January 2012 Review & Market Outlook February 2nd, 2011 By Kim Mailey, CFP

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The fourth quarter rally from 2011 carried on in the first month of 2012. Markets continue to gravitate higher as investors, in response to mixed signals, are tending to view the glass as half-full versus half-empty as valuations look compelling, corporate balance sheets are strong, and dividend yields are attractive in this low interest rate environment.

	Jan '12	1 Year	3 Year
S&P/TSX 60	+ 4.2%	- 8.9%	+ 10.7%
S&P 500 (C$)	+ 3.1%	+ 2.3%	+ 8.9%
MSCI EAFA (C$)	+ 4.0%	- 12.2%	+ 2.7%

EUROPE:

European Union leaders met in January for their 16th summit in two years to address the sovereign debt crisis. They agreed on a "fiscal-discipline treaty"�, which includes fines to be imposed on states which exceed deficit limits and require members to pass laws meant to limit budget shortfalls. (Britain and the Czech Republic were the only EU members to vote against the pact.) The policy makers also decided to bring the European Stability Mechanism into operation on July 1, 2012 - a year before schedule. We are seeing Italian and Spanish bond yields decouple from those of Greece and Portugal, and the contagion fears are decreasing along with mostly supportive economic data from the region.

UNITED STATES:

In late January, the U.S. FOMC (Federal Open Market Committee) met and announced the benchmark interest rate would stay low until at least late 2014, extending the previously announced end-date of mid-2013. The Fed "recognizes the hardships imposed by high and persistent unemployment in an underperforming economy, and it is prepared to provide further monetary accommodation."� Within the statement, the U.S. central bankers established a long-term goal of 2% inflation, while suggesting price increases would fall below that target rate both this year and next. The pronouncement that rates will remain low for the next two years is supportive for equities, particularly those with yield and cash flow visibility.

The threat of a double-dip recession in the U.S. has further subsided as the January 24^th release of Q4 GDP showed 2.8% growth, the fastest pace in the past six quarters, and an increase from 1.8% in Q3. In addition, there has been a decent start to the calendar Q4 earnings season; of the 219 companies in the S&P500 Index which have reported Q4 results to date, 133 or 60.7% have reported positive earnings surprises. The latest leg up has come from news that U.S. factory output grew at its strongest pace in seven months in January while Germany's manufacturing sector expanded for the first time in four months and China's manufacturing output was slightly better than expected. Also helping sentiment are hopes that the U.S. jobs market is gaining some traction. The ADP survey reported that 170,000 private sector jobs were added in January.

As investors become more comfortable with lingering macro concerns, individual company fundamentals and valuation will become relevant again. U.S. equities remain reasonably valued as the S&P500 is currently trading at 12.5 times forward earnings per shares versus the long-term average of 14.5 times.

OUTLOOK:

Observations of my clients and investors in general range from "a deer in the headlights"�, frozen with fear and full of despair, to clients being able to detach from their emotions and following the discipline necessary to fulfill their long term investment objectives. The Great Recession of 2008 was a nightmare. Clients that stayed the course through their diversified portfolio and active rebalancing are once again, generally, in the black. Clients enjoyed a buoyant 2009, a positive 2010, but the momentum shifted in 2011 to be slightly negative - the consolidation of the (perhaps too strong) '09 / '10 gains.

Opportunities do exist for investors in 2012. I do not anticipate negative returns in 2012. There are no doubt, potential road bumps that lie ahead this year with elections in the U.S., France and Germany. Markets are awash in a central bank driven liquidity that is looking for a home.

Long term investment objectives have not changed and investors will need to focus on those objectives when navigating these markets. The unexpected outperformance of bonds and underperformance of emerging markets in 2011 demonstrated the difficulty of tactically positioning portfolios for one year periods! Diversification and low correlation are investor's best friends in volatile markets. To reduce volatility and enhance yield, adding high dividend yielding investments to a portfolio's equity allocation may help. Diversifying currency exposure continues to be a wise decision. Those investors with a broadly diversified portfolio, a well defined long term plan, and a robust rebalancing program tend to manage the reversing tendencies of volatile markets best.

Update on My Previous Recommendations

For those clients who had the interest in holding individual securities, and had both the time horizon and risk tolerance necessary, here is an update:

	Recommended Date	Price on That Date	CurrentPrice	Change To Date1	12 Month Target2
Northern Dynasty	Sept. 6, 2011	$9.49	$7.93	-16.4%	$25.17
Bombardier	Sept. 6, 2011	$4.45	$4.67	+ 4.5%	$6.29
Cdn. Natural Res.	Sept. 6, 2011	$34.56	$40.10	+16.0%	$49.06
Finning 3	Sept. 6, 2011	$23.79	$27.05	+13.7%	$31.94
Chartwell Senior Housing	Sept. 6, 2011	$6.90	$8.87	+28.6%	$9.19
Canadian Pacific 3	Sept. 6, 2011	$53.65	$71.87	+34.0%	$73.09
Royal Bank	Sept. 6, 2011	$48.22	$52.28	+ 8.4%	$55.00
TD Bank	Sept. 6, 2011	$76.56	$77.78	+ 1.6%	$85.75
CIBC	Oct. 3, 2011	$71.44	$76.38	+ 6.9%	$83.56
TD Bank	Oct. 3, 2011	$71.67	$77.78	+ 8.5%	$85.75
Royal Bank	Oct. 3, 2011	$46.78	$52.56	+12.4%	$55.00
Agrium	Oct. 3, 2011	$67.41	$81.81	+21.4%	$101.21
Teck Resources	Feb. 2, 2012	$42.40	$42.40		$55.41
Trican Well Service	Feb. 2, 2012	$16.39	$16.39		$28.50
Shaw Communications	Feb. 2, 2012	$19.77	$19.77		$22.18
General Electric	Feb. 2, 2012	$18.80	$18.80		$21.28
Hasbro	Feb. 2, 2012	$35.17	$35.17		$39.38
Apple	Feb. 2, 2012	$454.97	$454.97		$571.40

¹ Price change does not reflect any additional return from dividend income
² Bloomberg 12 Month consensus data as of January 30, 2012
³ Recently recommended trimming positions / taking profits

Summary:

For investors, the good news is that markets continue to recover. The best investors will stay focused on long-term objectives and be opportunistic in their outlook. Having the correct asset allocation will ensure money that you need in the short term is available to you when needed with no market timing risk, money that is needed in the next three to five years is set aside in laddered guaranteed investments, and the only money that is exposed to the multitude of opportunities that I believe the stock market currently offers is the money that is not expected to be needed for the next three to five years.