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Looking to a Brighter Future in 2010

January 20, 2010 • Print This Article

As this trying year has past, we look to a brighter future in 2010.

History doesn't repeat, but it sure does rhyme -Mark Twain

If anyone had told us in the second week of March, when the TSX bottomed out at 7,479.96, that the index would close the year at 11,746.11 we wouldn't have believed it. The TSX closed up 57% from the March low and up 30.7% year over year. Impressive though the market rally has been, equity valuations are still 22.5% below the June 2008 peak.

In March, in the wake of the collapse of Lehman Brothers, credit around the world was frozen. Businesses found working capital constrained and found it difficult to fund regular operations let alone invest in upgrades, expansions, exploration and development, etc.

Before the recession many investors were financing their investments with borrowed funds. This led to a flood of liquidity causing the equity markets to rise above their intrinsic value. Euphoria set in and the term, "irrational exuberance" resurfaced. We heard the phrase, "this time is different" echoed as markets continued to rise and a new investing paradigm was established where equity markets would continue to rise and growth would continue unfettered. This exuberance continued despite the fact that the US economy began to fall into recession after hitting its peak in December of 2007.

As it always does, reality set in and job losses began to mount. Americans cut back on spending, housing prices plunged and the equity markets followed. Corporate profits fell, dividends were cut in some cases and panic selling ensued. Once again "This time is different" was shouted in the streets as the media and individuals saw the great economic apocalypse on the horizon and recovery was uncertain.

It took unprecedented intervention to stabilize the global banking system and get credit flowing again. Bank stabilization combined with massive stimulus spending primed the economic pump. Record low interest rates supported equity valuations. Corporate profitability sprang back, and equity markets rallied.

Although the last year was extremely difficult and caused many sleepless nights, ultimately this time wasn't really different after all. Markets work in cycles as do businesses. The key to investing, planning for retirement and life's goals is to keep the end in mind and stay the course. When crises hit, people innovate, cut costs and get ready to prosper in the future. History is a great teacher if one can keep emotion at bay.

The market has rebounded sharply and we are likely to see some corrections, however the underlying long term trend is up. Short term predictions are speculative at best. Economic recovery is a process that takes some time.

Our Thanks

We would like to sincerely thank our clients for staying the course over this past year. We appreciate how difficult it was. For the most part, our clients remained calm and resisted the temptation to liquidate equities at the market bottom.

Our focus on large cap, high dividend paying Canadian common shares allowed clients to maintain income flow while riding out market turbulence. As a result, most accounts enter 2010 in poised for continued growth. The past year, once again, proved that a long term, strategic approach to investment helps avoid panic and the knee jerk reaction that inevitably hurts portfolio valuations.

We believe the continuity and perspective that the Andras Group has compiled over three generations makes us unique in the Canadian investment business. We believe that we provide a personalized service that is valued by our clients and produces value for our clients.

Thank you for your trust in us and we appreciate your business. As always, if you ever have any questions, please call us any time.

Sincerely,

Ken Andras John Andras Will Andras Pat Thompson

The Andras Group

Filed under: Uncategorized

The opinions, estimates and projections contained herein are those of the author as of the date hereof and are subject to change without notice and may not reflect those of Mackie Research Capital Corporation ("MRCC"). The information and opinions contained herein have been compiled and derived from sources believed to be reliable, but no representation or warranty, expressed or implied, is made as to their accuracy or completeness. Neither the author nor MRCC accepts liability whatsoever for any loss arising from any use of this report or its contents. Information may be available to MRCC which is not reflected herein. This report is not to be construed as an offer to sell or a solicitation for an offer to buy any securities. Member-Canadian Investor Protection Fund / member-fonds canadien de protection des ├ępargnants.

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