Chris Kuflik - ScotiaMcLeod Montreal

With the official arrival of winter quickly approaching, many of our clients have been forced to battle early snowfalls in places such as Europe and Montreal but the record snowfall of 100cm since Sunday in London, Ontario is incredible. This is also the time of year where investors are bombarded with predictions from economists and investment strategists for the next year.

Since the worldwide crash of 2008 to early 2009, stock markets have rallied tremendously. Bulls have assumed that central banks will be able to re-stimulate the leading economies. The majority of forecasts from the economists and market strategists are quite bullish for 2011. Even famed market pundits such as Byron Wein and Richard Bernstein have become quite bullish in their predictions. The most recent survey from Investors Intelligence indicates that the percentage of bulls rose to 56.2% while that of bears declined to 21.3% last week. David Rosenberg noted that the last time this high of a degree of bullish sentiment was present was in December 2007. He also noted that: “The spread between bullish and bearish sentiment is at April 2010 levels”. You should note that these levels proceeded large declines in the market.

I am not predicting an impending market fall or crash, although one is possible given the sorry state of the western world’s economies at the present time; for a review of these issues, please access previously written commentaries on my website. You should note that many of the western world’s economic problems have not been solved, merely delayed with the hope that things will get better in the future and the problems will be solved by economic growth at sometime in the future: read peripheral Europe and US problems.  I will leave the crystal ball gazing to the strategists and economists.

One economist, Harry Dent, uses demographics of a country to make his forecasts. His track record on a long term basis has been very good. He successfully called the decline of the Japanese economy in 1989, the boom cycle in the US from 1983 to 2007 and the correction of 2008 prior to these events occurring. While his analysis of the direction and approximate timing of the occurrence was excellent, his calls for the size of the boom or bust, as measured by the points gained or lost was off. His belief is that the most critical factor which drives economic growth in developed nations is the spending cycles of average families of that nation. He uses a 46 year lag on immigration – adjusted birth index to establish an index that he calls “The Spending Wave”. This spending wave, according to Dent will determine a predictable surge in economic growth in a nation. By reading either one or both of his following titles The Great Boom Ahead and The Great Depression Ahead you will better understand this topic and its effects.

Recently, clients have been asking me the following questions: Can this rally continue and is it to be believed? As previously stated, I do not make predictions of the future. We can and will, however, continue to own equities which have excellent relative strength, strong cash flows and react to the market when the need arises. We have positioned our portfolios accordingly with tight stop losses to protect ourselves should the economists and strategists be wrong in their forecasts.

Please feel free to share this article with someone that you feel would benefit from its contents.

Chris Kuflik

Associate Director, Wealth Management

Wealth Advisor

514-287-2931

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Visit our website at www.chriskwealth.com

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