The David Miner Communiqué—Fall 2009

It is fall already. Where has the summer gone?
It was a busy summer. Dorinda and I did sneak away to visit friends on the west coast and take an Alaskan cruise. We lucked into good weather and enjoyed ourselves immensely. What a photo opportunity!

Amelia participated in the Running Room 10K program this summer, with her target event a 10K in Mississauga on August 16. “Dad” joined in. With temperatures over 30 degrees on race day, we really were happy just to finish with a smile.

Markets Rebound
Markets have been building strength since the market bottom in early March.
Since then, many equity portfolios have climbed by over 30% to the end of September. Despite the media noise, this year has been great for owning equities. And stock markets still have some ground to cover before hitting old highs.

Economically, many leading indicators are positive, most notably the stock market and money supply. In contrast, employment numbers remain weak. Where do we go from here?

We are again seeing modest economic expansion after a brief recession in both Canada and the U.S. Nevertheless, poor employment numbers will make economic growth feel anemic. Central banks will likely continue to stimulate the economy with low interest rates until employment numbers stabilize.

For the stock market, low interest rates are a boon. There is close to $1 Trillion in cash, near cash, and term deposits in Canada alone and about 10 times that level in the United States. That huge horde of cash is earning virtually NO interest. Even Canada Savings Bonds are offering only 0.4% this year.

As the world recovers from sub-prime shock, investment confidence is returning. Cash is slowly moving off the sidelines and back into the stock market in search of better return. New buying of equities pushes prices higher – the simple law of supply and demand.

So where do we invest? As always, our mantra is to invest globally. While Canada continues to be a part of our overall investment picture, market valuation levels in some parts of the world are more attractive than here in North America.

“Crisis” (in media speak) in the financial sector is common in modern history. The Latin American Debt Crisis in the early 1980’s, the market “Crash” in 1987, and the Savings and Loan Crisis in the early 1990’s are only three examples. Now we can add the sub-prime “crisis” to the list. Life goes on.

Tax Free Savings Accounts (TFSA’s)
We have opened several TFSA’s this year, either with new cash deposits or by moving assets in kind from open accounts. There is no deadline for TFSA deposits. While the maximum contribution is $5,000 per year, limits can carry forward. For example, in 2010, a person without a TFSA could start one with $10,000. For more information, see our Communique “Holiday 2008” which is available on our web site. If you have assets in open investment or bank accounts, a TFSA is a smart idea. Call us.

Investing – The 5 Issues that Concern us All
Through the years, I have learned that all investors are concerned about the same five important issues. These issues are:

Risk
Return
Service
Reporting
Fees

Invariably, each investor holds one or two of these issues as most important. Which of these issues are most important to you?

We look at each of these issues seriously as we differentiate our practice from most others that are out there. We actually addressed each point in some detail, which is available at www.davidminer.ca/investment. For anyone without Internet access, please let us know and we shall send out hard copy.

Of all of the issues above, risk is often cited as the most important, usually ahead of return. To quote Warren Buffet's Rules for Investing:

A. Don't lose money.
B. Refer to A

These are great rules to remember. Are these rules in conflict with owning equities as we know equities can at times decline in value?

Warren Buffett is one of the world’s most successful and well known equity investors. For a person who abides by the “Don’t lose money” rule, Buffett owns $ billions in stock. There is really no paradox. Time is the factor that has historically made the difference between short-term loss and long-term success. Over time, Buffett has made billions through conservative equity investment, notwithstanding the occasional bad inning of short-term declines.

People often own houses and often borrow to buy. House prices are expected to go up over the long-term. Fortunately, a person cannot get on the Internet any time of the day to see what his or her house price is worth. If that were possible, I suspect that many would be living in a state of anxiety as the value of each of their homes fluctuated several $ thousand a month.

House prices can and do decline, sometimes for over a decade or more. Over time, house prices go up. In a similar fashion, equity prices can decline for periods of time. In the same fashion as real estate, we expect equity prices will go up. History tells us that equity markets go up about 70% of the time and decline about 30% of the time. (I would be a gambler if I could take those odds to the casino.) History also tells us that equity provides much better upside than real estate, with downside risk over a ten year period which is comparable to real estate. And as always, it is important to mitigate single security risk, so – diversify, diversify, diversify.

Insurance Corner – The Perils of Creditor Insurance
Imagine – you are at a bank to take out a mortgage. The banker strongly suggests their monthly plan to pay off the mortgage should you die. You are intimidated by the waiver you must sign if you decline their insurance program.

What is rarely explained to you is that despite the premiums you pay over the years, you may not be insured at all. The banks and their insurers only test your insurability at time of claim (i.e.; usually at death). At claim, the bank then looks for reasons not to pay. Unfortunately, claims are often denied. In most states in the U.S., this type of insurance, which is underwritten at claim, is illegal. It is unfortunate that this banking practice, which generates profits to the banks in the $ billions, is legal and condoned in Canada.

If you are borrowing and need insurance to protect yourself and your family, talk to us because:

1. I am life insurance licensed, your banker is not (although, his annual bonus is usually based in part on the amount of “mortgage insurance” he sells).
2. We deal with insurance contracts that are underwritten at application. You have the confidence of claims being paid. There are no doubts.
3. Applying for your own insurance is usually cheaper than the premiums charged by banks.
4. With bank products, the bank is automatically the beneficiary. Working with us, you can appoint the beneficiary.

There are many more reasons to avoid creditor insurance through a bank. CBC’s Marketplace did an interesting expose, which is worth viewing if you are currently borrowing. It is available at: http://www.cbc.ca/marketplace/in_denial/ .

The opinions offered herein are those of David Miner and unless otherwise indicated, are not the opinions of Equity Associates Inc. or any other party. Mutual fund performances changes in share value and reinvestment of all dividends but do not take into account sales, redemption, distribution of optional charges or income taxes which may have reduced returns. Fees and expenses are associated with mutual fund investments. Please read the prospectus before investing. Mutual funds are not guaranteed, their values change frequently and past performance may not be repeated. Mutual funds are not insured by the Canada Deposit Insurance Corporation or any other deposit insurer and are not guaranteed.