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Non-Tech : The Woodshed -- Ignore unavailable to you. Want to Upgrade?

To: SwampDogg who wrote (41749)	10/31/2006 9:27:10 PM
From: Condor	Read Replies (1) \| Respond to of 60903

43 minutes ago +++++++++++++++++++++++++ Get ready for an ugly day David Berman, National Post Published: Tuesday, October 31, 2006 If you own income trusts in your investment portfolio, get ready for an ugly day. The federal government’s decision to discourage Canadian companies from converting into income trusts — which pay out most of their profits to investors in the form of regular cash distributions — will undoubtedly lead to a lot of hand-wringing among investors. It will also lead to wholesale selling as investors of all stripes cut their exposure to trusts and run for the exits. The last time the government tried to put a brake on trusts, in October, 2005, the results were devastating for existing income trust investors. The S&P/TSX capped income trust index, which tracks the performances of 72 different trusts, tumbled 15% over the next two weeks. Retail and institutional investors unloaded their holdings, figuring the party was over. After bottoming out in mid-October of last year, amid cries from investors and a rethink from the federal government, trusts did mount an impressive rebound that erased those losses. This time don’t expect any rethinking or a sharp rebound. Ottawa appears to be more or less united behind this change. And the chances of a reversal on this decision are close to zero, given that both the Liberal party (last year) and now the Conservative party (yesterday) have addressed this issue with similar solutions. Yes, the government has attempted to soften the blow with a four-year transition for existing trusts. Those trusts you already own won’t be penalized with higher taxes until 2011. In other words, it’s business as usual today. However, investors don’t like endings, even when they’re four years out. Would you invest in a timber company if you knew that the cutting of trees was about to be made illegal? Would you invest in a fish-processing company if you knew that fish stocks would be depleted in four years? Just as bad, some existing income trusts will pre-empt the government-imposed tax changes and convert back into corporations, taking their cash distributions with them. Investors who own shares of BCE Inc. and Telus Corp. — among the most widely held stocks in the country — should also steady themselves for a sudden reversal of fortune today. When the two telecommunications firms recently announced they would convert into income trusts, their shares soared on the news: Telus shares have risen 24% since the announcement was made on the hopes that the trust would pay out a fat distribution. BCE shares have risen 16% for the same reason. Now, with both plans about to be quashed, those spectacular gains will be reversed and then some. Investors who bought into the trust-conversion news will be left with substantial losses and a whole bunch of questions for the government. However, if you’re looking for a silver lining, there is one. Investors who can pluck up the courage over the next few weeks — maybe even days — should find that trusts have fallen far further than they deserve, putting them deep into bargain territory. Given the determination of the federal government to at last do something about income trusts and their impact on tax revenues, trusts won’t bounce back like they did last year — but nor will they die altogether. The best ones will survive and reward investors who manage to time things just right, grabbing them when the news is at its bleakest. Today, everyone will be focused on selling trusts. Soon, the focus will shift to which trusts are too cheap to ignore.