Market Outlook

With the U.S. election finally out of the way, some of the uncertainties that have kept many investors sidelined in recent months have finally dissipated, and markets are now once again refocusing on fundamentals. The Bush administration is clearly viewed, and rightly so, as pro-business, so it�s not surprising that equities have rallied strongly since then.  Is this rally for real?  We think so.  Are stocks still more attractive than bonds? Again, we think so.  Is inflation creeping up, with the corresponding risk that bond yields may rise dangerously?  We don�t think so.

The U.S. economy remains pretty robust and should continue to benefit from the mammoth budgetary deficit, and even though such imbalances are unsustainable longer term, over the short term the considerable stimulating impact is undeniable.  Secondly, the Administration is not very subtle about its �benign neglect� dollar policy, choosing once again to place the brunt of the adjustment on others.  Japan is thus forced to intervene in the foreign exchange markets to buy dollars to prevent further appreciation of the yen, while China, whose currency is pegged to the $US, has essentially no choice but to reinvest in Treasuries, keeping U.S. bond yields artificially lower. The bottom line is that corporate America is getting increasingly competitive on world markets, giving the U.S. economy additional traction.

The Canadian dollar has clearly benefited from $US weakness, but the loonie�s  appreciation has strength of its own due to Canada�s better fiscal position as well as self-sufficiency in energy.  However, the surge in our currency has probably gone too far and is increasingly making Canadian manufacturers less and less competitive, forcing the Bank of Canada to take into consideration its restraining impact on the economy.

Continue to monitor your portfolio, with the assistance of your Dundee advisor, in relation to its objectives, and take advantage of recent excesses in individual asset classes, sectors or investment styles to rebalance.  Diversification remains the key to long term success, ensuring at the same time that you stay the course.

The information contained in this article is prepared from sources believed to be reliable, but Dundee Securities Corporation makes no representations or warranties with respect to the accuracy, correctness or completeness of such information. Dundee Securities Corporation accepts no liability whatsoever for any loss arising from any use or reliance on this article or the information contained herein. Any reproduction in whole or in part of this article without permission is prohibited.

Source: Dundee Securities Corporation Research Department