Economic conditions and market behaviour have been uncertain for some time. Although we have seen a marked improvement since earlier this year, economic headwinds remain, and no one is unequivocally bullish. Deleveraging of the household and business sectors is under way, and financial services regulation will no doubt be tightened. But a key imbalance remains between the extraordinary trade and budget deficits in the U.S. (and much of the G7), and the huge and mounting current account surplus in China (and other countries whose currencies are purposely undervalued). In the longer term, the global monetary forces that triggered the financial crisis must be addressed.

When you’re ready to contribute to your BMO InvestorLine registered account this year, you have many ways to do so – quickly and easily.

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When building your investment portfolio, consider one that delivers diversification, simplicity and expertise. Whether you want to save on taxes, reduce management expense ratios, or explore investment alternatives, Model Portfolios give you a range of investments to match your selected Investor Profile and risk tolerance, as well as the benefits of third-party expertise.

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As part of our commitment to bring you up-to-the-minute investing information, we’re pleased to announce that we’ve partnered with Globe Investor to bring you two Investor Blogs.

Each blog has highly regarded contributors bringing you credible, third-party market information, so you’re equipped to make well-informed investment decisions. The content is refreshed daily to keep you up to date.

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Join the growing number of our clients who receive their statements online thereby contributing to saving trees and a cleaner environment.

With eStatements you can:

• review your statements online the second they are ready
• access and print statements – anytime, anywhere

Plus, we'll notify you when they're ready through MyLink and email.

To do your part, switch to eStatement today. Simply sign in to your account and edit your Account Profile in the Account Services section.

Economic conditions and market behaviour have been uncertain for some time. Although we have seen a marked improvement since earlier this year, economic headwinds remain, and no one is unequivocally bullish. Deleveraging of the household and business sectors is under way, and financial services regulation will no doubt be tightened. But a key imbalance remains between the extraordinary trade and budget deficits in the U.S. (and much of the G7), and the huge and mounting current account surplus in China (and other countries whose currencies are purposely undervalued). In the longer term, the global monetary forces that triggered the financial crisis must be addressed.

The budgetary red ink explosion at all levels of government in North America and worldwide is the necessary result of the credit crisis and the ensuing deep and long recession. Fiscal authorities and central banks will maintain a stimulative policy stance as long as the risks of a double-dip recession remain. Without these support measures, the global economy could well have plunged into depression. But as the economy recovers, any upward pressure on interest rates arising from a rebound in private sector credit demand would meaningfully increase government debt financing costs. This would in turn mitigate the positive effects of a turnaround in deficit reduction.

The odds favour an orderly further decline in the U.S. dollar that will continue to boost American net exports and spur moderate growth. Corporate profits have risen sharply as businesses have cut costs and massively retrenched in terms of employment, inventories and capital spending. At last, we are beginning to see some top-line growth, with revenues slowly recovering from their collapse just over a year ago. This should in time lead to stepped-up business investment in machinery, equipment and software, as well as a gradual improvement in labour markets. Nevertheless, the caution displayed by companies that were burned by the crisis will mean a jobless recovery for some time, and the U.S. unemployment rate won’t likely peak until well into the coming year.

The outlook may be improving, but it is naive to think that the depth and brutality of the crisis-driven recession will leave no lasting damage. While housing markets in Canada have bounced back with a vengeance, bank foreclosures in the U.S. will rise sharply this year: an estimated 23 percent of American homeowners have mortgages larger than the value of their homes, and their refinancing possibilities have been limited. Most homeowners who can still afford their payments would rather stay in their homes, but some – in particular, those whose income has fallen sharply – will walk away if the mortgage gap grows too wide.

The toughest aspect of this recession for Americans has been the rapid rise in long-term unemployment. Canadians have also suffered job losses, and those in manufacturing (particularly the automotive sector) have been hit hardest by our strong dollar. Nevertheless, the loonie should rise further on balance over the next couple of years. As the recession swept through the U.S. and commodity prices fell worldwide, Canada’s previous record trade surplus was driven down to a record trade deficit. Even so, the rate of structural unemployment here is far lower than in the U.S.

The average unemployment duration south of the border is at an unprecedented 27 weeks, and the broadest measure of joblessness (which includes those involuntarily working less than full time) is now at a record 17.5 percent. This has proven particularly painful for older boomers who have been knocked out by the double whammy of wealth destruction from falling stock and home prices and the gut-wrenching loss of employment. Hiring in the U.S. remains extremely low, and while layoffs have slowed, prospects for the unemployed appear bleak for now. Many will never find a job that pays as well as the one they lost.

One sign of imminent labour market improvement is the rise in temporary employment, and sustained economic recovery will eventually trigger a boost in hiring. But for now, most businesses are willing to wait cautiously for confirmation of a sustained upturn.

However, the jobless can only wait so long before they fall behind on their mortgage and credit card payments. Even for those with jobs, the decline in household wealth has generated a necessary rise in savings and frugality. Retail sales are much stronger than they were a year ago, and Christmas sales will undoubtedly beat last year’s weak numbers, but consumers are looking for bargains, and we won’t soon see a return of the free-spending days of the bubble era.

In time, governments will be forced to raise taxes and cut non-essential services. While it is unlikely that the U.S. will lose its reserve currency status, it will be coerced into tightening its belt. The U.S. may not be confronted with failed government bond auctions or an inability to finance its debt; but a much-needed revaluation of China’s currency will mean that the country’s financial spigots will finally be turned down a bit, leading to higher interest rates if the U.S. neglects to sufficiently tighten fiscal policy. These are very difficult political issues and would be daunting for any president. But they are especially worrisome for Barack Obama, as the degree of co-operation between Democrats and Republicans appears to be at a modern-day low.

Compounding the challenge, the aging population in the industrial world already points toward a marked slowdown in potential growth, unless productivity gains and skilled immigrant inflows improve sufficiently to offset the declining labour force. In the end, this will solve the structural unemployment problem in the U.S., but it will also manifest itself in lower living standards.

The American economy’s strength is innovation and invention. The iPod may be produced in China, but the bulk of the profits it generates land in the U.S. Examples of such growth impetus abound, and others are probably on the horizon. Moreover, with the weak greenback the U.S. is now beginning to experience a return of manufacturing jobs. We have even seen recent examples of foreign manufacturers opening U.S. operations for the first time, and states with the lowest taxation and labour costs will attract the most new businesses.

The mechanisms of price adjustment - whether via changes in exchange rates, wage rates or product prices - will gradually reduce the imbalances and return the global economy to a sustainable pace of expansion, likely well below the 5 percent level of the bubble era. The recovery will be halting and subpar, especially in the U.S. Downside risks remain, but the clouds are beginning to part. Those who suffered the worst consequences of this maelstrom remain bruised and weary, yet new opportunities will emerge as the excesses of the past are painfully whittled away.

Sherry Cooper is a global economic strategist and executive vice-president of BMO Financial Group, and chief economist for BMO Capital Markets.

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When you’re ready to contribute to your BMO InvestorLine registered account this year, you have many ways to do so – quickly and easily.

Contribute Online
Contribute to your RSPs online by using funds from your BMO InvestorLine cash or margin account or your BMO Bank of Montreal account. Go to RSP Contribution under My Portfolio to make your contribution.

Use Online or Telephone Banking
Top up your RSP as easily as you pay bills online. Use your Internet or telephone banking service to add BMO InvestorLine to your list of payees.

Set Up Pre-Authorized Contributions
Enrol in a pre-authorized plan and avoid the yearly rush to make the RSP deadline. Set up a convenient payment schedule that suits your needs and benefit from dollar-cost averaging. Complete the Pre-Authorized Contribution form and we’ll take care of the rest.

Make a Transfer from Other Financial Institutions
By consolidating your investments with BMO InvestorLine, you simplify your investing activities and gain a consolidated view of your portfolio. Get started with the online transfer form.

Contribute Cheques or Securities at Any BMO Bank of Montreal Branch
Visit a BMO Bank of Montreal branch to make your contribution. To contribute securities into your BMO InvestorLine account, complete the Power of Attorney to Transfer Stocks or Bonds (LF255) form, and return it with the certificates to BMO InvestorLine or to a BMO Bank of Montreal branch.

Apply for an RSP Loan
If you’re short on cash and want to contribute to your RSP, you can apply online for an RSP loan. To apply now, visit the RSP Centre under the Education Centre.

To access any of the above forms, sign in to your account and go to Forms under Account Services.

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When building your investment portfolio, consider one that delivers diversification, simplicity and expertise. Whether you want to save on taxes, reduce management expense ratios, or explore investment alternatives, Model Portfolios give you a range of investments to match your selected Investor Profile and risk tolerance, as well as the benefits of third-party expertise.

Lipper ETF Model Portfolios - Exclusive to BMO InvestorLine
We’ve partnered with industry leader Lipper to construct Model Portfolios exclusively for BMO InvestorLine clients. Lipper, a Thomson Reuters company, is a global authority in supplying information, analytical tools and independent global commentary about investment funds.

Lipper has constructed different Model Portfolios that match your selected Investor Profile (Security, Balanced, Growth, or Aggressive Growth). Investors who prefer passively managed funds with lower fees can choose from eight Model Portfolios of exchange-traded funds, or ETFs. Investors who opt for actively managed funds can choose from eight Model Portfolios of top mutual funds from across the industry.

In addition, Lipper provides monthly podcasts and quarterly commentaries on these Model Portfolios. The podcasts include Canadian and U.S. market performance highlights, and the performances of the Lipper Model Portfolios or underlying funds. Any changes to the portfolios are explained in the commentaries.

BMO Mutual Funds Model Portfolios
BMO Mutual Funds offer 12 Model Portfolios. Most important, the BMO Mutual Funds portfolios are automatically rebalanced, so your portfolio stays within your targeted risk profile. These professionally managed portfolios include industry-leading mutual fund companies such as AGF, Invesco Trimark, Brandes Investment Partners, CI Investments, Franklin Templeton Investments, and Mackenzie Investments. In addition, four of them supply tax-efficient monthly cash flow.

Get Started with the Asset Allocator
Using the Asset Allocator, you can assess your current financial situation by taking an inventory of all of your registered and non-registered investments. Next, you can determine your Investor Profile. Depending on how savvy an investor you are, you can simply select your Investor Profile type from the choices provided, or complete a short questionnaire to determine it. This will help you establish the most direct route to your goals and ensure that you stay on track.

For more information about the new Model Portfolios, sign in to your account and go to the Model Portfolios section under Research.

Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated.

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As part of our commitment to bring you up-to-the-minute investing information, we’re pleased to announce that we’ve partnered with Globe Investor to bring you two Investor Blogs.

Each blog has highly regarded contributors bringing you credible, third-party market information, so you’re equipped to make well-informed investment decisions. The content is refreshed daily to keep you up to date.

The Investor Blogs include:

• Streetwise – provides the latest developments on the day’s market-moving news. Contributors include:
• Andrew Willis
• Boyd Erman
• Steve Ladurantaye
• Tara Perkins
• Fund Watch - keeps an eye on the movers and shakers in the Canadian investment fund industry. Also looks at industry trends, new products, manager changes, and issues ranging from fees to fund performance. Contributors include:
• Shirley Won

Accessing the Investor Blogs
You can access the Investor Blogs under Markets & News when you sign in to your account.

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Join the growing number of our clients who receive their statements online thereby contributing to saving trees and a cleaner environment.

With eStatements you can:

• review your statements online the second they are ready
• access and print statements – anytime, anywhere

Plus, we'll notify you when they're ready through MyLink and email.

To do your part, switch to eStatement today. Simply sign in to your account and edit your Account Profile in the Account Services section.

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In December 2008, BMO Financial Group became the first and only major Canadian bank to offer registered disability savings plans. This plan helps parents and others save for the long-term financial security of a person with severe or prolonged disabilities.

• Anyone can contribute to an RDSP
• The lifetime contribution limit is $200,000 per beneficiary, with no annual limit
• Contributions may qualify for payments from the Canada Disability Savings Grant (CDSG)* program, up to a lifetime maximum of $70,000 per beneficiary
• Lower-income beneficiaries and families may qualify for payments from the Canada Disability Savings Bond (CDSB)* program, up to a lifetime maximum of $20,000, without having to contribute to an RDSP
• Growth on investments within the plan is tax deferred
• When funds are withdrawn, the CDSG, CDSB and any investment income are taxed to the beneficiary, who likely has a much lower tax rate than parents or other contributors

* Eligibility ends December 31st in the year the beneficiary turns 49. Both the CDSG and the CDSB are contributed by the Government of Canada and paid directly to the plan on behalf of the beneficiary.

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A survey of Canadian households shows that investors have only 13% of their total wealth in non-Canadian holdings.* Conversely, many large pension plans are allocating more to their portfolios’ global content. For example, the Canada Pension Plan’s global equity portion has grown to 35%, according to the The Globe and Mail (Feb. 26, 2007). You decide how much global content may be right for you, to help you capitalize on opportunities and reach your investment objectives.

*Source: Investor Economics, Household Balance Sheet Report, 2007 edition

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