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.

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2011 was a volatile and disappointing year for most investors. Expectations entering 2011 featured a continuation of the economic recovery around the world following the Great Recession of 2008. Debt and credit issues, however, obviously exploded over the past year, particularly in Europe.

Making predictions for a new year is always a difficult task, but this year the uncertainty associated with emerging markets growth, upcoming elections in the U.S. Germany and France, and the European debt situation in particular, makes getting the outlook for this year a bit more difficult.

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New Year - Old Story

Slower global growth again in 2012. Global economic activity is expected to moderate again this year, with worldwide output growth forecast to increase 3.6% - roughly 11/2 percentage points below the pace set in the first full year of recovery in 2010. This lacklustre performance reflects the compounding effect of a number of factors, most notably increasing fiscal belt-tightening in many advanced nations, prior credit restraint in some key developing countries, and the cascading effect on international trade, credit, and financial conditions associated with the euro zone's lingering sovereign debt crisis.

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Jim McDonald, Chief Investment Strategist for Northern Trust, provides insights on the recession in Europe, progress in the Emerging Markets, better news in the U.S. and expects continued high market volatility in 2012

Watch the video here...

After a volatile month, global stocks ended November just about where they had started. A rally in the final week of November was triggered by renewed optimism in a European debt solution and allowed markets to recoup losses from earlier in the month.

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We are approaching the point where the ECB has to show its hand and accept its role as a lender of last resort. Yet, the question is how much further turmoil is required for it to do so. Italy is the linchpin of the Euro-crisis: it accounts for 17% of European GDP, 7% of Germany exports directly and 25% of Euro-area government bonds outstanding. Without Italy, we believe, there is no Euro...

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The writers of this letter watched Moneyball this quarter, the film adaptation of Michael Lewis' bestselling book about the Oakland Athletics. In an environment where stock prices are driven by headlines, it was a prescient reminder of the limits of prediction and the importance of a good process.

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Following the worst quarter of stock market returns since 2008, investors are consumed with fear and the markets are experiencing a high level of volatility. Over half of the trading days in the third quarter saw the Dow Jones Industrial Average change by more than 100 points up or down.

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If you were in "summer" mode in the month of August and enjoying the great outdoors and not paying attention to the day-to-day gyrations, it would probably not surprise you to look at the month end return of a decline of just over 1% for the Canadian stock market given all of the troubles and uncertainty in the world.

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Debt, Budget and Taxes - Oh My!

The federal government's fiscal house is in disarray, and by all reasonable projections, the budget will continue to grow much faster than the economy over the long run. While there is no shortage of ideas to bring spending under control and tame the overbearing tax code, policymakers have been slow to come together and reach an agreement on mechanisms to curb the problem.

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Download our Quick Tax Reference Guide
for 2011

Andrew Smith, Chief Investment Officer for Northern Trust Global Advisors (NTGA) shares his perspectives on recent market events including the impact of the U.S. debt downgrade, updates to NTGA's 5-year capital market forecast assumptions, and asset allocation for the Summit and Pinnacle Optimized Portfolios.

Listen to the call here...

Continued European sovereign debt concerns, the ridiculous lack of compromise demonstrated between the two US parties in addressing their debt ceiling followed by the somewhat irresponsible timing of the S&P credit downgrade to the US resulted in a week of extreme volatility in global stock markets. Agitation in the markets is evident, and emotional overshooting has driven global risk appetite to panic levels.

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As I wrote in my last update, I felt that the markets were poised to take a few months off to absorb the strong gains they had enjoyed since mid year 2010. At this juncture, it appears that the recovery or acceleration phase of the business cycle may be ending. I believe the economy is now shifting into an expansion mode, and the question will become how long that expansion will last.

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With much focus on the European debt situation, ScotiaMcLeod's Geoff Ho, Director of Canadian Equities for the Portfolio Advisory Group looks at the Canadian bank's exposure to the Sovereign Debt worries. Please view the full report for the detailed comments from Geoff.

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Russell's Economic Indicators Dashboard has now been updated to May 31, 2011. Six of the eight measures followed in the now in the "typical range". Please view the full report for more detail.

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Rocky Start to Summer is not Beginning of New Bear Market

Global equity markets are in the midst of another consolidation phase similar to the multi-month workout it experienced last summer. European and U.S. debt problems are coming back into focus at the same time as we exit a second round of quantitative easing. The summer also tends to be a seasonally weaker trading period for the market, thus the adage, "sell in May and go away". Investors have also taken note of weaker economic readings that may simply be a sign of a mid-cycle slowdown, the result of the Japanese "disaster" and higher energy prices. Despite this growing wall of worry, there are reasons to believe this corrective action in stock prices will be short lived, and the dark clouds will give way to brighter skies later this summer.

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As I wrote in my last update, I felt that the markets were poised to take a few months off to absorb the strong gains they had enjoyed since mid year 2010. At this juncture, it appears that the recovery or acceleration phase of the business cycle may be ending. I believe the economy is now shifting into an expansion mode, and the question will become how long that expansion will last.

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Summary of current state

Market indicators - Corporate debt, VIX and interest rates all remain in typical ranges. Month-end market volatility was the lowest it's been in nearly four years. Overall, U.S. equity markets rose in April, with the Russell 3000® Index returning 2.98% for the month.

Economic indicators - These backward-looking indicators are all within - or near - typical ranges. The job market growth rate remained positive while consumer spending growth was positive. Core inflation continues to be low. The economy grew at a revised rate of 1.8% for the first quarter.

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Global Prospects Slip, Again

Chronologically, the global recovery is roughly two years young. However, from a growth perspective, the economic performance appears increasingly old and less vibrant. Not surprisingly, there has been a palpable loss of confidence in the outlook that has contributed to the renewed volatility in financial markets.

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Last month, the S&P credit agency sent shockwaves through the global financial system when it issued a warning on U.S. debt and changed its outlook on the U.S. sovereign credit rating from "stable" to "negative." This sent markets lower and the prices of commodities, such as oil, rocketing back above $110 per barrel and both gold and silver to new highs.

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Significant events that took place in the month of March: The devastating earthquake and resulting tsunami that hit Japan; Instability in the Middle East; And the start of another election campaign in Canada. The first quarter of 2011 also saw the Canadian economy starting on a strong note and the US stock markets turning in their best first-quarter performance in 13 years.

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Japan Quakes, The Global Economy Shakes

Global growth entered 2011 on a relatively upbeat note. However, by February, heightened geopolitical tensions in North Africa and the Middle East alongside sharply higher oil and food costs began to cloud the outlook. And with Japan facing a multi-year period of rebuilding and recuperation from the devastating impact of its unprecedented natural disaster and a nuclear catastrophe. The resilience of the global economy is being tested again.

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Nursing homes / residential facilities provide 24-hour professional nursing care and supervision in a protective, supportive environment for people who have complex care needs and can no longer be cared for in their own homes. Manulife and Takingcare Inc bring us this report on this issue.

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About 100 years ago, the Russian physiologist Ivan Pavlov noticed that when the feeding bell was rung, his dogs would salivate before they saw the actual food. They had been "conditioned." And so it was with "The Great Stimulus" of 2008-09. The market's players salivated long before they could see actual results and the market roared up.

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Equity markets ended 2010 with a positive fourth quarter characterized by a weak November sandwiched between a solid October and the best December performance for the benchmark S&P500 Index since 1991. Investors appeared to be willing to overlook the many risks that threaten a sustainable economic expansion and were more inclined to look "across the valley" of economic recession as most economic data shows signs of improvement.

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New Forecasts Reinforce Old Themes

For the past year and a half, we have advocated that the global recovery would be sustainable, and be led by the high-growth emerging economies in the Asia-Pacific and Latin/South American regions. Massive, and now recurring, stimulus would help the advanced nations/ regions maintain traction, especially those weighed down by heavy and increasing debt burdens and problematic financial sectors.

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Summary of current state

Market indicators - Corporate debt and the VIX remain in typical ranges. Interest rates rose slightly, but without triggering inflation fears. Third quarter mortgage delinquency rates inched down for the second quarter in a row. Overall, U.S. equity markets rose slightly in November, with the Russell 3000® Index returning 0.58% for the month.

Economic indicators - These backward-looking indicators are all within-or near-typical ranges. The job market growth rate remained slightly positive. Core inflation moved to a new low and consumer spending growth remained positive. The economy grew at a revised rate of 2.5% for third quarter.

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Driving Home Using the Rear View Mirror

The logic of investors can at times be bewildering! Looking back at the last few years, the fact is that the stock market took a terrible tumble down and the bond market enjoyed a great jump up when interest rates were pushed to all time record lows.

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Tax planning is a year-round activity and a vital component of the financial planning process. Now, as fall season approaches, is the time to pay special attention to various tax issues in advance of the end of the 2010 taxation year.

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October continued to indicate that the economic healing process is progressing. The fears of a double dip recession got overhyped last summer and the most recent economic releases have highlighted a more resilient US and global economy.

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Today Canadians are healthier, better educated and living longer. For some, this means their retired years can potentially equal their working years, As such, more are working later in life to adapt to the ever changing economic labour market and demographic trends. To this end, the Canada Pension Plan (CPP) will undergo some dramatic changes and evolve to provide equity and flexibility to older workers. These changes will be gradually phased in over five years starting in 2011.

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We have made minimal changes this month to our global macroeconomic and financial market forecasts. Output growth was raised slightly this year for the U.K. and Germany - reflecting the improved third-quarter performances, with base effect adjustments lifting next year's smaller output gain slightly as well. Our real GDP forecasts for the United States and Canada were left essentially unchanged, as were the much stronger performances expected in the emerging markets internationally.

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Market indicators - Corporate debt remains in its typical range and the market doesn't appear to expect interest rates to rise. VIX remained in its long-term typical range. Overall, the U.S. equity markets rose in September, with the Russell 3000® Index returning 9.44% for the month. Economic indicators - These backward-looking indicators are all within their typical ranges though the job market growth rate remains slightly negative.

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Anyone following the old adage for stock markets of "sell in May and go away", clearly would have been disappointed with their decision for 2010. Here's how markets performed in the last quarter and so far this year.

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The world economy is stuck in between a recession that is over and a sustained recovery that has yet to arrive. This naturally leads to frustration and worries about whether progress is truly being made. While I am the first to agree that past performance does not guarantee future results, I do believe that history can help us understand what is "normal".

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On July 7th, 2010 I embarked on a journey of a life time. My flight from Vancouver would take me to a far away country I had never been to, and somewhat feared, India. Here I would spend a month helping others, and in doing so help myself. Truly, this experience would be a test of the Dalai Lama's statement I have quoted above. I hoped I was up to it!

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For many, the fall means it's back to work. For others, it's back to school. For some, it's back to forecasting, with forecasts falling back. Overall, our estimate for global growth this year remains at 4.4%, with next year's advance revised down a notch to 3.7%. But this year's projected economic gains mask some important changes in regional performances.

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When Montreal engineering firm SNC-Lavalin Inc. issued $750 million in bonds earlier this year, portfolio manager John Carswell was an eager buyer. The purchase reflected his view that corporate bonds will continue to do well in the current economic environment.

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The rollercoaster ride continued in the month of July - but we are back to positive returns after the second quarter delivered 3 consecutive months of declines.

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Most investors are understandably disenchanted with the equity markets right now, but the truth is that to reach their retirement and financial goals, they NEED to have some exposure to equities. How do we sweeten the sour taste in our mouths? I suggest putting the past ten years into a longer-term perspective...

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The euphoria of the financial world faded in the second quarter of 2010. The powerful rally in the stock and corporate credit markets that followed the credit disaster of 2008 not only lost its enthusiasm but threatened a renewed bout of financial depression.

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Cooling Trend In Global Growth
Scotia Economics now expects that global growth will advance by 4.4% this year and 3.8% in 2011, with emerging countries still outpacing the performance of the advanced nations by a considerable margin.

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As part of my ongoing investment due diligence, I participate in many conference calls and meetings with economists and institutional money managers. This provides me with the opportunity to learn their views without the sensationalism that often accompanies articles that find their way into the press.

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Introducing Gary Barker, CLU, CFP, Senior Advisor and Jamie Wilson, Advisor, The Mailey Rogers Group Insurance Strategies Experts Group

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The Kay Meek Centre is delighted to announce The Mailey Rogers Group at ScotiaMcLeod as our Season Sponsor for 2010 / 2011

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After 2008's sharp decline and last year's recovery in stock markets, many had hoped that 2010 would see a return to relative normalcy and stability.

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One of the core active strategies for the Russell Sovereign portfolios is the ability to manage risk through rebalancing. A successful investment strategy begins with an asset mix that best fits personal goals and preferences.

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Taxpayers being assessed on "excess" TFSA contributions
According to media reports, many taxpayers have recently been advised by the CRA that they owe a penalty on an "excess Tax-Free Savings Account (TFSA) amount" for the 2009 taxation year. This penalty is the result of a rule that, apparently, was not generally understood by Canadian taxpayers who may have made a series of contributions and withdrawals in 2009.

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Summary of Current State
Corporate debt remains in its typical range and interest rates have come just inside the high end of typical. Overall, the U.S. equity markets fell in May, with the Russell 3000 Index losing 7.9% for the month. Economic indicators are all within their typical ranges. The job market continues to show growth signs with a positive NF PAY change and core inflation remains low.

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And so the debate continues: are we experiencing a price correction in an ongoing bull market, or are we in fact witnessing a fundamental change in the business prospects around the world and the beginning of a "double dip"? I will argue the former and my proof points can be found here.

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The $1 trillion (U.S) loan package unveiled yesterday by the supranational organizations EU and International Monetary Fund will assist Greece and some of its neighbours. For this assistance to offer any lasting effect, this aid must be followed up with some serious discipline. Politicians around the world need to get serious about cutbacks and debt reduction. It is called living within their means.

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Managers remain optimistic; concerned about volatility, interest rates.
The first quarter 2010 Northern Trust Global Advisors manager survey showed some changes in manager sentiment regarding both the market and global economic conditions. While most managers remain optimistic, there are some concerns about increased market volatility and higher interest rates.

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The first 5 weeks of the quarter saw markets retreat by 4% year-end values and from the heady pace they enjoyed in the final 3 quarters of 2009. By the second week of February, the markets recovered and went higher. While US residential and office real estate are still struggling in many areas of the US, manufacturing, in general, is doing very well and providing crucial support for the economic recovery.

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Securities regulators in B.C. and Manitoba have raised the alarm about dipping into retirement savings for questionable investments that promise excellent returns and tax benefits.

So-called "unlocking" investment schemes that sound too good to be true really are too good to be true.

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Perhaps the biggest retirement question we face is, "Will I have enough?" Most of us want to know that we'll have a steady base level of retirement income that won't run out too soon. Traditional investment vehicles such as bonds, T-bills, and term deposits are often popular choices to achieve the retirement goals of income generation, safety and preservation of capital. However, the after-tax rate of return of these options may not be enough income to meet your needs.

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The Mailey Rogers Group is pleased to announce our newest member.

On March 8th, Craig Glover has joined The Mailey Rogers Group!

Prior to joining our Group, Craig had spent three years in Scotiabank’s Private Banking department as an Associate Private Banker.

One of the many tasks that Craig will take on with our Group is becoming familiar with all of our clients and their individual needs. Over time, he will take on some of the responsibilities that Sherry Klassen held with our Group.

We are excited to welcome Craig, and he will soon be in touch with you.

For the first time, Scotiabank has been recognized on the prestigious Dow Jones Sustainability World Index (DJSI World) for 2009. This means that Scotiabank is joining a group of only 11 Canadian companies that made the list this year, achieving great standing in corporate social responsibility.

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