balanced fund quarterly report
December 31, 2009
Economic Commentary
The "Great Recession" has ended as economic growth turned positive in the latter half of 2009. The magnitude and speed of the recovery in financial markets from the lows experienced in March was a dramatic surprise, which caught many investors on the sidelines waiting for a pullback. Although the probability of a double-dip recession is now lower, economic fundamentals have lagged the strong market recovery. Several facets of the economy need to strengthen further in order for a more sustained and prolonged recovery to occur.
The driving force behind the recovery in 2009 was the unprecedented stimulus provided by global central banks, with many lowering interest rates to near-zero in an attempt to boost the economy. The key question as we head into 2010 is how will the economy function when governments consolidate fiscal spending. There needs to be an orderly transition from an economy supported by government spending to one where the private sector plays a more dominant role. Hence, the ability of central banks to navigate an appropriate exit strategy will be very important as we move through 2010.
The economy has improved, especially in the housing sector, where problems in the U.S. market were the catalyst for the recession. House prices bottomed during the summer and inventory levels are now getting back to historical norms. New and existing home sales, along with housing starts, are also showing signs of rebounding.
