Weekly Newsletter

The big picture

Bank of Canada forecast tempered



Former Bank of Canada (BoC) Governor David Dodge countered the rosy forecasts of current BoC Governor Mark Carney and Prime Minister Harper in an interview on Wednesday, saying that the recession will be “long and deep”, and that expectations of recovery by the third quarter are “totally unrealistic.” On Saturday, at a meeting of G20 financial watchdogs in England, Carney conceded that earlier predictions of a recovery by the second half of 2009 will likely be adjusted downwards.



On Sunday, U.S. Federal Reserve Chairman Ben Bernanke made an unprecedented appearance on the television program 60 Minutes in which he defended steps taken by the government to resuscitate the banking system, adding that sustained recovery can only happen once the financial sector has achieved solid footing. Bernanke’s optimism was supported this week by the second consecutive monthly increase in consumer prices, offering hope that the economy will avoid a deflationary spiral.



However, more global economic cracks were exposed this week as U.K. unemployment soared to a record high of over two million. Meanwhile, the European Central Bank said it is mulling a further cut of its record-low 1.5% interest rate.



The markets

Strongest rally since November 2008



Markets hit a high point this week, with pharmaceuticals, automakers and financial companies showing promising gains. In an unexpected move on Wednesday, the U.S. Federal Reserve announced plans to buy up to $300 billion in longer-term Treasuries – the first such move since the early 1960s. The aggressive measures helped spur the markets higher.



The Wall Street Journal reported that negotiations are underway for IBM to purchase rival Sun Microsystems in a deal worth upwards of $6.5 billion. The acquisition would substantially boost IBM’s competitive edge in the server market.



Democrats rushed to pass a bill on Thursday that will impose a 90% tax on bonuses given to employees of firms that received a government bailout and that have more than $250,000 in household income. The bill is meant to address the widespread fury over AIG employees who received a total of $165 million in bonuses, despite their hand in the insurer’s near-collapse and the subsequent $180 billion government bailout required to keep the firm afloat.



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.

Jeff Wareham
Wealth Advisor

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