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Infomail July 26, 2010 Summer Doldrums It seems like the summer of 2010 has expressed a different story each week when it comes to the economy and the financial markets. Some weeks it’s optimism, other’s its pessimism. Some weeks it’s hope, the next fear…some weeks inflationary then the next deflationary. But at the end of it all, the gyrations only continue to add to one prevailing emotion: angst. The main point is these markets have been volatile, but that doesn’t mean investors have to take the bait. Investors need to focus beyond a week, or a month or even a year, and take advantage of pullbacks. The fundamental story is getting better. The news out of Europe is improving. The bank stress test, believe it a farce or not, went “OK”. Business confidence in Germany is running at a 3-year high in July. The UK GDP numbers beat expectations, as did their retail sales. The BP oil spill news is better. At some point, the huge $15 trillion US economy can reverse course and turn on the jets. It’s true, we are into the second half of 2010 and markets are still treading water, but an optimist would say it’s not going down. Given all the news from March to June (BP oil spill, Greece & the rest of Europe, lawsuits, etc.), most investors would have bet we’d be down. So far this quarter, 80% of S&P 500 companies that reported beat earnings expectations. That’s a good thing. Inflation seems benign, which means interest rates should stay historically low for some time, that’s a good thing. The biggest question to try to get all that cash off the sidelines is whether the White House will continue its perceived anti-business crusade and dig deeper with its goal of limiting corporate profits and the redistribution of wealth. It goes against the American dream that hard work, thrift, risk taking and smarts should be punished. To grow any nation, new wealth must be created, and with that comes jobs and opportunities. Such opportunities can’t happen without the flow of money/capital and increased confidence. That capital flow is being stifled by endless rhetoric and increased rules and regulations. Healthcare reform, financial reform, and cap and trade are going to be very expensive for business, both large and small. According to Deal Logic in the US, last week there were no asset-backed deals in the entire USA, the first time in 2010 that this has happened. Before last week (and new Financial Reg.) there was an average of four deals per week raising $1.8 billion. This is what gets the economy moving, not unemployment cheques. The markets are in limbo. It has been frustrating. There was a moot response to the Euro banks stress test. Not sure if it’s being ignored or just dismissive (only 7 of 91 banks failed). Trading volume all summer has been extremely light. I suspect more of the same for the next 4-6 weeks and if the Republicans can make significant gains in the US mid term elections in November, creating some grid lock, we could see a decent year end rally. Stay Tuned Vito Finucci Vice President & Director Private Client Division This information is not investment advice and should be used only in conjunction with a discussion with your RBC Dominion Securities Inc. Investment Advisor. This will ensure that your own circumstances have been considered properly and that action is taken on the latest available information. The information contained herein has been obtained from sources believed to be reliable at the time obtained but neither RBC Dominion Securities Inc. nor its employees, agents, or information suppliers can guarantee its accuracy or completeness. This report is not and under no circumstances is to be construed as an offer to sell or the solicitation of an offer to buy any securities. This report is furnished on the basis and understanding that neither RBC Dominion Securities Inc. nor its employees, agents, or information suppliers is to be under any responsibility or liability whatsoever in respect thereof. The inventories of RBC Dominion Securities Inc. may from time to time include securities mentioned herein. This commentary is based on information that is believed to be accurate at the time of writing, and is subject to change. All opinions and estimates contained in this report constitute RBC Dominion Securities Inc.’s judgment as of the date of this report, are subject to change without notice and are provided in good faith but without legal responsibility. Interest rates, market conditions and other investment factors are subject to change. Past performance may not be repeated. The information provided is intended only to illustrate certain historical returns and is not intended to reflect future values or returns. RBC Dominion Securities Inc.* and Royal Bank of Canada are separate corporate entities which are affiliated. *Member CIPF.