My oh my, two months in a row! How good does that feel? Although economic news is still grim, the market seems to have sufficiently discounted much of the bad news. It appears to be looking at things as half full versus half empty.

The first quarter of 2009 is likely to go down in history as one of the more significant periods in our collective investing memory as investors grappled with the “recession versus depression” question. Many are wondering if we have reached the end of an investment era. The bulk of the last 25-30 years of investing occurred against the backdrop of the "Reagan/Thatcher" paradigm-free markets, with lower regulation and taxes.

It was the worst of times, it was the best of times.

In terms of economic news flow, the best we could do was claim that it had become “less bad” by the end of the first quarter. To this end, equities started the quarter off strong in January. It then proceeded to fizzle out in February, when continued poor economic news accompanied a lack of direction from the U.S. government in terms of a plan to support that country’s banking system. In mid-March, one of the biggest monthly moves on the TSX in the last several years took hold.

The year started off the same way that 2008 ended, as job losses continued to pile up and with daily announcements of bleak economic news. Global equity markets dropped a further 15-20%, adding to the losses of the previous year. In the auto sector, Chrysler and Ford were given deadlines to slash cost and sort out their balance sheets issues before they are forced into bankruptcy protection. Fears of the tens of thousands of jobs that could be lost sent investors running for the exits. Then as we entered March a more optimistic tone took over the market.

Finally, an up month.

After enduring month after month of bad news, the great recession of 2008 is probably passing its point of maximum strength, and a return to some form of economic stability appears to be in the cards for the second half of the year. We need the reflation trade to work. The biggest challenge going forward is whether policy makers can continue to foster growth with collective stimuli that will stem price deflation and maintain financial stability.

For the month of January, the markets surrendered much of their December return. The S&P 500 was off 8.43%, led by financials (-26.31%) and industrials (12.60%). For the TSX, we registered a 2.96% decline on the index, led by industrials (-7.77%).

Our funds faired somewhat better but still nothing great to write about. After a strong start we posted a -0.1% return for the month.