The price of crude oil has been extremely volatile over the past few years as a result of economic uncertainty and a near collapse of the financial system. The volatile price environment has been further accentuated by various supply issues, concerns about geopolitical risk, currency hedging, and general speculation on commodities. Over the first half of 2008, against a backdrop of a weakening economy, the price of crude oil shockingly rose beyond US$140 per barrel.

After finishing the most difficult year for Canadian equity markets since the Great Depression, investors felt nervous about 2009, and rightfully so. We are currently in the midst of the worst financial crisis in 80 years, which has led to a profound global economic slowdown and recessions for many of the world’s developed nations. Equity gains have been hard to come by, access to financing has been difficult or expensive and investor confidence is in need of resuscitation. In other words, there were few positive catalysts to jumpstart 2009 as we finished off 2008.

Finding Direction in Unchartered Territory - The Journey Continues

• The ScotiaMcLeod TFSA will allow you to set money aside and watch it grow tax-free.
  
• All investment; income and returns (interest, dividends and capital gains) earned in a TFSA are tax-free for life.

Situation - It is possible for an investor to reduce the volatility (the risk) of his portfolio while maintaining the same returns or even increasing them by using stock options. One strategy that can be used to attain this goal is called “covered call writing” because one sells, or “writes”, call options against stocks held; these stocks “cover” the written calls.

Objective - To skew the risk/reward ratio in the investor’s favor by collecting premium income from the sale of call options. This income reduces the volatility of a portfolio and studies have shown that it actually increases a portfolio’s yield.

Federal Budget Impact on our Strategy View

The Canadian economy has been sideswiped by the severity of the fallout in global economic growth in the last quarter of 2008 and this year's recession will have a dramatic impact on the Federal government's finances for years to come. In yesterday's budget, the Federal government proposed $40B of additional spending to help the economy weather the storm over the next two years. On the federal revenue side, the collapse in commodity prices (back to 2002 levels), rising unemployment, and a broad retrenchment in corporate profits (we estimate a 32% decline in TSX profits in 2009) will challenge the budgeting process well after this year.