As we reach the mid-point of 2011, there is a sense of déjà vu in the air as many of the issues in the news at the end of 2010 such as the European sovereign debt crisis and the slow US economic recovery, continue to dominate headlines. In fact, looking at today's headlines would give the impression that 2011 has not been a good year. On top of the Sovereign Debt crisis and US recovery, we have seen political unrest in the Middle East and Northern Africa as well as a horrific earthquake and tsunami in Japan.

Despite these headlines, there are reasons for optimism as we enter the second half of the year. On the sovereign debt front, Greece has recently passed a sweeping austerity program that allows for the deployment of additional bailout funds which will help create a foundation for long term economic recovery. Further, these measures also provide confidence that other struggling European countries such as Portugal, Spain and Ireland will also be able to get back on track.  

The earthquake in Japan has had a more pronounced effect on the global economy than had been forecast as the technology and the automotive industries were slowed by parts shortages caused by the quake's aftermath. However, Japan has begun to rebuild and these shortages should prove to be temporary and production levels will return to normal.

In the US, concerns have been raised over the level of economic growth; however economic growth is expected to remain positive for 2011 and 2012. While unemployment remains high, further research indicates that the unemployment rate among skilled workers is at or near normal levels. Additionally many corporations have posted strong earnings results and in so doing now have significant cash reserves that could be deployed into the economy over the next several months.

In Canada, our economy remains strong. While there have been concerns over the high cost of energy and its impact on inflation, it is expected that inflation will remain within the Bank of Canada's target range for the foreseeable future. On this front, slower economic activity in the developing world has allowed for a pullback in commodity prices, which should also help alleviate inflationary pressures over the short term.

So while news headlines may paint a gloomy picture, the reality is that the economy as a whole isn't as bad as one might think. From an investment standpoint, while it is unlikely that the double digit returns that equity markets have experienced in each of the last two years will be repeated, the foundation is in place for reasonable returns.  

We wish to thank you for your continued support and we look forward to working with you in the months ahead.

Have a safe and happy summer!