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Quarterly commentary: Second Quarter Ending June 30th 2009

Hello aggregate and road building, owners and operators,

Portfolios kept pace with key domestic and global indices, which gained over the quarter. Our Jim Sanderson Group 60 portfolio (60 Equity/40 Fixed Income) was up 11.12% for the quarter which ended June 30. The DFA Canadian Core Portfolio returned 21.58% vs. the S&P /TSX Composite Index return of 19.97%. The DFA US (Hedged) Core Portfolio gained 17.09% compared to the S&P 500 Index, which gained 6.95% (CAD). The DFA International (Hedged) Core Portfolio increased 21.23% while the EAFE gained 16.1% (CAD)

The Canadian and U.S. markets continued to rebound from their March lows amid signs that the economy is stabilizing. The S&P/TSX Composite Index was up some 39% from its March 6 trough. This quarter marked the first quarterly gain for the benchmark S&P 500 Index in the last year and a half. Signs of renewed vigour in emerging markets also drove international markets higher, supporting the view that a global recovery is underway.

These have been manic times. The mood of "Mr. Market" has ranged from unseemly despair in early March (causing him to sell out of fear) to renewed optimism in April and May (causing him to buy at a higher price, afraid he had missed the boat). In such an atmosphere, it is critical to maintain a rational outlook.

During the quarter, the health of the global banking system appeared to stabilize as several U.S. banks passed stress tests, repaid government loans and successfully raised equity to bolster their capital ratios. These events were a welcome relief to companies requiring refinancing and set the stage for greater investor confidence.

A long walk in the park

Despite these upbeat events, the growth of the U.S. economy did not reflect the zeal shown by the markets. The U.S. economy continued to deteriorate, though at a slower pace than earlier this year. As Warren Buffett said on CNBC recently, "Business is still flat." Uninspired June U.S. economic releases went a long way to explaining why. Perhaps the biggest reason for Buffett's comments is that many consumers put their wallets away in the second quarter and chose a long walk in the park over a drive to the mall. (When you consider that U.S. consumer spending drives 70% of economic activity in that country, it is no wonder the June economic releases were not encouraging.)

Buffett also commented that the market will have turned up well before we have realized that the recession is over.

Why we provide you with perspective, not prognostication

The information below is drawn from an article that appeared in The Wall Street Journal on February 13, 2009. The article ranked the top economic forecasters in the United States on the accuracy of their 2008 forecasts, "using two key data points: 2007-2008 fourth-quarter to fourth-quarter real GDP growth, and 2008's ending unemployment rate," as Charles R. Morris reports in his recent book, The Sages.

Mr. Morris' findings were as follows: "There are fifty-one economists in the sample. The actual fourth-quarter to fourth-quarter real GDP growth was -0.8 percent. Only Goldman Sachs's Jan Hatzius, who forecasted -0.4 percent -which, given the margin of error in the data, counts as a direct hit-had the right sign of the change. All others expected positive real growth, with a mean estimate of 2 percent, and the top estimate a giddy 5 percent. On unemployment, all of the forecasters expected a much better outcome than the actual 6.9 percent. The closest any of them came to the real number was 6.2 percent, while the mean forecast was a rosy 5.2 percent, and the cheeriest, 4.3 percent." "Of the 102 separate forecasts, then, for both unemployment and GDP, 101 of them were wrong in the same direction. These are the same forecasters that many advisors were reading then, and they are the same ones that many of the same advisors are reading now.

An advisor, analyst, economist, or other observer, who professes to be able to predict the future of markets, interest rates, commodity prices, or anything else, is either inexperienced, deceptive, or unknowing (or heaven forbid, a combination of all of the above!!!). For this reason, an article, or a so-called expert being interviewed on BNN or CNBC, that provides a prediction about the future should be regarded in the proper context. Inevitably, the vast majority of predictions prove incorrect.

"I have never met a man," said Warren Buffett, "who could forecast the market." There is no shame in not knowing what the future holds because it is clear that no one else knows either - not even Warren Buffet. For this reason, we provide you with perspective, not prognostication. Through proper perspective, financial goals and objectives can be realized in the fullness of time. By maintaining a focus on the process, we will help you achieve a successful investment experience.

We are continuing to work with clients on our diesel hedging strategy to help reduce one of the variables in your business and is regarded as a risk management strategy. The volume of diesel consumed which does not have index capabilities (surcharge or cash back) should be considered for this type of strategy.

Diversification of Retained Earnings has always been a long term strategy when you are starting to formulate your succession plan. This occurs even if your plan will not take place for years or decades. We can help get you started, position you for the future and answer any questions you may have.

On a casual note, back on June 7, some of my cohorts along with myself from our office of ScotiaMcLeod participated in the Becel "Ride for Heart". This fundraiser allowed us to ride our bikes for 25, 50 or 75 KM up and down the Don Valley Parkway. It was a very successful event and we collectively raised over $5000 for this worthy cause.

I wish you a pleasant remainder of the summer season. Please contact me should you have any questions or would like a second opinion on your investment portfolio.

Sincerely,

Jim Sanderson, BSc.(Hon), CFP