Ottawa Investment Advisor John Bruce

Index returns as of June 30, 2009

July 15, 2009 · Print This Article

My Dear Clients,

In recent months, we have seen a dramatic turnaround in the confidence of the business and investor community. And this confidence has been reflected in a rally on the global stock markets. Since reaching a low for the year in early March, Canada’s S&P/TSX Composite Index has risen 37%, and has now posted a gain for the year-to-date (at June 30) of almost 18%. International markets have shown similar strength, with the U.S. S&P 500, for example, bouncing back 36% from its March low, to post a gain of 3% for the year-to-date.

Why have we seen such significant gains, even though an economic recession continues? First, governments and central banks have succeeded in stabilizing the global financial system. Major U.S. banks have been rebuilding their capital and several are repaying their government loans.

Second, global credit markets, which were frozen just months ago, have opened up. After a number of blue-chip companies were able to issue bonds, the healing process spread to other markets, including high-yield bonds, equities and real estate investment trusts. With many firms, including major banks, able to raise new money, they have refinanced their debts – leaving them free to focus on their business operations. The markets were not even fazed by the bankruptcies of American icons GM and Chrysler, perhaps because of the widespread recognition that this process is necessary for their continued survival.

Third, many investors were heartened by economic “green shoots” – signs of stability in various sectors such as retail spending, manufacturing and housing. And, in Canada, rising prices for oil and other commodities have helped to boost our resource companies and our dollar.

While the worst of the credit and financial crisis clearly seems to be over, we must also recognize that the global economic situation is still difficult and that an economic recovery will take time. Record low interest rates are expected to spur economic activity and massive government stimulus spending is in the pipeline, though many programs have yet to get underway. The consensus among economic forecasters is that a recovery will begin later this year and gain momentum into 2010.

With these conditions, it is wise to be prudent, given that markets are volatile and it’s likely there will be a few negative economic reports before a recovery takes hold. At the same time, it’s important to remember that equity markets anticipate as well as react to developments, and they typically rebound ahead of the actual turnaround in the economy. The recent rally shows how such moves can occur quickly and unexpectedly.

That’s why I believe it is important to retain some exposure to equity investments. If you have been reluctant to invest further in the capital markets, you could consider conservative investment strategies such as:

  • Dollar cost averaging, in which you invest a predetermined amount on a regular basis, taking the emotion out of investing.
  • Reviewing and perhaps re-balancing your portfolio’s asset allocation, which involves adjusting the mix of equity and fixed-income investments.

In my view, the key is to look forward and take advantage of opportunities today that fit with your investment objectives. If you would like to discuss these issues, please feel free to contact me at any time, toll- free at 866-860-4190.

In closing, I wish you and your family a safe and happy summer.

Sincerely,

John S. Bruce
Investment Advisor
Mackie Research Capital
Direct Line- 613-425-3732
Toll Free- 866-860-4190
The opinions, estimates and projections contained herein are those of the author as of the date hereof and are subject to change without notice and may not reflect those of Mackie Research Capital Corporation (“MRCC”). The information and opinions contained herein have been compiled and derived from sources believed to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy or completeness. Neither the author nor MRCC accepts liability whatsoever for any loss arising from any use of this report or its contents. Information may be available to MRCC which is not reflected herein. This report is not to be construed as an offer to sell or a solicitation for an offer to buy any securities. Member-Canadian Investor Protection Fund / member-fonds canadien de protection des épargnants.

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