Daryl Rebeck, Vice President and Senior Investment Advisor
Vancouver, BC, Canada

Can the world change in 10 days? Well, in a recent presentation, we suggested that possibly it just had.

Unbeknownst and misunderstood by most, it was explained that this past summer the global banking system faced its worst crisis since the 1930's. Banks and financial institutions for a while totally lost confidence in lending to each other and, had the situation continued, it would have precipitated grave economic repercussions.

About 10 days ago and as written up in the Weekly Strategy Notes, two important events happened to ease investor fears. First, in an unprecedented move, the U.S. Fed, for a second straight time within a month, lowered the discount rate by 1/2 a point. In between and around these discount rate cuts, the Fed, the European Central Bank and other central banks have injected many hundreds of billions of dollars to unfreeze the global banking system, providing unprecedented additional liquidity.

Secondly, in Britain investors fearing for their savings had started a run on the Northern Rock Bank - the first bank run in the U.K. since the 1860's. Very quickly the British government stepped in and guaranteed the deposits of that bank and all other banks. That move restored confidence in the U.K. banking system.

The combination of those two events means that the worst is probably behind us in terms of the global financial crisis.

This likelihood was further confirmed for our domestic banking system we met with senior management of four of Canada's largest banks. We came away with the opinion that in light of the events of the last ten days, the outlook for North American and global economic growth was now better than it had been earlier and that the prospect of a U.S. recession had been reduced from over 50% to under 50%.

In light of these events, while we have been holding a very high liquidity level of 60% (in cash, near cash and RPN's) in the Canadian Independence Accounts portfolios, in the last few days, we have invested 1/3 of the cash and RPN's back into equities, chiefly in the financial sector. Furthermore, we believe that it will become clearer in the next few days or weeks as to where our economies are headed. We are now less bearish. Although not out of the woods yet, if we conclude that the odds of a recession are further diminishing over the next while, we could well be fully invested in that time frame. If that is the case, clients could look forward to 12 to 24 months of up cycle returns, knowing that their capital has been protected through this highly dangerous period.