Key Market Facts

January 30, 2008

Interest Rates Will Continue to Go Lower in 2008

Since mid July, equity and financial markets have been quite volatile. Initially it appeared we were having a typical market pullback however as we settled into August more and more discussion revolved around the US housing market, the sub prime mortgage issue and then the global liquidity crisis that resulted from it. All equity markets have been negatively affected by this. The primary concern is around the extent the derivative market is wrapped up in US sub-prime debt. The actual US housing crisis is secondary but still important.

Since August 2007, the Federal Reserve Board has cut both the Fed Funds rate and the Discount Rate by 2.25 percentage points in an effort to ease credit markets for both businesses and households. During the same period, the Bank of Canada has cut the Bank Rate by half a point. In the short term there will continue to be market volatility as the actual impact of US sub prime debt and the derivatives created from it, in both the domestic and global economies, is still unknown. Equities are reacting to both the uncertainty of the financial condition of financial institutions and the uncertainty surrounding the impact a global slow down will play on the demand for goods and services.

I believe market volatility will continue going forward. In part this is due to the globalization of our economies and our interdependence and in part on the complicated way our financial markets are structured. We will continue to see lower rates in both Canada and the US until it is evident that growth is no longer slowing but is in fact regaining traction. We have not seen any negative growth in either Canada or the US to date but we have seen a significant slow down over the past two quarters. I believe the next two quarters will definitely confirm whether we are going to bounce off of an economic slow down or actually have a recession.

It is natural as an investor during a period of increased volatility to feel jittery about the market and to become more cautious. Historically, the period after a market decline is not a time to be extra cautious. In fact it is prudent to stick with your disciplined approach to investing through good markets and bad. The market is not predictable and over time there are as many positive days as negative ones.

Historically when the market is feverishly selling off, all companies are affected, the good with the bad. Those with strong fundamentals, sound balance sheets and positive net free cash flow will lead the market when it turns around, the others will either never to be seen again or they will come back at a slower than average rate of growth.

If you are feeling disturbed or alarmed about the volatility that your investment portfolio is experiencing then this would be a good time to reassess your tolerance for risk and the asset allocation of your portfolio. The process by which you select your investments should not be directed by the day-to-day market volatility. It should be part of your long-term investment strategy and financial plan. If for one reason or another you do not feel that your current plan is suited to your investment objectives and risk tolerance level, then it should be adjusted accordingly.

I invite all my clients to please contact me to review your investment mix to determine whether it is still in line with your investment objectives. The beginning of any year is always a good time to review the past and more importantly to have a plan for the future.

Registered Education Savings Plan Changes

The following changes have been approved for RESPs. The annual contribution limit eligible for a Canada Education Savings Grant (CESG) has increased from $2,000 to $2,500 which will provide for a $500 grant. The lifetime CESG remains at $7,200.

The $4,000 annual limit has been eliminated and the lifetime contribution limit has increased to $50,000 from $42,000. If you choose to make the entire lifetime contribution in one year you will be foregoing most of the $7,200 CESG as the government will only provide a one time $500 grant ($1,000 if there was unused grant room).

For additional information or to set up a plan for your children or grandchildren please contact our office at 604 257-7077.

Electronic Statements Now Available for Clients of RBC Dominion Securities

eStatements are now available for many RBC Dominion Securities accounts. To see if you are eligible for an eStatement you must be registered for RBC Dominion Securities online access.

However certain situations and account relationships will not allow for eStatements. Only the primary on the account will be able to receive their statements electronically. At this time both interested parties and trading authorities can only receive printed statements. Business/corporate accounts will be able to access their accounts electronically however a form must be completed. For more information on how to switch to electronic statements please contact Irfhan at 604 257-7077.

Pension Income Splitting

Canadian residents that receive pension income that qualifies for the current pension tax credit will be allowed to allocate up to 50% of this income to their resident spouse or common-law partner beginning in the 2007 tax year.

Income splitting refers to the strategy of shifting income from a higher to a lower, tax bracket family member. The net effect is more after-tax income for the family. This recent amendment to the taxation rules may provide tax relief to seniors, in particular, those whose only source of income is pension income.

The types of income that qualifies depends on the age of the person who is the primary recipient of the income. Eligible pension income generally includes the following income sources:

Any age

• Periodic payments from a defined benefit plan
• Certain annuity income received as a result of the death of a spouse or common law partner

Age 65 and older

• RRIF (including LIF, LRIF,PRIF) payments
• Payments received from annuities purchased from a registered plan
• Taxable portion of payments under certain prescribed annuity contracts ; and
• Periodic payments from money purchase plan

The following income types do not qualify under this new pension income splitting; lump sum payments from an RRSP, CPP, QPP, OAS and payments from an RCA. CPP can however be split with a spouse once both individuals are 65.

Couples over the age of 65 may now be eligible for two pension income tax credits (to a maximum of $2,000) where before only one was available.

The election to pension split is an annual election. Each year you must decide whether you are going to pension split based on your circumstances for that year. If you have any further questions about this new tax treatment for 2007 please contact your accountant or our office at 604 257-7055.

RBC Dominion Securities Inc. is a member company under RBC Investments. The information contained herein has been obtained from sources believed to be reliable at the time obtained but neither RBC Dominion Securities Inc. nor its employees, agents, or information suppliers can guarantee its accuracy or completeness. This report is not and under no circumstances is to be construed as an offer to sell or the solicitation of an offer to buy any securities. This report is furnished on the basis and understanding that neither RBC Dominion Securities Inc. nor its employees, agents, or information suppliers is to be under any responsibility or liability whatsoever in respect thereof. The inventories of RBC Dominion Securities Inc. may from time to time include securities mentioned herein. RBC Dominion Securities Inc. and Royal Bank of Canada are separate corporate entities which are affiliated. Investment Advisors are employees of RBC Dominion Securities Inc. Member CIPF. ?Trademark of Royal Bank of Canada. RBC Investments is a registered trademark of Royal Bank of Canada. Used under licence.©Copyright 2003. All rights reserved

RBC Dominion Securities Inc. and its affiliates may have an investment banking or other relationship with some or all of the issuers menioned herein and may trade in any of the securities mentioned herein either for their own account or the accounts of their customers. RBC Dominion Securities Inc. and its affiliates also may issue options on securities mentioned herein and may trade in options issued by others. Accordingly, RBC Dominion Securities Inc. or its affiliates may at any time have a long or short position in any such security or option thereon.

Insurance products are offered through RBC DS Financial Services Inc and RBC DS Financial Services (Ontario) Inc. (« companies ») The companies and RBC Dominion Securities Inc. are member companies under RBC Investments and are separate corporate entities which are affiliated. When discussing and selling life insurance products, Investment Advisors are acting as Insurance Representatives of RBC DS Financial Services Inc or RBC DS Financial Services (Ontario) Inc.