BMO Financial Group's Market Strategists Unveil Their Predictions for 2009

BMO Financial Group's economists, market and commodity strategists in Canada and the United States give their predictions for 2009.

Jack Ablin, Chief Investment Officer, Harris Private Bank
* Deflation forces could give way to monetary and fiscal stimulus sooner than expected.
* High quality bonds offer a relatively attractive yield as a conservative play, but investors should stay in shorter maturities.
* Stocks are cheap on a multi-year basis, but investors need to focus on price-to-sales, not price-to-earnings.
* The reflation trade should benefit stocks, Real Estate Investment Trusts and commodities, and high yield bonds.

    * High yield fixed income is the only asset class that pays you
        handsomely while you wait.
    * Attractive Sectors: Health Care, Staples, Utilities, Energy, Telecom.
    * Unattractive Sectors: Materials, Industrials.

    Andrew Busch, BMO Capital Markets, Global FX Market Strategist

    * The US Federal Reserve will move away from cutting interest rates to
        a serious quantitative easing program by continuing to expand their
        balance sheet. The Fed's first big steps down this path has been the
        announced program to purchase up to $500 billion in mortgage-backed
        securities.
    * Congress will extend loans to the private sector by forcing banks
        receiving new TARP funds to lend.
    * Unfortunately, the White House providing $17.4 billion in bailout
        funds to the auto industry won't resolve their problems and the
        markets are very like to force the issue by pushing their stocks to
        new lows. This will necessitate another round of loans amidst
        restructuring that will see layoffs rise.
    * The incoming Obama administration will propose and Congress will pass
        a massive stimulus program. The total program will certainly be over
        $500 billion and may eventually reach $800 billion - $1 trillion.
    * The housing sector will stabilize and this will stabilize the credit
        markets. Already, housing starts and building permits have fallen to
        levels that should sharply reduce the inventory of unsold homes which
        drives the number of foreclosures. We should see dramatic improvement
        in housing inventories by mid-2009.
    * The US government will attempt to use every means and method
        imaginable to arrest the slide in the economy and in the housing
        market. This includes legal and non-legal attempts to create agencies
        and programs to re-start growth.

    Bart Melek, BMO Capital Markets, Global Commodity Strategist

    * Sharp global slowdown and the quest for cash derail commodities. The
        onset of a recession in the world's highly industrialized nations and
        a material slowdown in the developing world is projected to erode
        demand for commodities ranging from copper to metallurgical coal to
        oil, keeping prices depressed for over a year.
    * Gold should remain relatively healthy, but a full sustainable rally
        is unlikely in the near term due to considerable global
        disinflationary pressures and possible additional aggressive interest
        rate cuts by central banks around the world that may fortify the US
        dollar.
    * Beyond 2009, very low interest rates and aggressive government
        spending (coming from China and the G7) are projected to place demand
        growth on a firmer footing. Furthermore, difficult credit conditions
        and the unsustainably low price environment for commodities such as
        copper and oil is expected to reduce current supply and impede the
        start up of new projects, eventually causing tight markets and higher
        prices.
    * In the long term, BMO projects that gold, base metals and energy are
        likely to get significant support from a weakening US trade-weighted
        dollar and higher trend inflation. Massive US budget deficits and
        concerns that monetary authorities will not soak up liquidity very
        quickly in the coming years are likely to move the greenback lower
        and drive inflation risks.

    Douglas Porter, Deputy Chief Economist, BMO Nesbitt Burns

    * The global recession will extend through the first half of 2009 as
        the credit crisis runs its course, before growth recovers modestly in
        the second half of the year.
    * The US faces its worst recession in the post-war era as consumers
        strive to rebuild savings amid unprecedented wealth destruction. An
        expected modest recovery starting late in the year depends on an
        expected sizeable fiscal stimulus plan.
    * Canada will suffer its first recession in 17 years as a result of
        falling exports to the US and declining investment in the resource
        sector amid plunging commodity prices. A modest recovery should begin
        in the second half of the year, supported by a likely stimulative
        federal budget and previous deep interest rate cuts.
    * The Fed is expected to keep overnight rates near zero in 2009.
        Meantime, the Bank of Canada is expected to reduce overnight rates to
        new half-century lows.
    * The Canadian dollar could weaken a bit further to below 80 cents in
        the first half of 2009 as commodity prices remain under pressure, but
        is expected to rebound above 85 cents later in the year.
    * The global economy may grow by just 1 per cent in 2009, marking the
        slowest year for global growth since the early 1980s.
    * We look for oil to average US$45/barrel in 2009.

    Paul Taylor, Chief Investment Officer, BMO Harris Private Banking

    * The sub-prime credit crisis of the fall of 2008 will continue to
        exert pressure on corporate balance sheets, both within and outside
        of the financial services industry.
    * Policymakers world-wide will remain vigilant in taking steps to
        reflate the global economy to stimulate consumers and investors to
        spend and invest rather than to hoard assets.
    * Stocks will rally meaningfully in advance of a turn in the economic
        outlook. Although the visibility on the duration of this down cycle
        is not high, an economic recovery is expected to be apparent by the
        latter part of 2009
    * The S&P/TSX earnings will fall year-over-year as the commodity
        sectors register double digit earnings growth declines. The Canadian
        dollar will struggle to firm against the US dollar and against other
        major currencies as long as commodity prices remain weak.
    * The first half of 2009 is expected to be very challenging for the
        capital markets. As a result we plan to only be a very selective
        buyer of Canadian equities early in the year. However, as economic
        growth re-ignites, there will be an opportunity for a rotation into
        more cyclical stocks and sectors.
    >>

SOURCE: BMO Financial Group

SOURCE: BMO Bank of Montreal

(416) 867-3996