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Quarterly Investment Review Letter 2014 Q1

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The theme song for the Canadian Economy might well be “With a Little Help from My Friends”. The primary friend would be the US consumer-driven growth if it does happen. Seventy-five percent of Canadian exports end up in the United States. The other friend to hopefully lift our Canadian spirits, since the Leafs, Senators and Canucks are not, is capital business spending and yet the rest of the world is not.


The World Bank and a whole host of Economists continue to trumpet their covers of the now- classic 2008/2009 tune, “Recovery to start next Year”. Steven Poloz, of the Bank of Canada, warns that the Canadian economy may not alone have the strength to meet even its own forecasts in 2014.


David Madani, the chief analyst at Capital Economics - just one opinion mind you - does not expect to experience more than a modicum of difference in 2014 from the last three years of pedantic economic growth. Housing remains anaemic at best, and slow household consumption offsets what growth does pick up in exports. Interest rates remain historically low and may slip even further if weekly employment numbers continue further extending consumer and housing upticks in spending.


Meanwhile, Value style portfolios—Manulife Monthly High Income and Cardinal Capital Management—continue to provide consistency of income and preservation of capital as core features.


The RMFP recommendation remains, “stay the course” with the moderate Value style approach and in a language that most can grasp.


From–if technical is your preferred idiom:

“In this current environment of improving economic growth prospects and a set course for the QE3 wind-down, we expect the selloff in Treasuries to persist, though it is likely to remain modest. The brunt of this selloff should be felt in the intermediate sector, building on the underperformance in the lead-up to the tapering announcement in December. The long-end of the curve, however, should outperform on the down-trade as it will benefit disproportionately from the benign inflationary backdrop and the prospect of improving fiscal dynamics. And with the front-end of the curve essentially anchored by the Fed’s “lower for even longer” commitment, we see an opportunity in entering a short 2s5s30s butterfly trade.”

Wishing you a safe and happy Spring. We look forward to speaking with you soon.