Last week, it was Jeff Rubin at CIBC Capital Markets who crunched the numbers and came up with a gloomy forecast:
“Second-quarter GDP in both the US and Canada is likely to show further substantial contractions in the economy, while the banking crisis in the US is likely to continue to have spillover effects on Canadian financial stock valuations. Both factors will likely push the TSX down to 7,000 before Washington’s massive fiscal stimulus and financial rescue package gain traction.”
The TSX Composite Index was hovering around 8,400 at mid-day.
Today, Merrill Lynch economist and chief Canadian strategist David Wolf looks at some recent numbers and, for the third time since Dec. 18, revises his forecast downward.
Wolf is more bearish than Rubin though they are both in the same ballpark. Wolf has the TSX Composite bottoming at 6,900 this year. That would be a drop of nearly 18 per cent from today's mid-day level.
With global and U.S. economies still shrinking, Canada — ever vulnerable to foreign economies because our dependence on trade — is going to see its economy shrink even more. In Wolf's view, real gross domestic product will shrink this year by 3 per cent — that's huge — and the current quarter we're in will be absolutely awful — a contraction of 9.1 per cent!! Wolf believes Canada's economy will grow by 2.2 per cent in 2010.
How do those predictions translate into your investments? Rubin is moving more money out of equity and into cash.
“We need to see signs of at least stabilization, if not recovery, in the economy, before adding more weight to stocks. At the same time bonds remain a very problematic sanctuary. Quantitative monetary easing and the massive deficits ahead, both suggest reflation will be a big part of any economic recovery.
Within our equity portfolio we are moving a percentage point of weighting from financials to gold. Bullion is likely to take another run well through $1,000 per ounce and the gold sector will continue to be perceived by investors as a safe haven against a troubled global financial sector. Our more pessimistic outlook on near-term growth prospects for the economy compels us to move a percentage point of weighting out of base metals and move it into the more defensive consumer staples sector. We continue to hold a large overweight in energy stocks, with our holdings skewed heavily to oil producers.”