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INVESTMENT: CIBC advocates energy, materials stocks as decoupling from US becoming evident
        (AlbertaIndex, March 7, Friday) --- Investors should step up their buying of energy and materials stocks as these will rise even if the US economy goes into a recession, says CIBC World Markets chief strategist and chief economist Jeff Rubin.
        In a special report, he said there is “enough evidence” of market decoupling that Canadian investors need not take an entirely defensive posture as he predicts crude oil to reach US$110 a barrel and natural gas to cost $11 per million BTU next year.

“There is more than sufficient momentum in both energy and materials stocks to warrant stock market exposure in the here and now,” said Rubin in CIBC’s monthly Canadian Portfolio Strategy Outlook report.

“The chasm between globally driven resource stocks and housing-tainted financial stocks grows wider by the month," he notes, pointing to the energy-laden TSX pulling well ahead of the S&P 500. "Within the TSX, energy and financial stocks continue to head in opposite directions. We are betting that those trends will persist.”

As a result, Mr. Rubin is raising his oil price forecast by US$5 per barrel this year to an annual average of US$100, and next year's prices to US$110.

And perhaps more important, he says, is natural gas which he forecasts to hit US$9.50 per million BTUs this year and US$11 next year.

"Oil prices seem now firmly entrenched in triple-digit territory, a level from which they are unlikely to retreat, and natural gas prices have rallied as strong utility demand has eaten into once-bloated U.S. storage levels. A tandem of US$110 crude oil next year and US$11 natural gas prices will support solid earnings gains while at the same time spurring increasing M&A activity in the sector,” says Mr Rubin.

His optimism is reflected in a one percentage point weighting increase in his model portfolio’s already overweight position in energy stocks. That increase is funded by an equal cut in financials, split evenly between banks and non-banks. The move out of financials follows further declines in US housing prices, and likely increases in mortgage default rates.

Consistent with his “global versus US strategy,” Mr Rubin remains overweight in materials stocks, including the base metals and gold components.

“The US economy has not contributed to demand growth for most major metals including aluminum, copper, zinc and nickel, while the Fed’s ultimate pursuit of a sub-2 per cent federal funds rate will weaken the US dollar and send gold prices to US$1,100 per ounce.”

Mr Rubin’s portfolio remains underweight in both the consumer discretionary and telecom sectors, both of which are underperforming the broad index. Also underweight are industrial stocks, which he says are “vulnerable both to Canadian dollar-related stresses and a further deterioration in broad US economic conditions, although rail stocks will benefit to some extent from their high levels of efficiency against other forms of transport in a world of triple digit oil prices.”

He remains overweight in bonds, expecting another 75 basis point interest rate cut from the Bank of Canada in response to the US Federal Reserve Board’s recent rate cuts and a visibly weakening Canadian manufacturing sector.

While the cash weighting in his benchmark has risen this month at the expense of stocks, he continues to be underweight cash in his portfolio.

Mr Rubin has a year-end target of 14,500 for the TSX Composite that builds in some sideways, or possibly even modest down movements in the market over the next quarter.

His longer term TSX target of 16,200 for year-end 2009 anticipates a stabilization of the US housing market by the first quarter of next year.

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