Reminder!

January is the month when we need to remind everyone that the "Taxman" cometh!

Therefore, it's time to consider doing your annual RRSP contribution, TFSA contribution and if need be, an RESP contribution as well.

RRSP contribution deadline this year is March 1^stand the 2010 limit is $22,000.

Everyone is allowed to add another $5000 to their TFSAs as well. If we can be of assistance in getting this done, please let us know!

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 Following is a list of guidelines (and reminders) that will influence our strategy in the coming months.

1. The S&P 500 should trade in the 1,125-1,325 range. The risk-on/risk-off mentality kept investors on edge in 2010 and the S&P 500 traded in the 1,025-1,225 range. Looking at bottom-up forecasts for 2011 and 2012, and using the same P/E range, we expect the S&P 500 to trade within the 1,125 and 1,325 levels. We will continue to focus on tactical indicators such as our risk-on/risk-off barometer in order to alter our cyclical exposure.

 2. Stay constructive on equities as long as U.S. employment outlook improves. This was our number one asset mix guideline in 2010 and we are sticking to it. If weekly claims fall below the 400,000 "sweet spot" in 2011, the pace of monthly employment growth should accelerate. A pickup in employment is positive for equities, negative for yields, and somewhat supportive for the US$.

 3. Low double-digit earnings growth. Rebounding U.S. leading indicators, high single-digit GDP growth in Emerging Asia, top line expansion, strong operating leverage, share buybacks, and steep yield curves all point to a favourable profit outlook next year. Our global earnings revisions ratio remains high and we are comfortable with a scenario of sustained profit growth in 2011. Cyclical sectors are still posting superior earnings revisions to defensives at this point, and U.S. small cap revisions are also outpacing large cap revisions.

 4. Limited P/E expansion. Based on calendar 2011 earnings estimates, the S&P 500 is trading at 13x P/E, two points below its 15x historical average. Sustained bull markets thrive on both EPS and P/E expansion, but until investor sentiment fully recovers from the dreadful secular bear cycle that started in 2000, we see limited contribution coming from valuation expansion for U.S. equities. A reversal in flows would be a catalyst to higher P/Es.

In Canada, we could see outright contraction in 2011. The S&P/TSX index is currently trading at a 23% premium to the MSCI AC. There are still many reasons to overweight Canada, but relative valuations are not one of them.

 5. Stick with the dividend theme. In an environment of low (albeit rising) nominal interest rates and thirst for income (aversion to riskier equities), high-yielding stocks should perform well. With cash balances moving higher, important capital allocation decisions await company boards in coming quarters.

Although buybacks and M&A are obvious alternatives for cash redeployment, we believe dividends will become an increasingly attractive option. Dividend increases should also get the best reception from investors with equity sentiment at decade lows, flows searching for comfort (government bonds), and income (corporate bonds and dividends). Moreover, dividends have historically represented a large chunk of equity total returns. Since 1980, roughly 60% of the S&P 500 total return comes from dividends.

 6. China policy a bigger risk than U.S. policy. Chinese monetary policy may stay restrictive for most of 2011 and the PBOC could tighten further in order to contain inflation pressures. With inflation running at 4.4% YOY and the PMI index hovering above the 55 level, challenges to the ongoing commodity enthusiasm may be driven more by China than the United States in the first half of 2011.

 7. Transitions in monetary policy. De-synchronized monetary policy heavily influenced global leadership in 2010 and we expect it will continue in 2011. China, Brazil, India, and Australia are entering 2011 with a tightening bias, the United States is still in easing mode, and Canada is on the sidelines. The early tightening group underperformed in 2010 and this trend could continue in the early part of next year.

By the end of 2011, the early tighteners should move to neutral with the Fed hinting at normalizing its policy (rate hikes). This transition could help stabilize the US$ and benefit U.S. large caps.

 8. NAFTA overweight. Canada, Mexico, and the S&P 500 all outpaced the MSCI World AC index during the "back-to-school" rally and for 2010 as a whole. If U.S. economic worries moderate in coming months, markets that offer proximity to the U.S. recovery should hold their ground. Our global pair-trades entering 2011 are as follows: S&P 500 over China; Canada over Australia; and Mexico over Brazil.

 9. Catalyst to narrowing small/large cap valuation spread. Small cap dominance has been ongoing for almost 10 years and the current small cap valuation premium is calling all mean-reversion disciples.

Admittedly, the mid-term outlook points to a U.S. large cap resurgence in coming years. In the near term, however, small cap outperformance should last until the Federal Reserve looks to implement its exit strategy. When the Fed starts normalizing interest rates, the 10-year-old small cap domination could end.

 10. Everybody loves EM. EM economies are posting spectacular GDP growth, and flows are exiting G7 markets for exposure to emerging markets. We believe this is a very crowded trade that takes its roots from the notion that developed economies will lag and the US$ will correct forever. GDP growth in China and Brazil is robust, but those markets have been amongst the worst performing indices in 2010 and have lagged the S&P 500. We prefer the Latam side of EM for 2011.