Stockscom Report for Sunday Apr 23 2006

Publisher: Colin Alexander Editor: Ken Wilson (450-691-4617)

Subscriptions and Administration: Pierre Fichaud (toll-free: 866-487-9711)

· President Hu goes to Washington

· Earnings season continues

Market Synopsis

The president of China, Hu Jintao, visited Washington this week holding talks with President George W. Bush where undoubtedly the hot topics included trade and currency exchange rates. Certainly from the point of view of the US, these are the hottest topics and with a 2005 trade deficit of $202 billion with China alone, the view from Washington is that there is an awful lot of room for improvement, approximately $202 billion. And this is where the exchange rate comes in.

Politicians from both sides are feeling the heat from their constituents who are persuaded that China is to blame for the massive jobs lost in manufacturing the past several years and with a fall election for many congressmen, those wishing to be re-elected are more than willing to foist the blame on an outsider, any outsider. The Chinese currency, the renminbi, had been fixed until last summer when it was floated in an acceptable trading band and although the band has widened lately, the tight control exerted by China’s central bank has prohibited the renminbi from appreciating much. The theory employed most often is that a Chinese currency allowed to appreciate to its true value would somehow spark a better trade balance raising costs in China sufficiently to reverse the loss to US manufacturing. What we have here is a case of history repeating itself.

In 1985, the culprit in unfair trade practices was Japan, which was maintaining a cheap yen far beyond what was determined to be fair and thus encouraging exports invariably to the US. At that time the current account deficit as a proportion of GDP topped out at 3.4% (against the 2005 figure of 6.4%). Bills were submitted in the US Congress detailing sanctions to be doled out in the event that Japan didn’t heed the advice of American politicians to reduce their portion of the entire trade deficit, which ironically amounted to an unheard of $50 billion.

But Japan in 1985 was far different than China in 2006. For starters the Japanese per capita income in 1985 was approximately $21,600 and evidently it was not a developing country though per capita income had been increasing at the rate of 5.8% annually. At the time, it was a member of the G-5, representing the five largest economies in the world; an organization that was later expanded to the G-7 and sometimes includes Russia in a G-8 configuration.

China while representing an increasing proportion of the global economy remains well below this level of comparison however it is intuitive to look at Japan in 1960 for some valid comparisons. In 1960, Japan’s per capita income was just over one-third of that of the US while China’s is approximately $6,300 in 2005 versus the US per capita income of $42,000. Owing to the huge population differences between Japan and China, Japan's share of aggregate global GDP was 4.1 % in 1960 while the corresponding figure for China is 13% in 2004.

The mid-1950’s saw a trade battle erupt between Japan and the US over $1 blouses. The textile industry in the US complained about the enormous increase in blouses exported from Japan into the US. As a result of American pressure tactics, Japanese industry shifted from low value – low technology – labor-intensive operations to higher value – higher technology items requiring less labor-intensive operations. Japan progressed from textiles through electronics into machinery. China has been evolving rapidly and is investing in industries, which manufacture higher value goods for even now there are anecdotal reports of labor shortages in labor-intensive plants.

When Japan joined the GATT in 1955, trade restrictions were placed on Japan to prevent a flood of cheap exports to wealthier countries, namely the US and those in Western Europe. Similarly, China has been the subject of restrictions as part of its acceptance into the WTO.

Looking to the future, there is a strong likelihood that development in China will follow many of the same characteristics as Japanese economic development. Some of these we are already witnessing such as the production of higher technological machinery and foreign investments to secure much needed resources. To that end, it is instructive to note that the Chinese President did not return home after leaving Washington but rather has made a stop in Saudi Arabia for a three-day state visit where among other items, he discussed plans for a $5.2 billion petrochemical complex and refinery to be jointly built by Saudi Arabia and China in China. This is not the first joint venture for there is one Saudi-refinery already being constructed in China with another one in the planning stages.

Technically Speaking

With a large number of quarterly results to be announced this week including large cap firms such as Microsoft, Exxon Mobil and Caterpillar, equities are expected to trade largely based on quarterly results and future outlooks. Economic indicators to be released this week include the durable goods, consumer confidence and first quarter GDP.

The different market indexes have ventured in two different directions with the broader markets once more leaning higher in territory not seen for several years while the tech-heavy Nasdaq index remains bogged down by weak performing stocks among the ND-100. Both the Dow Jones and the S&P 500 logged weekly reversals with the Dow managing to achieve an outside week higher setting the stage for an attack on the all time high of 11,750. Considering that the S&P is currently 240 points below its own all-time high, the Dow is the only large cap index in a position to set a new high.

New Buy Recommendations (in order of preference):

None.

New Short Sales

None.

Stock Positions to Sell/Exit:

None.

Portfolio Comments:

New stops have been added to the list while others have been modified. Those that have blanks, are being carried unstopped for now. Please see our complete list of stops in the table below.

List of Current Stock Recommendations:

Action Ratings. The following is the legend for designating immediate action
for our stock recommendations. The first is B, meaning the stock is timely
to buy but the case for doing so right here is not overwhelming. Either the
stock may have gotten ahead of itself and may be vulnerable to a retracement or
else the stock has been performing disappointingly but may simply be
regrouping. B+ and B++ indicate stocks for which there is a technical case
to buy now, with plusses adding weight according to how many there are, up
to a maximum of two. Stocks rated H are ones to hold, awaiting confirmation
to buy more or to sell. SELL, of course, means what it says. It seldom pays
to override this designation. In the case of stocks held short, the rating is S where positions should be retained. S+ and S++ indicate stocks for which there is a technical case to add to the positions with plusses adding weight similar to long positions. The maximum number of plus signs is 2.

N.B. There are no longer restrictions on foreign stocks held in Canadian retirement savings accounts.

Date of Entry	Name	Symbol	Entry Price	Current Price	Stop	Action Rating
11/21/05	Amer Sci & Eng	ASEI	71.08	85.44		B
03/27/06	Anadigics	ANAD	6.85	8.68		B
11/14/05	Birch Mtn Resour.	BMD	6.65	7.95		B+
02/21/06	Cdn Natural Res	CNQ	58.00	63.22		B
03/20/06	LSI Logic	LSI	11.25	10.00		H
01/30/06	Nasdaq Stock Mkt	NDAQ	45.98	41.20		H
01/09/06	Nuvelo Inc.	NUVO	12.95	17.20		B
01/09/06	Progenics Pharma	PGNX	29.70	24.45	23.00	H
11/07/05	Redback Networks	RBAK	11.78	22.94	18.00	B
03/20/06	RTI Int’l Metals	RTI	47.70	60.10		B
01/09/06	Seabridge Gold	SA	9.49	9.46	8.00	H**
01/09/06	Sierra Wireless	SWIR	13.60	17.93		B
04/10/06	Silver Wheaton	SLW	11.06	10.90		H
02/27/06	Stereotaxis	STXS	13.57	11.95	11.00	H
03/27/06	Texas Industries	TXI	64.55	60.50	57.00	H
11/14/05	Tom Online	TOMO	20.66	28.17		B
03/08/04	Transcanada Corp	TRP	21.34	29.92	28.00	B

New stops in BOLD

* Stop on a closing basis

** Buy if above entry price

*** Split-adjusted price