But 'more than reasonable' returns still expected over next 12 months

    TORONTO, Dec. 10 /CNW/ - CIBC (CM: TSX; NYSE) - The TSX composite index
could generate total returns above 20 per cent in 2009, but investors should
think twice before bulking up on stocks just yet, notes a new CIBC World
Markets report
    "The near-term risks to the market from a contracting North American
economy stand in the way of overweighting stocks at this point," says Jeff
Rubin, CIBC World Markets chief economist and chief strategist, in his latest
Canadian Portfolio Strategy Outlook Report.
    "We continue to expect the North American economy to contract over the
first half of the year, with near-term punitive consequences for earnings,"
says Mr. Rubin, adding that investors "going long stocks now should be
prepared for more jolts along the way."
    Citing an "increasingly challenging economic environment," Mr. Rubin has
lowered his 2009 year-end TSX target by 1,000 points to 11,000. However, that
still leaves room for a "more than reasonable" upswing from this year's
expected close of 9,000.
    Meanwhile, Mr. Rubin says that whatever steps Washington takes to stem
the economic crisis will have "huge ramifications on both sides of the border"
and resuscitate growth by the second half of 2009. That spells a recovery in
both earnings and commodity prices, particularly energy.
    "While demand destruction from the current recession has sent oil prices
plunging below US$50 per barrel, supply destruction, including cancellations
in the Canadian oil sands and offshore projects around the world, will see
crude soar back to triple-digit territory toward the end of next year and into
2010."
    Weightings in Mr. Rubin's model investment portfolio have remained
unchanged except for a one-point shift of weighting from gold stocks to
telecoms. "With M&A deal risks effectively eliminated by recent developments,
(the telecom) segment looks appealing as a defensive play."
    Mr. Rubin holds a modest "overweight" in bullion and energy stocks, and
an above-benchmark exposure to staples and utilities stocks. The latter two
sectors have "typically helped to provide portfolio stability in tough times,"
he says.
    By asset mix, Mr. Rubin remains "market weight" in equities, and
"overweight" in cash as a defense against "near-certain" market volatility. He
remains "underweight" in bonds given that the U.S. deficit is heading for 11
percent of GDP. The danger, he says, is that "Washington's already massive and
growing fiscal deficit poses huge monetization and inflation risks down the
road" if large fiscal imbalances are financed by "cranking up the printing
press" rather than issuing debt.
    "After decades of fighting inflation, the (U.S. Federal Reserve) is about
to actively seek its return. Not only will inflation ease the burden of the
nation's debt, of which almost half is now owned by foreigners, but reflation
will also raise asset prices and the value of many of those mortgage-backed
securities, which now reside on the Fed's own balance sheet. In the past, the
inflationary consequence of monetizing deficits has robbed bond investors of
as much as 30 per cent of their real return."
    The complete CIBC World Markets report is available at:
    http://research.cibcwm.com/economic_public/download/psdec08.pdf

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