Weekly Market Insights

December 15, 2008







Market Watch



The big picture

It’s official: Canada in recession



On Tuesday, the Bank of Canada declared that Canada is officially in recession as it cut its key interest rate by a larger-than-expected 75 basis points (a basis point is 1/100th of one percent). The Bank said it sees a "broader and deeper" global downturn than previously anticipated. The news triggered the Canadian dollar to fall by more than half a U.S. cent, and bond prices to rise sharply in anticipation of further rate cuts as the economy weakens.



Meanwhile, Japan sank further into recession in the third quarter, and a new round of grim economic data emerged from Europe. Japan was said to be considering spending US$216 billion on new economic stimulus, or roughly 3.6% of the nation’s GDP. At a summit in Brussels, EU countries announced new stimulus measures totalling US$264 billion, but recent data suggests more action might be needed, including additional rate cuts.



In the U.S., markets surged early in the week as president-elect Obama unveiled the largest American public works plan since the 1950s. The boost was certainly welcome: as of Tuesday, the only two Dow Jones Industrial Average stocks to show a positive one-year return were Wal-Mart and McDonald’s.



The markets

To bailout or not to bailout, that is the question



Following two weeks of record gains and losses, most shares continue to trade at the low end of their historical ranges based on both past earnings and expected future earnings.



Two significant equity market transactions failed to materialize this week. On Thursday, it was confirmed that the $52 billion privatization of BCE will definitely not proceed. Now BCE and its would-be purchasers appear set for a legal showdown to determine whether BCE is entitled to a $1.2 billion deal break-up fee.



On Friday morning, news broke that the US Senate had rejected a proposed $14 billion bailout of US automakers, throwing the industry’s prospects into doubt. Equity markets opened sharply lower on the news. A spokesperson for the US Treasury Department announced that they are prepared to act to avoid any possible collapse of America's three biggest automakers.


Our recommendation
Consistent cash flow counts



· Equities. Gareth Watson, Director, Portfolio Advisory Group, suggests that companies with steady, consistent cash flow are good bets for dividend-seeking investors. Consider names in sectors such as utilities, pipelines, and telecommunications.



· Fixed income. Chris Kennedy, Associate Director, Portfolio Advisory Group, says high quality corporate bonds, such as Canadian banks and insurance companies, continue to offer attractive yields relative to government issues.



· Portfolio strategy. Some regions and sectors have been hit harder than others. Consider reviewing your portfolio allocations to take advantage of lower relative valuations in these areas.















Jeff Wareham
Wealth Advisor

ScotiaMcLeod
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Suite 1801
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Greg Holland
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Ann Martin
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