While it took much longer than in past business cycles, we have finally reached the point where excess liquidity is being drained from the global financial system. While the policy-induced global economic slowdown is likely to be relatively mild, global financial markets may have trouble coping as central banks turn off the global liquidity tap. Key Insights: Fixed Income vs. Equity: Equity returns should remain positive but are increasingly at risk. Bond yields are still below fair value and should continue to gradually move up as bond prices decline. Equity: The U.S. continues to face headwinds from both valuation and shrinking profit margins—these will likely limit returns for the foreseeable future. Valuation arguments still favour emerging markets versus other global regions. Fixed Income: Global bond yields should grind higher. Although the global growth outlook has become more uncertain, the steadfast desire to renormalize monetary policy remains intact. Currencies: Canada is vulnerable to tightening U.S. credit conditions and any U.S. policies aimed at widening Canada’s overall trade deficit. For these and other fundamental reasons, we believe it is too early to call a bottoming for the Canadian dollar. Read Perspectives Report Perspectives Executive Summary Perspectives Video Commentary with Luc de la Durantaye Podcast with Luc de la Durantaye