ECONOMY

Canada - Canadian manufacturing shipments fell 3.4% month-over-month in December.  This drop was much greater than had been expected. and the biggest decline since August 2003.  16 of 21 industries showed declines in the month.  Durable goods orders declined by 7.5% month-over-month, however nondurable goods orders increased a modest1.5% month-over-month.

Most of the major decline was due to longer than expected shutdowns at the motor vehicle plants during the month.  This could show some slight improvement in January; however the impact of the Canadian dollar and the US slowdown is now starting to have a much more major effect on Canadian manufacturing.  It will likely lead to another 50 basis point cut by the Bank of Canada.

U.S. - US consumer credit increased 2.1% in December after an 8.2% increase in November.  In spite of the January retail numbers, consumers are clearly pulling back on spending and businesses are finding it more difficult to borrow.  Total revolving, or credit card debt, increased 2.7% annualized rate, considerably slower than in October and November.  Banks are increasing their lending standards for loans, forcing some consumers to rely on charge cards as a means for credit.  Rather than increasing debt that they cannot pay off, consumers have cut spending.  There is great concern about their jobs, and when consumers are concerned about their jobs they reduce spending.

The University of Michigan Consumer Confidence Index was at 69.6 in February, considerably less than expected, and down from 78.4 the previous month.  It is at its lowest level since 1992.  The 1-year ahead inflation expectation rose to 3.7% year-over-year from 3.4% year-over-year previously.  This is the highest level in at least the last five years.  The deterioration in consumer confidence is starting to become more significant.  The rising inflation expectation puts pressure on the Fed to stop monetary accommodation shortly.

The number of workers that are members of unions in 2007 totaled 15.7 million.  This has changed very little from 2006.  The percentage of employed workers union membership, at approximately 12.1%, is at its lowest level in over 60 years.  In the early 1950s, 35% of all workers had a union card.  The change in the workforce has been from an industrial labour to the service dominated economy.  In the 50s, the US was a smoke stack economy with about 40% of the workforce engaged in manufacturing.  Today, only 10% of all workers are employed in the manufacturing sector, and over 80% are in service type positions.  This trend will continue.

International - China's trade surplus was up 22.6% in January over the same month last year.  Exports reached $109.66 billion, up 26.7% form the previous year, while imports grew 27.6% to $90.17 billion.

MARKET

Uranium looks like it is starting to resume an upward trend.  The present decline in spot prices is based on very small volume as very little uranium is sold on the spot market.  On a seasonal basis, uranium prices bottom at the end of February as utilities start making purchases again.

There are also considerable problems in bringing potential reserves into production.  Rio Tinto hopes to have the expansion of its Nambia mine completed later this year.  This mine had previously been expected to begin production at the beginning of 2008.

One of the negative factors on the market is that since January 22 only one third of New York Stock Exchange securities have moved into bullish trends.  That is not very impressive and does not indicate that this market can move much higher.  Maybe all that has been seen are bounces from the oversold position.

Market leadership is continuing to narrow.  It now looks like it is survival of the fittest especially in the financial sector.  The concern on the banks continues to be what has not been disclosed.  Bank of Montreal came out with more negative assets than they had indicated in their year-end report.  The biggest question now is do all the banks got some hidden problems?

US treasuries outperformed most other major categories in the fixed income group.  This is despite the fact that consensus seems to be that treasuries are risky and offer very little value because of the US financial situation.  Treasuries however are very liquid. It is now becoming much more difficult to outperform.

The global profit cycle is starting to show a negative trend, which means that global markets are likely not going to outperform domestic markets.  Investors should be looking for quality companies with increasing dividend trends.  European banks are trading at 10-year multiples, however it is far too early to get bullish.  There is a possibility of further write-downs of up to 11% of 2008 book values.

With earnings weakening and the trend of earnings being slightly more negative, it is likely to be some time before a major bottom is achieved.  There are, however, areas of the market that are attractive.  The dividend yields on some US and Canadian securities are the best on a relative basis that they have been in the past 10 years.  Investors should focus on the safety of dividends in making purchases of new securities.