When Ralph Goodale, the chameleon finance minister, suddenly changed his stripes and freed the income trust hostages presumably so that they can find their way to the voting booth, investors reacted as if they'd learned nothing from this two-month ordeal.

On the news that Santa Goodale wouldn't be taxing the trusts after all as was originally feared - at least for the time being - and would instead be increasing the dividend tax credit in an attempt to level the playing field between trusts and corporations, investors piled back into the trusts that had been annihilated during the ill-conceived government scrutiny.

Feeling all warm and fuzzy again, the trusting pundits bought everything in sight. The good, the bad and the ugly. It didn't much matter. The tide lifted all boats, even the leaky ones.

If you were one of those sophisticated investors who was carelessly throwing darts at the trust sector the day after Goodale backtracked on threats to make changes to the trust sector, shame on you. Spit out your gum and go stand in the corner. On one leg.

For those who still don't get it, the income trust, by definition, is an investment vehicle that pays part of its profits to its unitholders in the form of monthly cash distributions. That's why people invest in them. If you were buying an income trust that has suspended its cash distributions, we have a news flash: You weren't really buying an income trust, you were essentially buying a 'no income trust.' Some of the lousy trust models didn't need a push from Goodale. They've done a fine enough job of self-destructing on their own.

On a day when the S&P/TSX income trust sector leaped 4.4 per cent, some of the most dubious trusts on the TSX boasted gains that were even greater than some of the solid trusts. Which tells us that you trust investors have been goofing off in class.

Clearwater Seafoods Income Fund (CLR.UN) suspended its distribution payments in October, but the market didn't seem to care. Clearwater shot up 15.5 per cent in its first day of trading after the news the Goodale cloud was lifted from the sector.

Another not so trusty trust, Advanced Fiber Technologies Income Fund (AFT.UN), popped 16.7 per cent on the day despite the fact that it, too, suspended its distribution earlier this year.

Even the much maligned Menu Foods Income Fund (MEW.UN), the cat food manufacturer that has had all the appeal of kitty litter this year, participated in the trust party with a six-per-cent gain that could wind up looking like a classic dead-cat bounce. Menu Foods slashed its distribution payments this year amid ugly financial results.

Ottawa's bungling of the trust issue that resulted in the sector being whipsawed and traded like a dot-com should have at least provided a wakeup call to investors to pay attention to quality when buying trusts. As the sector matures, the market will increasingly reward the quality names while punishing the also-rans.

Before the government turtled on its tough stance on income trusts, McLean & Partners Wealth Management provided a heads-up within a report on how to detect red flags in the sector. The Calgary firm red-flagged trusts based on three criteria: Debt-to-EBITDA (earnings before interest, taxes, depreciation and amortization) ratios of at least two times, payout ratios of more than 90 per cent and yields of more than 12 per cent.

Based on that criteria, McLean & Partners threw red flags at 83 trusts. Among those were several household names such as Brick Group Income Fund (BRK.UN), Keg Royalty Income Fund (KEG.UN), TransAlta Power Income Fund (TPW.UN), Priszm Canadian Income Fund (QSR.UN), which owns fast-food enterprises such as KFC, Boston Pizza Royalty Fund (BPF.UN), A&W Income Fund (AW.UN) and Yellow Pages Income Fund (YLO.UN).

Incidentally, investors in Yellow Pages apparently have psychic powers. While other trusts made their moves after the news, Yellow Pages units curiously spiked 6.6 per cent on unusually heavy volume on the last day of trading before the news and moved only two per cent the next day.

Two trusts, Clean Power Income Fund (CLE.UN) and Osprey Media Income Fund (OSP.UN), had the book thrown at them by McLean & Partners, being red-flagged on all three counts.

If you lose your shirt on some of these names, you won't have your convenient scapegoat Ralph Goodale to kick around. So stand up and be counted. Take a long, hard look in the mirror.

* CONSUMER ALIVE BUT NOT WELL: If you want to get Ross Healy riled up, ask him if he's surprised by the resilience of the American consumer, who is still rolling on the retail floor and fighting over consumer products. It was Healy, CEO of Strategic Analysis Corp., who told the Edge in January that the American consumer "is just about dead."

"Resilience is not a good word," deadpans Healy, who paints a bleak economic picture. "A better way to describe (the U.S. consumer) is full of blind faith and misplaced. I think he is unwilling to face his mortality. Yes, that would be a better way to put it. The rate at which the consumer is now borrowing to keep the U.S. GDP (gross domestic product) going is over and above his personal disposable income."

Healy's rallying cry these days is defence and, to prepare for the prospects of a recession in 2006, he's been accumulating cash - about 30 per cent - in the Accumulus Talisman Fund he manages. For Healy's top picks, see Page 14.

* RETAIL FOLLIES: The Hudson's Bay Co. (TSX:HBC) likes to promote its heritage as Canada's oldest retailer but, more to the point, from an investment perspective, it's also Canada's sorriest retailer. CEO George Heller has a lot of explaining to do, and so does the company's board (HBC has repeatedly refused requests from Business Edge for interviews with Heller).

One of the great mysteries in Canadian corporate circles is how Heller has held his job at the helm of this sinking ship of Canadian retailers since 1999.

Although the board has rejected a hostile bid of $14.75 a share from American financier Jerry Zucker, it seems like a no-brainer for shareholders to take the money and run, particularly after the company's latest financials that show a quarterly loss of $50 million.

HBC's board boasts a lineup of heavy-hitters such as David Galloway, former CEO of Torstar, and Kerry Hawkins, president of Cargill Ltd. It's a shame they haven't shown the clout to shake up the organization, starting at the top.

* SAGE WORDS: "Cynthia to fourth ring of Saturn - it's not working."

- Cynthia Rose-Martel, an analyst with Jennings Capital, in a no-nonsense review of the Hudson's Bay Co.

Hot Stock

Petrolifera Petroleum

TSX:PDP $3.90

Up $2.10 (+229 per cent) on 4.7 million shares (based on weekly stats through Dec. 1 for Canadian stocks over $1)

If you sold on the stock's first gusher, thinking this was a one-day flash in the oil pan, leave the room. You don't want to read this. Turns out this train was just leaving the station when you hit the sell button. After you scored that double on initial results of Petrolifera's oil discovery in Argentina that drove the stock to $3.19, the company churned out another gusher of a press release relaying more exciting well test results to send the shares rocketing as high as $4.33. Not bad for a raw rookie that came on the market with an initial public offering on Nov. 8 at $1.75.

Cold Stock

Tembec Inc.

TSX:TBC $1.77

Down 56 cents (-24 per cent) on 4.2 million shares (based on weekly stats through Dec. 1 for Canadian stocks over $1)

Timber! It's tax-loss selling season and that means 'tis the season for those forestry stocks to get beaten to a pulp. For Tembec, it's been a horrendous year as the stock has collapsed by almost 80 per cent, making it a prime target of investors looking to book tax losses against their capital gains. Still, that's small consolation if you were buying Tembec early in the year in the $8 range before the forestry sector hit the skids.

(Gyle Konotopetz can be reached at gyle@businessedge.ca)