Weekly Newsletter - Wareham Insights

The Big Picture

Rate cuts across the board

The Bank of Canada (BoC) took short-term interest rates nearly as low as they can go on Tuesday, slicing the trend-setting overnight rate half a percentage point to an all-time low of 0.5%. Meanwhile, the Bank of England and the European Central Bank (ECB) each cut interest rates by 50 basis points (a basis point is 1/100th of one percent) to record lows of 0.50% and 1.50% respectively.

ECB President Jean-Claude Trichet said this week that he still expects the euro zone economy to pick up by 2010, which he said is in accord with a number of current forecasts. Pierre Duguay, deputy governor at the BoC, stressed on Thursday the urgency of fiscal action to stimulate spending and ease credit as a string of bad economic news batters consumer and business confidence. However, he continued to reiterate the bank's prediction of a sharp recovery leading to 3.8 per cent growth in 2010.

On Tuesday, The U.S. Federal Reserve rolled out a much-awaited program aimed at boosting the availability of credit to consumers and small businesses. The bold program was first announced late last year, and is projected to generate up to USD$1 trillion of lending for businesses and households. Friday’s release of U.S. unemployment numbers for February was as expected; non farm payrolls -651k, unemployment rate 8.1%. However, revisions to the previous months payroll numbers indicating higher unemployment does not bode well for the market



The markets

No Chinese stimulus

Market volatility remained front and centre this week. Two developments continued to put downward pressure on equity markets on Thursday. One: Chinese Premier Wen Jiabao failed to announce any new stimulus measures at the annual session of the National People’s Congress. Two: General Motors’ annual report said that the company’s auditors have raised "substantial doubt" about the troubled automaker's ability to continue operations.

On Thursday, Wal-Mart announced February sales results that far exceeded analysts' estimates. Select U.S. retailers continue to weather the slump in consumer spending better than expected. Wal-Mart also said it is raising its annual stock dividend by 15%. The increase comes as a wide range of U.S. companies have slashed their payouts to preserve cash during the global economic downturn.



Our recommendation
Consider moving off the sidelines



· Equities. Economic statistics are anticipated to be at their worst over the next several months and Stephen Uzielli, Portfolio Manager, Portfolio Advisory Group suggests that in response to any negative market reactions investors should be selectively building equity positions in quality companies to position portfolios for the next cycle.



· 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. Although credit spreads have tightened significantly, they still remain wide, and we recommend investors following the laddered portfolio process add exposure to these sectors when rolling maturities at this time.



· Portfolio strategy. With volatility still at record highs, it’s important to review the impact on your portfolio allocations and ensure that your holdings remain appropriate for your goals and risk tolerance.





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