“Quarterly Portfolio Review for April 1, 2011 – June 30, 2011” Ken Wilk, TD Waterhouse Private Investment

Jul 20, 2011 | Corporate Member News

Ken Wilk

The global economic recovery is proceeding at a solid pace, with developing economies driving global growth.  TD Economics expects global growth to come in just below 4% for 2011, slightly below the robust rate of 4.5% in 2010. 

In North America, the U.S. economic recovery is becoming more firmly entrenched, with private-sector demand increasing, and jobs finally being created.  U.S. exporters are also benefiting from a weak U.S. dollar.  Canada is faring well, with support from solid growth in exports and strong gains in business investment.  

The main economic story for the developed nations is moderate growth, contained inflation (outside of energy and food prices) and continued low interest rates (albeit gradually rising) over the forecast horizon.  This backdrop is supportive of earnings growth. 

Rate of Return 1 Month 6 Month 1 Year
S&P/TSX Composite Index -3.64% -1.06% 17.76%
S&P 500 Index -1.83%  5.01% 28.13%
5 year Canada bonds – benchmark yield as of June 30, 2011 is 2.28%

Interest Rates – (on hold for now.) 

We continue to expect the Bank of Canada to raise interest rates gradually, however recent economic data suggests that the global economic recovery has hit a rough patch, resulting from tighter monetary policy to combat inflation, supply chain disruptions from Japan and the reduction of government stimulus.  The biggest risk facing financial markets remains Europe’s sovereign debt crisis, as solutions thus far have only been temporary in nature, but enough to buy some more time.  As a result, monetary policy tightening expectation have been postponed (despite inflationary pressures), encouraging longer term yields to drop back down to 6-month lows in Canada and the U.S.   With Federal Reserve Chairman’s Ben Bernanke having all but shut the door on the possibility of another round of quantitative easing (QE3), risk markets have cautiously consolidated.  There remains much uncertainty ahead over the next few months for financial markets and interest rate policy, with the major event risks being the health of the global economy, the handling of Europe’s debt crisis, and government interference. 

The Global Economy 

Despite the global economies growth to date, this positive outlook is tempered by the many ongoing risks. 

  • First, there is political instability in the Middle East that poses risks to oil prices.
  • Second, there is the inflation challenge facing many developing nations, with the main issue being whether inflation can be wrestled down without inducing an economic hard landing.
  • Third, many advanced nations are struggling with enormous fiscal challenges.  There is a risk of one or more debt defaults in Europe.
  • Lastly, the U.S. fiscal deficit and debt are also pressing problems.  Standard & Poor’s recently announced that unless the U.S. fiscal deterioration is addressed in the coming years, the U.S. government may have its credit rating downgraded. 


There is little doubt that the risks will add to financial market volatility, but it is not evident that that they will derail the economic expansion. 

No one can truly predict what will happen to the politics in the Middle East, but the odds of the political instability reaching a major oil exporting country are not high enough to be the most likely outcome. 

Developing countries are taking action to rein in inflation, and this may affect their economic prospects more, or less, than financial markets expect.  Regardless, moderating their rapid economic growth is prudent from a long-term perspective.  The fiscal austerity required to address fiscal deficits in Europe and the U.S. will act to slow economic growth, but the countries at risk of a debt restructuring are limited to Greece, Ireland and Portugal – and financial markets have been bracing for a debt restructuring for some time.  

The prevailing investment environment is similar to that of 2010.  There were many things that could have gone wrong last year and there were many bumps along the way, but ultimately the global economy and world investment markets navigated their way to solid returns. 

Should you have any questions, please do not hesitate to call. 

Ken W. Wilk
Portfolio Manager and Investment Advisor
(204) 988 5221 

* Comments summarized from 1) TD Waterhouse Monthly Perspectives June 2011 and 2) Private Investment Advice Wealth and Wisdom Summer 2011 

TD Waterhouse Private Investment Advice is a division of TD Waterhouse Canada Inc, a subsidiary of The Toronto-Dominion Bank and a licensed user of The Toronto-Dominion Bank trade-marks.  TD Waterhouse Canada Inc – Member CIPF (Canadian Investor Protection Fund).  The TD logo and other trademarks are the property of The Toronto Dominion Bank or a wholly-owned subsidiary, in Canada and/or in other countries.  TD Waterhouse Canada Inc. is a licensed user. 

The information contained in this report was obtained from sources which we believe to be reliable.  However, this information is not guaranteed by TD Waterhouse, and may be incomplete.  This report was prepared to make it easier to manage your portfolio.  We must underline the fact that TD Waterhouse’s liability shall only be attached to the accuracy of the information contained in your statement of account.  Therefore, information in your statement of account will always take precedence over the information contained in the above-mentioned report.

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