“It was the best of times, it was the worst of times, it was the age of wisdom, it was the age of foolishness, it was the epoch of belief, it was the epoch of incredulity, it was the season of Light, it was the season of Darkness, it was the spring of hope, it was the winter of despair, we had everything before us, we had nothing before us, we were all going direct to heaven, we were all going direct the other way…”

Charles Dickens “A Tale of Two Cities”.

The year just past would have made Dickens smile, and exactly 150 years after he wrote the words above, they could not be more appropriate to the situation facing us in 2010.  In 2009 the TSX 300 enjoyed its highest one year return since 1979, but unemployment rose to its highest level in more than twenty years.  Interest rates dropped sharply, inspiring an unlikely Canadian housing boom, but conservative investors were impoverished by low returns on bonds and GICs.  Some Nobel Prize winning economists call for more government stimulus to the economy, while other eminent thinkers label it as throwing good money after bad.  Some forecasters see the start of a strong and lasting recovery this year, while others expect anemic growth at best, and a “double dip” recession at worst.

Our own view is that the world economy in general, and Canada’s in particular, will muddle through in 2010 with weak economic growth and slow improvement in unemployment, retail spending and business conditions.  The structural imbalances in world banking and real estate, mostly in the U.S. but in Europe as well, will continue to impede progress, but will not throw us back into recession.  Accelerating growth in manufacturing and consumption from the emerging economies of Asia and South America will pick up some of the slack and provide the demand for goods and services needed to keep things moving forward.

While we expect a smoother ride in 2010, no doubt there will be bumps and jolts along the way, and no one knows when we will be hit by the next wildcard event, be it an Apple iPhone boosting the entire tech sector, or an underwear bomber causing world travel to grind to a virtual halt.  If we have learned anything over the last two years it is that economic forecasting is hard – even harder than we thought.

We wish all of our clients a happy, healthy and profitable 2010.