Mutual Success, Your Fund of Information April 2009   Post G20 Update The G20 delivered more than expected and promised to be ahead of the curve (proactive and anticipatory) in their action plan while recognizing that we are in a global crisis (as seen in their statements "A global crisis that requires a global solution"). Equity risk has become more BALANCED with immediate benefits (winners) going to the Emerging countries (China, Korea, Central Eastern European etc) as evidenced by an immediate rise of 5-7% in equity price and their respective currency. The North America Markets have a more muted response of a 2-3% rise, Gold was sold off and the US Dollar tanked. Otherwise, the G20 latest measures/announcements did not contain any major surprises (with the exception on the issuance of IMF SDR Bonds – see below) and did not address the big question of what to do with the -$684 trillion of dangerous derivatives and the tens of trillions of potential bad debt in the banking system. The $1 trillion package that was announced is just the beginning...... if the US $10 trillion package for their own has so far not produce any tangible results, what is $1 trillion going to do for the world? I can say that it is better than nothing on a marginal basis and in terms of expectations, it has delivered more than expected before this meeting. What is interesting is the development with regards to the issuance of a NEW WORLD NOMINAL CURRENCY called the SDR (see article) in point 19 of the G20 Declaration. G20 now has the potential to create trillions of dollars of new money out of thin air in the future! - Unbelievable but it is true. This might perhaps be the eventual answer (route) to the question of what to do with all the bad debt/toxic assets in the banking system in the LONG RUN. In the short run, appearance of deceit and conceit continues in the banking/accounting /financial system. The new FASB accounting standard that was just announced also allow banks to revalue/overvalue their toxic debts. With the US government providing a guarantee and agreeing to take on most of the losses of the toxic debts, banks might find significant incentive to buy toxic assets from other banks with taxpayers’ funds. The bailout money from the government will also eventually show up in the profit statements of these banks, thus the huge and continued rally in bank stocks recently. While banks may continue to benefit from the generous efforts provided by their government in the short term, they will have to deal with the deterioration in their real business/balance sheet in the long run. While it may be tempting to believe that the recent rally off the bottom is a positive sign and should attract our investment, we believe that there is still a significant risk in equities, particularly financials, and therefore our entry back into the market must be measured. In the end, it will all be contingent upon the “real” economy and signs are still far from clear. However, as the situation changes so must our outlook on asset mix. We believe that some corporate bond exposure as well as some resource and commodity exposure may now be worthwhile as part of a plan for cash flow. 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.
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