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. Media can arrange interviews with our BMO strategists by calling 416-867-3996 or 312-461-6625.

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.

    A complete copy of the BMO Economics 2009 Outlook: A World of Challenges
is available at: http://www.bmonesbittburns.com/Economics/

    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.
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SOURCE: BMO Bank of Montreal

SOURCE: BMO Financial Group

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