or $1.96 per share compared to $25.5 million or $1.83 per share for the same period in 2008.

    Operationally, the occupancy levels were quite good with the exception of the loss of the sole tenant from a 260,000 square foot industrial facility in Danville, Virginia in the third quarter of 2008. This has continued to impact the occupancy rate in the office industrial segment, which declined from 94.3% in March 2008 to 84.8% in 2009. Excluding the tenant that filed for Chapter 11, the company’s office and industrial occupancy rate would have been 94.7% in 2009. 

    However, the diversified nature of the company’s portfolio is validated by examining the occupancy rates across the other segments. Multi-unit residential occupancy rates in Canada only declined to 96.8% from 97%, multi-unit residential in the U.S. improved to 91.4% from 90.9%, retail in Canada improved to 96.5% from 95.1%, and retail in the U.S. only declined to 93.5% from 94.5% on a year-over-year basis.

    Second-quarter results, which were released in August, confirmed the company’s financial strength. Total revenues for the three months to June 30 increased to $86 million from $82.9 million for the same period in 2008. Net operating income was $37.7 million compared to $37 million last year while net income from continuing operations totalled $6.7 million compared to net income of $6.2 million in 2008. Funds from operations for the second quarter increased to $28.7 million or $2.04 per share compared to $27 million or $1.92 per share in 2008.

    The rally in the shares was further supported by the announcement on July 30 that the corporation had successfully refinanced or obtained commitments to refinance almost all of the mortgages maturing during 2009. Including refinancing activities in December 2008, Morguard obtained approximately $289 million of which $139 million was used to repay maturing mortgages. 

    Importantly, the weighted average interest rate on the new borrowings was 4.57%, replacing debt with an average interest rate of 6.17%. All told, the company has approximately $165 million of cash, loans due on demand, and borrowing capacity under existing credit facilities.

    Now that the worst has past for the Canadian real estate market, we believe that the rally in Morguard’s stock could continue, albeit with short-term volatility. One potential catalyst that could propel the shares toward the company’s book value would be property acquisitions. As always, those with excess capital in times of duress tend to emerge stronger than financially weaker competitors.

    In the meantime, the company continues to buy back its stock in the open market at prices well below book value. In a statement released on Sept. 18, Morguard said it purchased 177,635 common shares for cancellation during the previous 12 months at an average cost per share of $22.30. The company also announced a new normal course issuer bid to purchase up to 710,069 common shares (about 10% of the outstanding public float) between now and Sept. 21, 2010. Share buy-backs are considered to be positive news for investors as the reduced amount of stock increases earnings per share and enhances the possibility of higher dividends in future.

    Action now: Buy.

    – end Irwin Michael

     

    CITADEL STAND-OFF

    Suppose they staged a big fight and nobody won? That’s exactly what happened in the battle over control of the Citadel funds. In the end, neither side was able to carry the day in the special shareholders meeting because of the fact that 75% support was required to carry several of the key resolutions. The result is what fund manager Paul Bloom describes as “a Mexican stand-off”.

    The meeting, which was held on Sept. 30, was essentially over who would control the future of the Citadel funds. The contenders were Wayne Pushka, president of the company that took over the funds’ administration in June, and a group called Blue Ribbon Asset Management which was formed by Mr. Bloom and Brompton Fund Management.

    Both sides wanted to consolidate several Citadel funds into one. Mr. Pushka had selected the Montreal-based firm of Jarislowsky Fraser to run the new fund his organization would create. Mr. Bloom would remain in charge had the Blue Ribbon proposal carried.

    Unitholders from each fund voted separately on the proposals. In several cases, Blue Ribbon came close to overcoming the 75% barrier but couldn’t quite make it. Shareholders of the Citadel S-1 Income Trust Fund (TSX: SDL.UN) voted 74.4% in favour of Blue Ribbon; investors in the Series S-1 Income Fund (TSX: SRC.UN) were 73.6% in favour; owners of Citadel HYTES Fund shares (TSX: CHF.UN) gave a 70.9% mandate to Blue Ribbon; while the favourable vote from unitholders of Citadel Diversified Investment Trust (TSX: CTD.UN) was 68%. Owners of shares in Citadel Premium Income Fund (TSX: CPF.UN) also endorsed Blue Ribbon albeit by a smaller margin of 58.1%.

    “Clearly unitholders expressed a strong desire to support the Blue Ribbon proposal for these funds however the high threshold of 75% made it difficult to achieve,” commented Mark Caranci, President of Brompton and Blue Ribbon Fund Management.

    Only the unitholders of Equal Weight Plus Fund (TSX: EQW.UN) approved the Citadel Reorganization Resolution. As a result, they will be able to redeem their units under the terms of a special redemption privilege announced by Citadel prior to the meeting. Those who don’t redeem will become unitholders of the new Citadel Income Fund which will be created by the merger of Equal Weight Plus and Mr. Pushka’s Crown Hill Fund.

    Everyone else has been left in limbo. Owners of units in the other funds will not be accorded the redemption privileges although they can still sell their shares on the TSX if they wish.

    “We are extremely disappointed by the fact that these meetings were frustrated and did not produce a clear result,” Mr. Pushka said in a statement.

    Mr. Bloom, who is being sued personally by Citadel for his role in creating the hostile bid, also expressed disappointment “especially when we came so close”. He described the voter participation of 30% to 50% as “huge” for funds which are almost entirely owned by retail investors as opposed to institutions such as pension plans.

    “It’s a very unsatisfactory outcome for me and probably for him (Mr. Pushka) as well,” he said. However, he dismissed as “codswallop” media suggestions that the Citadel funds will now be in a state of paralysis.

    “I am still the funds’ manager and he (Mr. Pushka) is still the administrator. We have been working together on a day-to-day basis and we will continue to do so. The store is being minded.”

    But he acknowledged that, longer term, some resolution is needed and he expressed the hope that “cooler heads will prevail”.

    “Everyone is unhappy right now,” he said. “Unitholders need some certainty and hopefully there will be negotiations to that end after a cooling-off period. But don’t hold your breath waiting for that to happen.”

    The only affected fund on the IWB Recommended List is Citadel Diversified Income Trust. It fell 13c after the results were announced and closed on Friday at $7.34. That is a discount of 18% to the latest published net asset value per unit of $8.95 (Oct. 1).

    If you own units in this fund, I suggest you hold on to them for now. Paul Bloom is still calling the shots and once the smoke clears we should see some narrowing in the discount to NAV. At that point, we’ll revisit this on-going saga. – G.P.

     

    THIRD-QUARTER SCORECARD

    Don’t be too discouraged by the weak start to October in the markets. September began badly too but by the time it was all over almost all the world’s major stock indexes were in positive territory for the month. The lone exception was the Tokyo Nikkei which fell 3.4%.

    The top performer among the major markets was Hong Kong where the Hang Seng Index gained 6.2% in September. Britain and Germany were the leaders among the big European indexes with 4.4% advances on each of their Dows. Here in North America, the Nasdaq Composite was the big winner with a 5.6% jump during the month. The S&P 500 and Dow Jones Industrial Average were well behind with advances of 3.6% and 2.3% respectively. Our own S&P/TSX Composite Index had a respectable showing, adding 4.8%.

    The biggest news was in the emerging markets. Brazil’s Bovespa Index jumped 8.4% in September and at that point was showing a year-to-date gain of 63.1%. The winning streak continued this month with the news that Rio de Janeiro has been awarded the 2016 Summer Olympics. India’s NSE 50 Index gained 9% in September and was up an impressive 71.8% for the first nine months of the year. That was the best result for any global market of significance.

    At the end of the third quarter, the TSX Composite was ahead 26.8% for 2009. Perhaps more important, the year-over-year drop was down to only 3%. The TSX continues to outperform the S&P 500 and the Dow by a wide margin this year, as well as all the major European indexes.

    So with three-quarters of the year behind us, we’re doing better than anyone expected back in January. The big question now is: Will it hold? – G.P.

     

    GORDON PAPE’S UPDATES

    Dynamic Value Balanced Fund (DYN9194)

    Originally recommended on June 22/09 (IWB #2923) at $15.80. Closed Thursday at $17.49.

    I recommended this fund as being especially well-suited for a Tax-Free Savings Account (TFSA) although it of course can be profitably held anywhere.

    So far, manager David Taylor has been doing a good job for us. As of the close of trading on Oct. 1, we had a capital gain of $1.69 plus 14c in distributions (the fund pays out 3.5c per unit monthly). That works out to a profit of 11.6% in a little more than three months. Sure beats a GIC!

    As of the end of August, 61.3% of the fund’s assets were invested in stocks with most of that in Canadian securities. Major holdings include Osisko Mining, which has more than doubled in price since the start of this year, and HudBay Minerals, which is trading at about three times its opening 2009 price. Others large positions are in Brookfield Properties, Manulife Financial, Arch Coal, EnCana, Canadian Natural Resources, and Royal Bank. About 36% of the portfolio is invested in the resources sector.

    Over the years, I have observed that mutual funds often go on prolonged winning streaks. When that happens it’s a good idea to ride along until such time as the manager shows signs of running out of steam. So stick with this one and if you don’t own units consider adding some now.

    I recommend buying front-end load units at zero commission (the code is DYN9194). However, if you have access to the lower MER F units, they could be your pick (DYN3035).

    Action now: Buy.

    TransCanada Corp. (TSX: NYSE: TRP)

    Originally recommended by Yola Edwards on April 24/06 (IWB #2616) at C$34.07, US$29.92. Closed Friday at C$32.63, US$30.21.

    TransCanada announced last week that it has won the bid to construct a $1.2 billion natural gas-fired power plant in Oakville, Ontario. The 900-megawatt facility, which is expected to be operational in late 2013, is part of the Ontario government’s program to replace polluting coal generating plants with clean electricity-producing technology driven by solar, wind, and gas.

    The new plant will be owned by TransCanada, which will have a 20-year contract to supply power from it to the Ontario Hydro grid.

    “This facility strengthens our presence as the largest private sector power company in Ontario and Canada,” said TransCanada CEO Hal Kvisle. “The Oakville generating station is a strong fit with our strategy of developing large scale energy infrastructure projects that will produce stable, long-term returns for our shareholders.”

    Obviously, the financial benefits of the plant are long term and the stock slipped following the announcement, although that probably had more to do with the negative state of the markets at week’s end.

    Action now: Buy. – G.P.

     

    BEWARE OF NAME IMITATORS

    It has come to our attention that a number of other websites have appeared recently using the name Internet Wealth Builder. These sites promote work-from-home plans, get-rich-quick courses, and other products.

    We are not affiliated in any way with any of these ventures, nor do we endorse them. Unfortunately, there is no legal way to stop these organizations from using the Internet Wealth Builder name as titles cannot be copyrighted.

    All we can do is to alert our members to the fact that we have no connection with any of these companies and we urge you to exercise due diligence if you should ever consider dealing with them. – G.P.

     

    WORLD MONEY SHOW

    Although most of the events at the World Money Show in Toronto are free, there is one paid function and you can save $10 if you sign up by Tuesday, Oct. 6.

    It’s a Power Lunch discussion on the topic: Which Stocks Will Be The Next Ten-Baggers? I will be a panellist along with Gavin Graham of BMO Asset Management, who is a contributing editor to our companion newsletter, The Income Investor. Other participants will be author Jim Jubak, one of the most widely-read investment commentators on the Internet, and Ryan Irwine, who specializes in identifying under-followed small- to mid-sized companies that are financially sound and producing solid growth. The moderator will be best-selling financial author Terry Savage who writes a syndicated column that is carried in newspapers across the U.S.

    The regular price is $59, which includes a light lunch. But if you take advantage of the advance registration fee, the cost is only $49. Full details at www.worldmoneyshowtoronto.ca. You can also register for the show itself on that site, at no cost.

     

    That’s all for today. We will take next weekend off so that our staff can spend a quiet holiday with their families. (We publish 44 times a year). We will be with you again on Oct. 19. Happy Thanksgiving to all.

    Best regards,

    Gordon Pape
    gordon.pape@buildingwealth.ca
    Circulation matters: customer.service@buildingwealth.ca

    All material in the Internet Wealth Builder is copyright Gordon Pape Enterprises Ltd. and may not be reproduced in whole or in part in any form without written consent. None of the content in this newsletter is intended to be, nor should be interpreted as, an invitation to buy or sell securities. All recommendations are based on information that is believed to be reliable. However, results are not guaranteed and the publishers, contributors, and distributors of the Internet Wealth Builder assume no liability whatsoever for any material losses that may occur. Readers are advised to consult a professional financial advisor before making any investment decisions. The staff of and contributors to the Internet Wealth Builder may hold positions in securities mentioned in this newsletter, either personally or through managed accounts. No compensation for recommending particular securities, services, or financial advisors is solicited or accepted.

    • In This Issue

    UP, DOWN OR SIDEWAYS?

    By Gordon Pape, Editor and Publisher

    Just when we thought that our next worry would be inflation, along comes some economists who say “no way”. What we really need to be concerned about is deflation, and there are already signs that it is taking hold in some countries.

    One of the main proponents of a deflationary scenario is David Rosenberg, chief economist and strategist at Gluskin, Sheff + Associates, a highly-respected money management firm based in Toronto. He was quoted by The Globe and Mail last week as saying there is “no doubt” that we are already in a deflation situation.

    Most Canadians are not familiar with Mr. Rosenberg but he has an international reputation as one of the leading economic thinkers of our time. He held senior positions on Wall Street for several years including the posts of managing director and chief North American economist of Bank of America and chief North American economist of Merrill Lynch. He has also held senior positions at the Bank of Canada, BMO Nesbitt Burns, and the Bank of Nova Scotia. So when he has something to say, people pay attention. They have to because sometimes his views seem counter-intuitive and even self-contradictory.

    For example, right now he is saying that we should be preparing for falling prices rather than rising ones and that the recent stock market rally has been overdone.

    “There is too much growth and too much risk embedded in the equity market right now,” he said last week in a commentary to Gluskin, Sheff clients that was quoted in the National Post. “The market is basically discounting an earnings stream that even the consensus does not see for another two to three years,” he said. “In other words, this is more than just a fully priced market at this stage.”

    If he’s right, the year ahead will be brutal. Prices will fall, markets will seize up, and people will be in full panic mode again.

    There is certainly some reason to be cautious. Consumer prices are falling in several Latin American countries as well as in Japan, where deflation has been a chronic problem for several years. Some European nations, including Germany, are also showing deflationary symptoms. And in case you hadn’t noticed, Canada has not been immune. The Consumer Price Index in this country fell 0.8% over the 12 months to the end of August according to Statistics Canada. The main drag was a 19.1% drop in energy prices during the period but the cost of cars, homes, clothing, and footwear was also lower.

    The Bank of Canada has not sounded any deflationary alarm bells yet but Governor Mark Carney warned in a speech last week in Victoria that the continued rise of the loonie would have the effect of keeping prices subdued in this country by reducing the cost of imports.

    “A persistently strong Canadian dollar would reduce real growth and delay the return of inflation to target,” he said.

    Lest anyone doubt his meaning, Mr. Carney went on to say: “One constant is the Bank’s unwavering commitment to price stability. The single, most direct contribution that monetary policy can make to sound economic performance is to provide Canadians with confidence that their money will retain its purchasing power. That means keeping inflation low, stable, and predictable. Price stability lowers uncertainty, minimizes the costs of inflation, reduces the cost of capital, and creates an environment in which households and firms can invest and plan for the future.”

    The Bank of Canada’s official inflation target is 2% and the Governor stressed that he is every bit as concerned “about inflation dropping below the target as about inflation rising above the target”. In other words, deflation is at least as great an evil as too much inflation.

    In reality, it’s an even greater evil. In a deflationary economy, no one buys anything they don’t have to. Why should they, when they know it will be cheaper if they wait a while? Business grinds to a halt, stocks collapse, the real estate market crumbles, and cash becomes king. Carried to the extreme, deflation can result in government instability, with unpredictable consequences. We don’t want to go there.

    For the past several months, we’ve been conditioned to expect inflation to be the next big problem in what is seen as a logical consequence of the injection of trillions of dollars into the global financial system in an effort to pull the world out of its terrible slump. Inflation is good for Canadian investors because the prices of our major commodities, from oil to potash, will naturally rise in tandem with, or perhaps ahead of, the cost of other goods and services.

    Deflation, by contrast, would logically result in a steep drop in the price the rest of the world is prepared to pay for our resources. But here’s where Mr. Rosenberg surprises us. In an opinion column he wrote for The Globe’s Report on Business on Thursday, he suggested that although U.S. equities are caught up in a secular bear market that may have another nine years to run, commodities are in the midst of a secular bull market that could last until around 2018. The implications of this would be continued outperformance of the TSX and on-going strength in the Canadian dollar – he notes that there is a 65% correlation between the loonie and commodities indexes.

    So what should we do? Do we prepare for inflation, deflation, neither – or does it even matter? On balance, I think inflation remains the greater risk. There’s a lot of money sloshing around out there and sooner or later people are going to begin spending it. Even if we have a bout of deflation, Mr. Rosenberg seems to suggest that commodities will still be okay. Although I find it hard to reconcile those concepts in my own mind, the bottom line is that we should stick with our resource stocks.

    But I have never been an all-eggs-in-one-basket type of investor and I certainly don’t intend to start now. As we said in last week’s issue, it’s a good idea to raise some cash, both in anticipation of a market correction and as a buffer if deflation does take hold. Continue to hold some bonds as well, giving priority to top-quality corporates (which Mr. Rosenberg likes a lot). Government bonds are safer and will do very well in a deflationary climate but their yields are very low at present.

    A well-balanced portfolio will give you the flexibility to change directions quickly by shifting asset weightings as conditions evolve. No one can afford to take a rigid position in uncertain times such as these.

    Follow Gordon Pape’s latest updates on Twitter: http://twitter.com/GPUpdates

    BUY BOMBARDIER

    The fortunes of Bombardier Inc. (TSX: BBD.B) have improved dramatically recently, capped by the recent announcement of a US$4 billion contract to build 80 very high speed trains for China.

    The trains, which have a top speed of 380 kilometres per hours, will be constructed at Bombardier’s Sifang Transportation production facilities in Qingdao, China. Delivery is scheduled from 2012 to 2014.

    Contributing editor Tom Slee follows Bombardier closely and has previously recommended the stock to IWB readers on two occasions. He feels that Friday’s closing price of $4.76 fully reflects the stream of encouraging news from the company. However, he believes that investors have not yet realized the boost the Chinese contract will give Bombardier as it pursues deals in other Asian markets.

    As a result, he believes the company’s fundamentals have improved to the point where we can reinstate it as a buy, but only on a price pull-back to the $4.60 range. Tom will be providing a detailed update in his next column, which will appear in the issue of Oct. 19. In the meantime, aggressive investors should keep an eye on the stock and if the price drops to the target range, buy. – G.P.

     

  • IRWIN MICHAEL SEES DAYLIGHT

    We are pleased to welcome back contributing editor Irwin Michael, one of Canada’s top value investors and the founder and president of the ABC Funds. He has a new pick for us today, an energy trust that he feels offers a great combination of current cash flow and growth potential. Here is his report.

    Irwin Michael writes:

    Interestingly, in spite of the considerable investment uncertainty and concern about a precarious W-shaped economic recovery, worldwide equity markets continued to climb the proverbial wall of worry – at least until October blew in.

    The S&P/TSX Composite Index climbed approximately 10.6% in the third quarter, the Dow Jones 30 Industrials Average was up 15.8%, and the Nasdaq gained 15.7%. Although there are continued worries by investment pessimists that equity markets are considerably overextended and are due for a significant price setback, company earnings reports, economic data, and a growing number of corporate takeovers, mergers, and acquisitions bode well for 2010. Clearly, the extraordinary worldwide monetary and fiscal stimulus of the past 12 months appears to be finally kicking in.

    Of particular importance to economic resurgence, corporate earnings, and a stock market recovery is the fact that worldwide short-term interest rates remain at exceptionally low levels. For instance, with three-month Canadian Treasury bill rates under 0.25% and two-year, five-year, 10-year, and 30-year Government of Canada bond yields at approximately 1.25%, 2.5%, 3.33%, and 3.875% respectively, these modern day record low interest rates are powerful drivers toward economic recovery. More importantly, however, despite rising North American unemployment, there appears to be a growing sense of business and consumer optimism contrasted to the extreme pessimism of early/mid winter.

    Another significant factor has been the relative stability of worldwide stock markets which, in turn, has enabled equity research analysts and portfolio managers to actually analyze common stocks. This circumstance is compared to the frenzied, irrational stock markets of 6-8 months ago which made it virtually impossible to function. Overall, while considerable economic and financial repair must still be carried out within our global economies, it is our view that the worst is over. Nonetheless, while it is our belief that the glass is half full rather than half empty, we do expect continued financial market price volatility and periodic sell-offs within the context of a saw tooth-like upward stock market recovery.

    Buy Daylight Resources Trust

    Amid the volatility, Daylight Resources, our latest stock pick, should provide a reasonably attractive return. Daylight pays a distribution of 8c per month, or 96c per year, which yields 11.6% at current price levels (the shares closed on Friday at $8.28). Essentially, investors are getting paid to wait out any short-term equity market gyrations. As we move closer to the seasonally stronger period for natural gas and Daylight executes its game plan, investors should be rewarded.

    Daylight Resources Trust is a mid-cap conventional royalty trust that is anticipated to produce 38,000 barrels of oil equivalent (boe/d) of natural gas and oil for the balance of 2009. The trust was formed as a result of the merger between Daylight Energy Trust and Sequoia Oil and Gas Trust on Sept. 21, 2006. The recent acquisition of Highpine Oil and Gas Limited created a more balanced production mix by increasing the oil and liquids weighting from 28% to 42%.

    The traditional link between natural gas and oil prices seems to have broken down. Historically, the ratio of the oil price to the natural gas price moved in a broad range of six to 10 times (i.e. the price of a barrel of oil was six to 10 times the price of 1,000 cubic feet of natural gas). Today, the ratio is roughly 20 times and it probably peaked earlier in 2009 with oil 30 times the price of natural gas.

    This relationship decoupled for two key reasons. First, there has been a tremendous amount of new supply of natural gas due to technological advances, such as multi-stage fracturing. Second, oil is a politically-sensitive, global commodity while natural gas is a localized, North American commodity. To put it simply, North American economies are still weaker than those in Asia. However, we believe that natural gas prices will recover from seasonal lows and strengthen as we get closer to winter.

    From our perspective and despite today’s weak natural gas price, Daylight’s acquisition of Highpine Oil and Gas gave us the confidence to build a meaningful position in the trust. The $530 million acquisition was accretive to cash flow, rebalanced the production mix from 28% to 42% oil and liquids, improved the debt to cash flow ratio to 0.9 times, and created a much more substantial entity with an enterprise value of approximately $1.8 billion.

    Operationally, Daylight has conventional production and extensive land holdings in Alberta, including assets in the West Central, Pembina, and Central regions of the province. However, the trust’s core Deep Basin properties could hold significant resource potential. Importantly, cash flow from Highpine’s Pembina light oil and Daylight’s conventional natural gas, with a significant amount hedged at an average price of $8 per 1,000 cubic feet (mcf) AECO (Alberta gas spot price), will be used to develop this resource play.

    A resource play has to have a large, repeatable drilling inventory, with low geological risk and very attractive economics. Development becomes almost “cookie-cutter” over several years, with hundreds of wells drilled if sufficient capital is available. Therefore, the importance of Daylight’s cash flow from oil production and hedged natural gas production cannot be overstated.

    Essentially, the trust’s Deep Basin, Elmworth assets are prospective for the Cadomin, Nikanassin, and Montney formations. The area contains 130 net sections of land with the potential for four wells per section, or 520 wells total. Even with capital costs of $7 million per well, and assuming a $5 AECO per mcf gas price, each well has a net present value of $5.1 million according to Daylight’s internal estimates. If we consider the number of possible drilling locations, the appropriately risked upside is quite exciting, to say the least.

    Pro forma the Highpine acquisition, Daylight is still in excellent financial shape. With combined bank credit facilities of $550 million and $205 million drawn at the end of the second quarter, the trust has ample flexibility to pay its distribution or even consider a smaller, tuck-in type acquisition. An acquisition larger than $300 million would require converting back to a corporate structure, which we believe is likely to occur anyway some time in early 2010. Finally, under current assumptions, the trust’s payout ratio should remain around the 50% to 55% range, which is quite conservative.

    Using the trust’s 2008 year-end financial and reserve data, we believe that Daylight is still trading below its net asset value of $9.78 per unit. Although adding Highpine increased proven and probable reserves from 76.9 million boe to 108.1 million boe, the net asset value per share is unlikely to have changed materially. However, accelerating the development of the trust’s resource plays has the potential to significantly increase the NAV per share going forward.

    We believe that Daylight’s management, led by Anthony Lambert and Steve Nielson, are building a significant medium-sized company. Through organic growth and perhaps additional acquisitions, we believe that Daylight could become a much larger entity. Conversion back to a corporation is inevitable and even if the distribution is reduced we believe that the market would positively focus on the growth opportunities that would become available. In the meantime, we are getting paid to wait for the natural gas price to recover and the development of trust’s key assets to play out.

    The shares trade primarily on the TSX but also trade over-the-counter in the U.S. under the symbol DAYYF. The closing price there on Friday was US$7.68.

    Action now: Buy at current levels.

     

    IRWIN MICHAEL’S UPDATES

    Morguard Corp. (TSX: MRC)

    Originally recommended on Oct. 6/03 (IWB #2336) at $20.55. Closed Friday at $29.49.

    Since our last update in early May, the shares of Morguard Corporation have rallied approximately 50%. At the 52-week low price of $12.91 in March, the stock traded below 0.4 times book value, the lowest multiple in ten years.

    Today, at 0.75 times the current book value of $39.81, some rationality has returned but the shares are still relatively inexpensive. Further, the stock’s dividend yield of 2% is reasonably attractive, especially when benchmarked against historically low interest rates.

    The catalyst for the share price move, other than a general improvement in the appetite for risk, was the anticipation and subsequent release of the company’s first-quarter results on May 7. Despite the turmoil in the economy, Morguard reported an increase in total revenues to $88 million from $80.9 million a year ago. Funds from operations increased to $27.5 million or $1.96 per share compared to $25.5 million or $1.83 per share for the same period in 2008.

    Operationally, the occupancy levels were quite good with the exception of the loss of the sole tenant from a 260,000 square foot industrial facility in Danville, Virginia in the third quarter of 2008. This has continued to impact the occupancy rate in the office industrial segment, which declined from 94.3% in March 2008 to 84.8% in 2009. Excluding the tenant that filed for Chapter 11, the company’s office and industrial occupancy rate would have been 94.7% in 2009. 

    However, the diversified nature of the company’s portfolio is validated by examining the occupancy rates across the other segments. Multi-unit residential occupancy rates in Canada only declined to 96.8% from 97%, multi-unit residential in the U.S. improved to 91.4% from 90.9%, retail in Canada improved to 96.5% from 95.1%, and retail in the U.S. only declined to 93.5% from 94.5% on a year-over-year basis.

    Second-quarter results, which were released in August, confirmed the company’s financial strength. Total revenues for the three months to June 30 increased to $86 million from $82.9 million for the same period in 2008. Net operating income was $37.7 million compared to $37 million last year while net income from continuing operations totalled $6.7 million compared to net income of $6.2 million in 2008. Funds from operations for the second quarter increased to $28.7 million or $2.04 per share compared to $27 million or $1.92 per share in 2008.

    The rally in the shares was further supported by the announcement on July 30 that the corporation had successfully refinanced or obtained commitments to refinance almost all of the mortgages maturing during 2009. Including refinancing activities in December 2008, Morguard obtained approximately $289 million of which $139 million was used to repay maturing mortgages. 

    Importantly, the weighted average interest rate on the new borrowings was 4.57%, replacing debt with an average interest rate of 6.17%. All told, the company has approximately $165 million of cash, loans due on demand, and borrowing capacity under existing credit facilities.

    Now that the worst has past for the Canadian real estate market, we believe that the rally in Morguard’s stock could continue, albeit with short-term volatility. One potential catalyst that could propel the shares toward the company’s book value would be property acquisitions. As always, those with excess capital in times of duress tend to emerge stronger than financially weaker competitors.

    In the meantime, the company continues to buy back its stock in the open market at prices well below book value. In a statement released on Sept. 18, Morguard said it purchased 177,635 common shares for cancellation during the previous 12 months at an average cost per share of $22.30. The company also announced a new normal course issuer bid to purchase up to 710,069 common shares (about 10% of the outstanding public float) between now and Sept. 21, 2010. Share buy-backs are considered to be positive news for investors as the reduced amount of stock increases earnings per share and enhances the possibility of higher dividends in future.

    Action now: Buy.

    – end Irwin Michael

     

    CITADEL STAND-OFF

    Suppose they staged a big fight and nobody won? That’s exactly what happened in the battle over control of the Citadel funds. In the end, neither side was able to carry the day in the special shareholders meeting because of the fact that 75% support was required to carry several of the key resolutions. The result is what fund manager Paul Bloom describes as “a Mexican stand-off”.

    The meeting, which was held on Sept. 30, was essentially over who would control the future of the Citadel funds. The contenders were Wayne Pushka, president of the company that took over the funds’ administration in June, and a group called Blue Ribbon Asset Management which was formed by Mr. Bloom and Brompton Fund Management.

    Both sides wanted to consolidate several Citadel funds into one. Mr. Pushka had selected the Montreal-based firm of Jarislowsky Fraser to run the new fund his organization would create. Mr. Bloom would remain in charge had the Blue Ribbon proposal carried.

    Unitholders from each fund voted separately on the proposals. In several cases, Blue Ribbon came close to overcoming the 75% barrier but couldn’t quite make it. Shareholders of the Citadel S-1 Income Trust Fund (TSX: SDL.UN) voted 74.4% in favour of Blue Ribbon; investors in the Series S-1 Income Fund (TSX: SRC.UN) were 73.6% in favour; owners of Citadel HYTES Fund shares (TSX: CHF.UN) gave a 70.9% mandate to Blue Ribbon; while the favourable vote from unitholders of Citadel Diversified Investment Trust (TSX: CTD.UN) was 68%. Owners of shares in Citadel Premium Income Fund (TSX: CPF.UN) also endorsed Blue Ribbon albeit by a smaller margin of 58.1%.

    “Clearly unitholders expressed a strong desire to support the Blue Ribbon proposal for these funds however the high threshold of 75% made it difficult to achieve,” commented Mark Caranci, President of Brompton and Blue Ribbon Fund Management.

    Only the unitholders of Equal Weight Plus Fund (TSX: EQW.UN) approved the Citadel Reorganization Resolution. As a result, they will be able to redeem their units under the terms of a special redemption privilege announced by Citadel prior to the meeting. Those who don’t redeem will become unitholders of the new Citadel Income Fund which will be created by the merger of Equal Weight Plus and Mr. Pushka’s Crown Hill Fund.

    Everyone else has been left in limbo. Owners of units in the other funds will not be accorded the redemption privileges although they can still sell their shares on the TSX if they wish.

    “We are extremely disappointed by the fact that these meetings were frustrated and did not produce a clear result,” Mr. Pushka said in a statement.

    Mr. Bloom, who is being sued personally by Citadel for his role in creating the hostile bid, also expressed disappointment “especially when we came so close”. He described the voter participation of 30% to 50% as “huge” for funds which are almost entirely owned by retail investors as opposed to institutions such as pension plans.

    “It’s a very unsatisfactory outcome for me and probably for him (Mr. Pushka) as well,” he said. However, he dismissed as “codswallop” media suggestions that the Citadel funds will now be in a state of paralysis.

    “I am still the funds’ manager and he (Mr. Pushka) is still the administrator. We have been working together on a day-to-day basis and we will continue to do so. The store is being minded.”

    But he acknowledged that, longer term, some resolution is needed and he expressed the hope that “cooler heads will prevail”.

    “Everyone is unhappy right now,” he said. “Unitholders need some certainty and hopefully there will be negotiations to that end after a cooling-off period. But don’t hold your breath waiting for that to happen.”

    The only affected fund on the IWB Recommended List is Citadel Diversified Income Trust. It fell 13c after the results were announced and closed on Friday at $7.34. That is a discount of 18% to the latest published net asset value per unit of $8.95 (Oct. 1).

    If you own units in this fund, I suggest you hold on to them for now. Paul Bloom is still calling the shots and once the smoke clears we should see some narrowing in the discount to NAV. At that point, we’ll revisit this on-going saga. – G.P.

     

    THIRD-QUARTER SCORECARD

    Don’t be too discouraged by the weak start to October in the markets. September began badly too but by the time it was all over almost all the world’s major stock indexes were in positive territory for the month. The lone exception was the Tokyo Nikkei which fell 3.4%.

    The top performer among the major markets was Hong Kong where the Hang Seng Index gained 6.2% in September. Britain and Germany were the leaders among the big European indexes with 4.4% advances on each of their Dows. Here in North America, the Nasdaq Composite was the big winner with a 5.6% jump during the month. The S&P 500 and Dow Jones Industrial Average were well behind with advances of 3.6% and 2.3% respectively. Our own S&P/TSX Composite Index had a respectable showing, adding 4.8%.

    The biggest news was in the emerging markets. Brazil’s Bovespa Index jumped 8.4% in September and at that point was showing a year-to-date gain of 63.1%. The winning streak continued this month with the news that Rio de Janeiro has been awarded the 2016 Summer Olympics. India’s NSE 50 Index gained 9% in September and was up an impressive 71.8% for the first nine months of the year. That was the best result for any global market of significance.

    At the end of the third quarter, the TSX Composite was ahead 26.8% for 2009. Perhaps more important, the year-over-year drop was down to only 3%. The TSX continues to outperform the S&P 500 and the Dow by a wide margin this year, as well as all the major European indexes.

    So with three-quarters of the year behind us, we’re doing better than anyone expected back in January. The big question now is: Will it hold? – G.P.

     

    GORDON PAPE’S UPDATES

    Dynamic Value Balanced Fund (DYN9194)

    Originally recommended on June 22/09 (IWB #2923) at $15.80. Closed Thursday at $17.49.

    I recommended this fund as being especially well-suited for a Tax-Free Savings Account (TFSA) although it of course can be profitably held anywhere.

    So far, manager David Taylor has been doing a good job for us. As of the close of trading on Oct. 1, we had a capital gain of $1.69 plus 14c in distributions (the fund pays out 3.5c per unit monthly). That works out to a profit of 11.6% in a little more than three months. Sure beats a GIC!

    As of the end of August, 61.3% of the fund’s assets were invested in stocks with most of that in Canadian securities. Major holdings include Osisko Mining, which has more than doubled in price since the start of this year, and HudBay Minerals, which is trading at about three times its opening 2009 price. Others large positions are in Brookfield Properties, Manulife Financial, Arch Coal, EnCana, Canadian Natural Resources, and Royal Bank. About 36% of the portfolio is invested in the resources sector.

    Over the years, I have observed that mutual funds often go on prolonged winning streaks. When that happens it’s a good idea to ride along until such time as the manager shows signs of running out of steam. So stick with this one and if you don’t own units consider adding some now.

    I recommend buying front-end load units at zero commission (the code is DYN9194). However, if you have access to the lower MER F units, they could be your pick (DYN3035).

    Action now: Buy.

    TransCanada Corp. (TSX: NYSE: TRP)

    Originally recommended by Yola Edwards on April 24/06 (IWB #2616) at C$34.07, US$29.92. Closed Friday at C$32.63, US$30.21.

    TransCanada announced last week that it has won the bid to construct a $1.2 billion natural gas-fired power plant in Oakville, Ontario. The 900-megawatt facility, which is expected to be operational in late 2013, is part of the Ontario government’s program to replace polluting coal generating plants with clean electricity-producing technology driven by solar, wind, and gas.

    The new plant will be owned by TransCanada, which will have a 20-year contract to supply power from it to the Ontario Hydro grid.

    “This facility strengthens our presence as the largest private sector power company in Ontario and Canada,” said TransCanada CEO Hal Kvisle. “The Oakville generating station is a strong fit with our strategy of developing large scale energy infrastructure projects that will produce stable, long-term returns for our shareholders.”

    Obviously, the financial benefits of the plant are long term and the stock slipped following the announcement, although that probably had more to do with the negative state of the markets at week’s end.

    Action now: Buy. – G.P.

     

    BEWARE OF NAME IMITATORS

    It has come to our attention that a number of other websites have appeared recently using the name Internet Wealth Builder. These sites promote work-from-home plans, get-rich-quick courses, and other products.

    We are not affiliated in any way with any of these ventures, nor do we endorse them. Unfortunately, there is no legal way to stop these organizations from using the Internet Wealth Builder name as titles cannot be copyrighted.

    All we can do is to alert our members to the fact that we have no connection with any of these companies and we urge you to exercise due diligence if you should ever consider dealing with them. – G.P.

     

    WORLD MONEY SHOW

    Although most of the events at the World Money Show in Toronto are free, there is one paid function and you can save $10 if you sign up by Tuesday, Oct. 6.

    It’s a Power Lunch discussion on the topic: Which Stocks Will Be The Next Ten-Baggers? I will be a panellist along with Gavin Graham of BMO Asset Management, who is a contributing editor to our companion newsletter, The Income Investor. Other participants will be author Jim Jubak, one of the most widely-read investment commentators on the Internet, and Ryan Irwine, who specializes in identifying under-followed small- to mid-sized companies that are financially sound and producing solid growth. The moderator will be best-selling financial author Terry Savage who writes a syndicated column that is carried in newspapers across the U.S.

    The regular price is $59, which includes a light lunch. But if you take advantage of the advance registration fee, the cost is only $49. Full details at www.worldmoneyshowtoronto.ca. You can also register for the show itself on that site, at no cost.

     

    That’s all for today. We will take next weekend off so that our staff can spend a quiet holiday with their families. (We publish 44 times a year). We will be with you again on Oct. 19. Happy Thanksgiving to all.

    Best regards,

    Gordon Pape
    gordon.pape@buildingwealth.ca
    Circulation matters: customer.service@buildingwealth.ca

    All material in the Internet Wealth Builder is copyright Gordon Pape Enterprises Ltd. and may not be reproduced in whole or in part in any form without written consent. None of the content in this newsletter is intended to be, nor should be interpreted as, an invitation to buy or sell securities. All recommendations are based on information that is believed to be reliable. However, results are not guaranteed and the publishers, contributors, and distributors of the Internet Wealth Builder assume no liability whatsoever for any material losses that may occur. Readers are advised to consult a professional financial advisor before making any investment decisions. The staff of and contributors to the Internet Wealth Builder may hold positions in securities mentioned in this newsletter, either personally or through managed accounts. No compensation for recommending particular securities, services, or financial advisors is solicited or accepted.