Mutual Success Your Fund of Information

Survivor - Wall Street

September 2008

For many years the “reality television” show Survivor has pitted individuals, initially within tribes and ultimately individually, to outwit and outlast their fellow competitors through challenges and tribal council. Each week individuals strive for immunity to guarantee their advancement to the next round. The only rules are that you are not allowed to assault or injure other contestants. The successful contestant will collaborate, collude, connive, and conspire in order to win.   Watching Wall Street and the Global Financial Markets over the last year has been not unlike watching the Survivor series. Mortgage providers, rating agencies, insurance companies, and commercial and investment banks have collaborated, colluded, connived and conspired as a “tribe” to operate outside of the regulatory framework, creating “investment products” which can be “packaged” as “secure investments” creating a slice of revenue for each participant along the way, but ultimately undermining the very foundations on which the “tribe” was originally successful. In fact the only way that any of them will survive is if the whole tribe now gets “immunity”.   This is what appears to be in the process of happening. The US Treasury and the US Federal Bank have stepped in to the markets in a virtually unprecedented way. They have established a Conservatorship to govern the two mortgage giants, Fannie Mae and Freddie Mac, they have provided an $85B bailout to troubled insurance giant American International Group (AIG), they allowed investment bank Lehman Brothers to fail, but within a week announced a bailout provision to Morgan Stanley and Goldman Sachs and today allowing them to act as banks and borrow from the Federal Reserve. One cannot help but feel that Treasury Secretary Paulson (as former CEO of Goldman Sachs) has a real conflict of interest. As a strong advocate for the deregulation of financial markets, it is ironic that he as to champion the bailout.   What will all of this mean to investors? In short it is impossible to predict. Market euphoria, buoyed by the restriction of “short selling” has resulted in sharp gains at the end of last week, and an upbeat market for traders this week. Investors however have a longer term view, and market timing in these volatile times is very risky. Our position remains that the economic climate in the US is still very uncertain, and US dollar may come under the hammer in favour of gold. We believe that Canada with its sound fiscal policy and resources will be safer than the US, and also growth in emerging markets will outperform the established economies in the medium to long term. In this climate Canadian real estate is already starting to show signs of decline, so consider carefully acquisition of real estate and mortgage backed securities. Short term volatility is a reality that we still have to face. Our advice to clients is, as always, if you are not comfortable with the volatility, talk to us about trimming the equity exposure. Canadian Federal and Provincial Bonds within Funds with managed maturities would appear to be a relatively secure alternative bet.   We appreciate that your retirement savings are not a game, and the effects of the market forces impact the reality of your standard of living. We appreciate your trust and we remain committed to helping you manage risk. If you have any questions please call us.   Best Regards,

Victor Whang      Malcolm Ross       Violet Smith 604.331.2524  604.331.2521    604.331.4465 DISCLAIMER: E&OE: Investment Fund values change frequently and past performance is not indicative of future performance. No guarantee is given or implied and there is risk of loss as well as the opportunity for gain when investing in mutual funds. Sterling Mutuals Inc. © 2008