November 13th Edition

Good morning All,

I am shocked, totally and absolutely amazed that Germany has fallen into recession and that U.S. retail sales are projected to be lower. Wow! an actual economic decline is now recognizeably upon us. Just kidding. Disturbing market moving data has transcended the world which brings us to the question as to which direction this continuing trail of bad news will take stocks over the next days, weeks and months.

Well unless it's different this time, and it never has been, the world economy will stage a recovery and our lives will return to normal; the only remaining quandary is when. As so often stated in this and most other letters of its kind "the market is a discounting mechanism that prices in the future, not the past" and that "this phenomena generally precedes change by six to nine months". This bear market, to the surprise of many, began in the Spring of 2007 with the topping out of the financial indexes. August of that year saw the first public disclosures of major internal paper problems and the market crashed; the subsequent rise to new highs in October '07 was a classic get out rally that was thinly based. In Toronto, our commodity heavy index kept rising through June of 2008 even while its financials were warning us of increasing disarray. The last three months have largely completed the cycle with everything now having been taken behind the woodshed more than a couple of times.

Markets teach the same principle over and over again; they will always move far above or far below rational expectation EVERY time, thereby lending credence to the terms "boom and bust". We are now witnessing a deeply oversold market that is in the process of testing the October lows. If this test proves to be successful we can look forward to a couple of back to back 1000 point up days. This does not mean that the economic numbers will not continue to deteriorate for some months or even quarters to come, it simply suggests that the market will be buying a 2009 recovery that will begin next summer. You may believe or disbelieve in the prospect for such good news but as you assess your position ask yourself what you thought in the Spring of this past year when TECK Cominco, now 6$ was trading at 52$....the list is endless and the examples are on our monthly statements.

The news ahead of us will be better than that which we are seeing today but what is really important is to watch what happens to stocks reporting bad news. Intel is one such example and is now trading at a 12 year low. If its stock price can digest their recent dire forecasts and trade higher, a major signal for a substantial tech rally will have been given.