We began reducing Equity exposure in the first week of May.  Based on our view that the sovereign debt issues in Europe were not going to go away, the fact that the markets were up some 70% over the previous 14 months and seasonality of the markets over the summer months we decided to reduce our client's exposure to the stock market.

Since 1950, 70% of the time the US market has been flat to lower between late May and late October every year.  This does not happen every year and last year was an extreme exception to this 'seasonal trade.'

Since the markets peaked in late April they are down approximately 13%, at the time of writing on June 7.  We anticipate the sell-off to level off between 15 and 20%.

We still favour energy stocks, and specifically companies that produce Natural Gas.  Please see the attached response from ScotiaCapital's highly respected commodity expert, Patricia Mohr, to my question ' What is contributing the strength in Natural Gas over the last week?'  NG is up 24% since May 3rd.

"Natural Gas prices rose just below US$4.80 per mmbtu on Friday -- pushed up by hot weather in the Southern United States (boosts gas-fired generation for air conditioners), the outlook for a more active hurrican season in the US Gulf this year, and ongoing concerns about the effect of the moratorium on new drilling in the deepwater US Gulf (plus the cessation fo drilling by 33 rigs already there).  However, please note that the US Gulf only supplies about 19% of US domestic supplies of Natural Gas --US Gulf drilling is mostly targetting oil.  There was a blowout at a drilling rig in the Marcellus Shale, though it was capped quickly.

"While prices could well rise further as we move through the summer, I think US$6 is about as high as it may go -- maybe US$7 if you are lucky -- though anything can happen temporarily.  At US$6 the shale basins are extremely lucrative and there would be stepped-up drilling -- eventually bringing prices down again.  My price forecast is an average of US$4.75 per mmbtu in 2010 and 2011 (with a lot of volatility up and down) -- slightly higher than 2009's US$4.15 due to better industrial demand with a recovering US economy, but below the US$7-9 of recent years.  In my view, Natural Gas equities should only be bought if the company has a leading position in the shales and prospects for good volume growth at low cost."  Pat