Key Market Facts

March 4, 2003

Level YTD Indices     S&P 500 821.99 -6.57% DJIA 7704.87 -7.63% S&P/TSX 6422.33 -2.91% Currencies / Commodities CAD / US 1.4763 -6.19% US / EURO 1.0886 3.80% Gold $US 353.30 1.46% Crude Oil $US 36.89 18.24% Natural Gas $US 7.041 47.02% Interest Rates Canadian Bank Rate 3.25% 8.33% Canadian Prime Rate 4.75% 5.56% Fed Funds Rate 1.25% 0.00 Us Prime Rate 4.25% 0.00

On February 18th, Finance Minister John Manley presented the 2003 Federal Budget. This budget proposed large increase in spending with little relief in taxes. Very little attention was paid to the federal debt, which currently consumes 22% of all federal government revenues with servicing. This servicing cost will increase as interest rates move higher. As Ottawa is talking about reducing the share of long-term outstanding debt and replacing it with shorter term, this could happen sooner than later.

In general, the budget was lacking in focus. It appeared that the Liberals were attempting to please everyone without making changes that might have a significant impact on any one item. The increases are spread thinly across various programs. In order to maintain a balanced budget and continue to produce surpluses, I believe that any increased spending should be balanced with reductions in other areas. I agree with those that feel Canada would have been better served with smaller increases in program spending and a reduction in taxes. This year the US reduced taxes while our taxes remained unchanged, greater widening the gap between our two countries and reducing instead of improving our tax competitiveness.

Today the Bank of Canada increased interest rates by 25 basis points moving the bank rate from 3.00% to 3.25%. The major banks followed suit, increasing the prime rate to 4.75% from 4.50%. There were a number of reasons sited by the Bank for the increase in rates however, I believe that stimulus to the economy of the proposed increase in federal spending, coupled with the February 27th release of the consumer price index (CPI) which came in much higher than expected at 4.5% vs. the expected 4.1%, forced the Bank to act. The Bank of Canada’s goal for monetary policy is to keep inflation at 2%, which is the midpoint of the 1-3 percent inflation control target.

My concern is that the decline in the 3rd quarter and the lower than expected growth in 4th quarter Canadian GDP, coupled with Fridays upwards revision in the 4th quarter US GDP, makes the banks move slightly premature, especially in light of the current geopolitical unrest.

Tightening (raising) interest rates will slow down the Canadian consumer however it appears that the problems in the US are already doing that for us and that higher rates at this time may just exacerbate this slowing trend.

I believe that once the unrest in the middle east and the North Korean concerns are behind us, we will see rates in both the US and Canada increase. Too much tightening in advance of that may be quite stifling for Canada going forward.

Estate Planning Seminar Back by Popular Demand

Due to the overwhelming, positive response I had from those who attended the Estate Planning Seminar last fall, I will be hosting another one this month.

The seminar will be held on Tuesday March 25, 2003 at 3:00pm. It will take approximately 1 hour and will be located in our 31st floor boardroom at 666 Burrard Street.

Our guest speaker will be Bruce Hirtle, C.F.P., CLU, and CH.F.C. of RBC Dominion Securities Financial Services Inc. Bruce has over 30 years of experience in the financial services industry.

This is a must attend seminar for everyone. By planning for tomorrow today, you can retain more of your assets, protect your estate and leave a lasting legacy for your family. Young or old, wealthy or middle class, an estate plan can reduce the taxes and expenses of an estate, simplify and speed the transition of assets to the next generation, ensure that minor children and other beneficiaries are protected and that the people you have chosen receive your assets.

We encourage you to bring your spouse or a family member that may be instrumental in assisting you with your plan. Please RSVP to either myself at 604 257-7055 or my associate Jas Salh at 604 257-7359.

Berkshire Hathaway – Annual Letter Soon to be Released

Warren Buffett, CEO of Berkshire Hathaway Inc. will be releasing his annual letter to shareholders this weekend on Saturday March 8th. It will be available on the company’s website at www.berkshirehathaway.com or you can call me for a copy. This letter, which has been written annually since 1965, presents Warren Buffett’s own thoughts on a number of issues affecting the markets today along with the 2002 results. In this years letter he will report on the difficulties in exiting the derivatives business he inherited in his 1998 purchase of General Re.

The stock price of Berkshire Hathaway was been negatively affected by the general weakness of the insurance sector. American International Group Inc. (AIG) the largest insurer’s stock price was crushed on news in early January that it would be taking a $1.8 billion after-tax charge to its fund reserves. Although there is a risk that Berkshire Hathaway will also have to take a charge against reserves, the company has a much stronger balance sheet than the rest of the insurance sector and could actually use this news as an opportunity to pick up business from struggling rivals. Another factor affecting not only Berkshire Hathaway but also the entire insurance group has been the heightened alert in the US due to the current situation in Iraq.

Berkshire Hathaway is a conglomerate owning a number of different companies, equities and other securities. Although they have a large exposure to the insurance business it is not their only business and with 41 billion dollars on the balance sheet they are in a great position in today’s market environment.

Did You Know?

Through my association with RBC DS Financial Services Inc., I have
recently acquired some state of the art financial planning software that allows my team and I to put together for you a comprehensive financial plan. This plan not only looks at your current financial position, but projects where you will be in years to come based on assumptions decided upon by both you and myself.

Reviewing a plan like this is a very useful tool for projecting cash flow and net worth, for analyzing retirement capital needs and determining what your estate capital needs will be. If you would like me to put together a comprehensive plan for you please call either myself, Jas or Meenal to book an appointment.

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