The David Miner Communiqué—Fall 2008

Surprised at the Surprise!

The financial sector in the United States once again fell victim to the herd instinct, which is reminiscent of the Savings and Loan debacle of twenty years ago and the Latin American debt problems of the early 1980's. Stock markets reacted with their usual bumpy ride.

I remain "surprised at the surprise". The problems of U.S. easy money policy have been building for years on the back of their housing bubble. The bubble has burst and U.S. housing market is groping for a new base pricing level. Much of the sub-prime mortgage confusion will be resolved when the housing market finds a price footing and the value of these debt instruments can be determined. In the meantime, U.S. residential housing inventories exceed eleven months (the expected amount of time it takes to sell a home once on the market). In part, high housing inventories are a result of very tight credit, despite low interest rates in the United States. Banks are simply not lending much, even to reasonably good credit risks. Assuming some success of the Federal government in supporting the U.S. financial system, liquidity will be improved.

Wall Street is going through a restructuring and the U.S. brokerage business as we have known it is changing. Merrill Lynch and Bear Stearns have been absorbed by large banks. We expect that more realistic regulation in the financial sector vis-à-vis risk management.

In Canada, we have seen commodity prices moderate and housing prices pull back about 5% across the country. Our financial institutions remain strong. Since last November, the Canadian dollar has weakened - good news for our exporting sectors.

Okay - all of this is news, but what does it mean to us?

Financially, life is a bit duller in Canada than in the United States (and none of us are complaining). As a people, we earn a little bit less after tax than our American cousins but we have substantially higher net worth per capita and much less personal debt. Dull and boring is sometimes a good thing.

As I have said many times before, stock market "news" is about as exciting as a weather report. I was a stock broker in October 1987 when the stock market cracked. I lost a little sleep. The market recovered quickly. I have never lost sleep over the stock market since. There are days when the weather is bad and there are days when the stock market goes down. Overall, the stock market goes up - way up! We can relax by focusing on the long term and ignoring the daily market "noise". We do well by diversifying and hiring a good team of portfolio managers.

Taking the Long Term Perspective

Here is a little bit of fact and figures to put long term into perspective:

1. In Canada since 1955, the average bull market lasted 60 months and returned 161%. The average bear market lasted only 11 months and lost only 30%. The bulls win.
   
2. 10 year rolling average returns in global markets ending in each of the last 38 years have always been positive with average annual returns during those 10 year periods reaching a high of 24% to a low of just under 2%. Overall and longer-term, the risk profile is low and expected returns high.
   
3. Looking at #2 above, Toronto residential real estate has actually had negative returns over some ten year periods in the same time frame, according to MLS data. In the 1990's, for example, the average value of residential homes actually went down modestly. (Of course, there have been some very strong years since.) Longer term, no one worries too much about the value of their house. Arguably, stock portfolios provide better upside returns long-term with minimal downside risk.

Fidelity has created an excellent web site for investors who care to look at markets and risk in context of the long-term. Go to davidminer.ca/links and click on the Fidelity Link below. Looking at the big picture, the mantra remains "stay the course and make money". Have fun!

Summer 2008 has been the busiest in memory. Sadly, my mother passed away on July 30 after a long and difficult battle with cancer.

On a happier note, Dorinda and I officially celebrated getting married on August 15. The "ceremony" was part of a stage production at the P.C. Ho Theatre at the Chinese Cultural Centre in Toronto. We were lucky to gather some amazing entertainers. Talent included members of the San Francisco Symphony, Tyrone Gabriel (one of the singers of the a cappella group "The Nylons"), the Ault sisters, and Chris Patton. Special appearances were made by Giselle Cole, winner of three gold medals in the 1984 Para-Olympics in Amsterdam and Chan Hon Goh, Principal dancer with the National Ballet of Canada. A host of other people rounded out the cast, including several members of our dragon boat teams (The FCCP Dragons and Warriors) and two special dogs, Ginger and Major (J.J. Dayot and Rick Schiralli). My sister, Susan, a professional stage director, turned the theatre production into a masterful audio/visual event.

The actual ceremony was interrupted by our friends Gisele Cole and Paul Haddad who objected that we were not legally able to get married - which was true. We had already married on the beach in Hawaii on December 18, 2007. Most people, including our immediate families, were surprised when the wedding ceremony was on video and not live. To Dorinda and me, getting hitched quietly on the beach was great fun and made better by still celebrating later with a few hundred close friends and relatives.

After the show, it was party time - Hawaiian dancers performed and Tyrone's six piece party band entertained to 1 a.m. We had two open tiki bars, a wide variety of interesting foods, and a chocolate volcano.

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