Rough Waters Ahead

A warm hello to everyone.

Brent and Peter are checking in during the spring thaw. We’d like to comment on what might lie ahead this spring and summer and to say a few words on  subjects we have written and spoken publicly about for the past three years.

First: the markets. Many of you know that ‘QE2’ (not the cruise ship!) but ‘quantitative easing’ has been the latest method used by the United States to cope with their staggering Federal debts and deficits. This followed on the heels of the infamous TARP program of nearly a trillion dollars, when the markets first seized up in 2008. Basically, due to the enormity of American borrowing needs, the world market of lenders have gone home and put their wallets away. Not nearly enough people are willing to lend conventionally to America, because they now look at their fiscal situation and conclude that they will never get their money back, at least in its’ current purchasing power/form.

Therefore, the US central bank, The Federal Reserve, is now  the lender of last resort to the government and as such; are simply printing loan money out of thin air ( this is called quantitative easing), at the rate of nearly $600 billion for the last several months. This ‘temporary solution’ is slated to end by June of this year. And it is the prospect of this cessation that we think may pose serious risk to the stock markets. Our view is that a sharp decline in the short term is possible in all assets (stocks, bonds, even precious metals like gold and silver). Our long term views have not changed and since 2008 our principal investment objective has been to preserve your capital, even though we have enjoyed remarkable portfolio growth while being principally out of the stock market. These gains have come from our precious metals exposure.

All to say, please be prepared for possible serious market volatility this spring and summer. We think that gold and silver will recover from a possible short term drubbing and have positioned you with a lot of cash to be on hand for buying occasions when prices come down;  as we expect they will.

A Word About ‘Metals’

On the subject of gold and silver: Gold broke through $US1,500 as silver surged past $US46.00 this week. These metals comprise a sound and necessary portion of your holdings. We strongly believe that they will continue to help stabilize and protect your portfolio during actual market declines and a serious loss of purchasing power as currencies around the world are purposefully debased to try and cope with the debt crisis in developed nations (principally Japan, the US and UK).  Precious metals will not go straight up. They will zig and zig; and likely quite wildly. Be prepared and don’t be frightened.

Finally, we are delighted to announce that during the recent stock market declines on news out of the US of the potential downgrade in their credit-worthiness by the S&P group, the strategy that we are pursuing in the care and growth of your money at Fraser Vandermeer Asset Management resulted in the following:

The TSX has dropped from an all time high on April 5 by 2.25% at time of writing. A relatively balanced portfolio of the ‘buy and hold’ variety has declined by 1.3%. Investments entrusted to our counsel have, over the same period of time (April 5- April 20), advanced in value by 1.75%. Our number one priority is to protect the capital entrusted to us by more than 500 families. The current markets remain highly speculative, uncertain and dangerous, with considerable summer volatility ahead. We are modestly pleased that the bear market strategies in place are working.

As always, many thanks for the confidence you have placed in our care of your interests. In particular we wish to thank many who have introduced us to their friends, families and colleagues. We remain passionate about warning people how to proceed carefully during these times.