Big Picture - Where are we?

Equities:

The market has proven to be remarkably resilient and remains overbought; I still believe a modest pullback is likely and would ultimately be healthy for the longer term sustainability of positively trending equity markets.

Fixed income:

Term Call – recommend investors move further out the yield curve to a market neutral duration position. Sector Call – underweight Canada, overweight Municipals, Provincials, and Corporates. Currency Call – recommend Canadian investors remain in Canadian dollars for their fixed income holdings. Alternative Strategies – overweight high yield, marketweight Emerging Markets Debt, underweight inflation protected debt.

Portfolio Macro:

It is too soon to chase defensives and prefer raising cash instead. Focus is now in Financials, Tech, and Industrials. Look beyond the borders in emerging market opportunities.

***Indicators and Bubble Watch

Food prices soar; poverty rises
Corn prices surged to their highest since July 2008 after the USDA slashed its domestic and international forecast. Agrium’s quarterly profit rose as high grain prices fueled demand for fertilizer. The World Bank reported that higher food prices have pushed 44 million more people into extreme poverty since June 2010.

IMF warns U.S. to cut deficit and debt

The U.S. is putting the global recovery at risk for failing to take its debt seriously, according to the International Monetary Fund. In its report, the IMF says that “a continued absence of credible medium-term fiscal strategy threatens to eventually drive up U.S. interest rates, disrupt financial markets and adversely affect global prospects.” The U.S. deficit is nearly 11% of GDP, the widest in the G20.

Middle East unrest adds tension to global markets
Global economies continued to recover in February, but events in the Middle East added considerable tension to markets. Anti-government uprisings toppled regimes in Egypt and Tunisia, and protests broke out in Libya, Yemen, Bahrain and even Iran. As Libya shut down its oil production and unrest threatened to spread to other oil-producing nations, investors worried that rising oil prices could derail the global recovery.

Global trade returns to pre-recession levels
Global trade has recovered from the recession, driven by emerging-market exports and imports, according to the Bureau for Economic Policy Analysis. The volume of world goods traded surged 15.1% in 2010 after contracting by 13% in 2009. Goods traded in December exceeded the previous peak in spring 2008.

Summary:

Everything seems to be following along nicely to historical performance expectations during this Presidential Election Cycle. We are watching closely, and expect to be participating fully in the equity markets over the next 3 quarters. As we enter the 2012 election year, risk management will be our paramount concern. (Employing a 50/100/200 day M.A. strategy or setting stop-losses will be key)

*Remember - Looking back over history, stimulus is usually always reduced after the election. Other things such as tax and business reform also come in to play. Both have always led to a somewhat immediate correction in the equity markets.