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Fourth Quarter 2012

January 15, 2013 • Print This Article

Looking back on 2012, our focus on well capitalized Canadian dividend stocks has allowed us to maintain income flow while riding out market turbulence. As a result, we enter 2013 poised for growth. The past year has once again proven that a long term, strategic approach to investing helps portfolio valuations. We are seeing the long range averages improving which hopefully signals a return to a more normalized range of equity returns.

Canada remains stable, which in these economic times is a real compliment. Looking at the major global indexes, the past year was once again one of volatility. The European debt issues remained unresolved. Many investors moved to the shelter of US Treasury Bills pushing down rates from levels that were already artificially low due to Fed induced stimulus measures. The US bond market also benefited from inflows from equity funds as investors remained cautious. China's economic growth slowed. The US ran up against the "fiscal cliff" as Congress and the House of Representatives once again became mired in partisan politics.

Looking forward we believe that it should be a constructive year for equities in both the United States and Canada. It is becoming increasingly likely that there will not be a double dip recession in North America as long as politicians stay out of the way. There are to be negotiations on the debt ceiling and entitlement spending with a deadline at the end of February. If recent history is a guide, talks will grind out to the last minute and a resolution will take place. Markets may react negatively to the posturing of the Republicans and Democrats, however, markets should bounce back from any politically inspired weakness.

A stabilizing economic background and positive earnings momentum could lead to higher equity valuations over the next several years. Yield continues to be a common theme as investors look for income. This bodes well for dividend paying stocks as people shift out of low return bonds as the equity markets improve and confidence builds. There are indications that investment fund flows are starting to leave the perceived safety of money markets and short-term government bonds and are being reinvested in corporate debt and equities. Valuations remain attractive and there are still good opportunities, especially in the resource, energy, technology, health care and financial sectors. Over the longer term, the inevitable increase in interest rates as quantitative easing winds down may cause a drop in bond prices.

Inflation appears to remain in check which means that interest rates should remain relatively low for the foreseeable future which bodes well for equities. We remain biased toward dividend paying equities as we believe that dividend increases will be an ongoing theme for Corporate North America.

No one knows what the future holds, however we can look to the past for clues of what may come. Patterns emerge with consistent outcomes that pave the way for optimism and growth. This is not wishful thinking, but faith in the ingenuity of entrepreneurial spirit which is ultimately what drives markets.

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The opinions, estimates and projections contained herein are those of the author as of the date hereof and are subject to change without notice and may not reflect those of Mackie Research Capital Corporation ("MRCC"). The information and opinions contained herein have been compiled and derived from sources believed to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy or completeness. Neither the author nor MRCC accepts liability whatsoever for any loss arising from any use of this report or its contents. Information may be available to MRCC which is not reflected herein. This report is not to be construed as an offer to sell or a solicitation for an offer to buy any securities. Member-Canadian Investor Protection Fund / member-fonds canadien de protection des ├ępargnants.

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