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Year in Review

2009 in Perspective,
from the January 2010 issue

Whenever the going got convoluted and the chalkboard was filled with numbers from another planet, one of Benj's statistics professors would ask, "Are you having fun yet?" Perhaps that was a good question to ask amidst the insanity of 2009.

At times it looked as though the world as we know it was going to end. A depression that would make the Dirty '30s look like a walk in the park loomed just around the corner. But just as the dire warnings seemed to be coming true, something funny happened: stock markets around the world took off like a vodka-fuelled Sputnik.

In fact, the lift-off was so fast and furious that 2009 proved to be an excellent year for investors who either stood fast in stocks or added to their caches. Who'd a-thunk?

Though we predicted the downturn, and a recovery did not surprise, the amplitude of the rebound was way beyond anything we could envision. Fortunately, we maintained our investments through the wreckage, and every stock held throughout the year ended up in positive territory.

The S&P/TSX Composite was up a jaunty 30.7 percent, the Dow by 18.8 percent and the S&P 500 by 23.5 percent. But it was on the global stage that especially spectacular numbers were on display. Brazil, India, Russia and Turkey gave investors a chance for a double or better, while indices in many other countries, though not firing on the same level, posted excellent double-digit gains.

Last January we wrote, "We firmly believe, albeit 2009 might not ultimately reflect it, that there is more upside for the portfolio now that at any time since January 2001, when we wrote about having the best portfolio in years." The gain on the year was 47.4 percent, which goosed the 10- and 15-year returns to 14.3 and 16.6 percent respectively. That places us back near the top of the heap, although even after our dismal 2008, we were never far away.

In one regard, the Contra portfolio never seems to disappoint: 2009 marked the 17th consecutive year in which at least one stock in the portfolio was the subject of a takeover. This year, there were two — well, more like one and a half.

Normally, these blessed events mean huge gains, but in this case it was really a matter of retracing losses. Indeed, Infocus still went into the ledger on the minus side, and Nashua, while eking its way into the black, alas, was not held until the takeover occurred — we elected to dump rather than obtaining the proffered Cenveo stock. Ultimately, that proved an error. Another "darn" on our record.

The passing of 2009 also marked the end of a decade bookended by a pair of non-events that cost mega-billions. As the millennium dawned, the Y2K bug was presented as a bogeyman that would cause havoc as computer systems crashed around the globe. It was so scary that, for the first time in years, there was actually a demand for programmers who knew COBOL.

People stocked up on food, libations, generators, firearms and a bevy of other perceived necessities for survival. But when the digits on the calendar rolled over, there were no power outages or planes falling from the skies; life simply went on.

At the other end of the decade, H1N1 filled the coffers of the pharmaceutical and healthcare sectors. Ultimately, the threat failed to justify the preparations, as this strain of flu proved less prevalent than the seasonal variety.

The latest catastrophe that has governments letting go of any shred of fiscal prudence is the global financial meltdown. The list of nations with ballooning national debts is lengthy. Ironically, the measures they have taken have left little in store to confront the potential upheavals to come.

Governments, corporations and the general public have all been gorging on "cheap" debt. In our constant quest for the obvious, we conclude that interest rates can go in only one direction: up. Which means that those who have not prepared for the likelihood of paying double or even triple the current amounts to cover their liabilities could easily be caught in a bind.

What is supporting the system for the time being is that the monetary pumps have been so thoroughly primed. With a renewed adherence to frugality, to turning deficits into surpluses and paying down debt, disaster can be avoided.

But is there truly a political will to do so? Not at all; leaders fear that withdrawing support for the economy too quickly will trigger a relapse into recession, and their consequent consignment to the electoral scrap heap. At most, we can expect only modest deficit-reduction targets.

In the United States, one magic bullet being touted is additional regulation. But let's face it: there are already plenty of regulatory bodies. What has become clear from the recent crisis is that they all too often failed to actually regulate anything. When calamity struck, a common response was to point the finger of blame elsewhere, while insisting that something simply must be done.

Canada has joined the list of nations whose fiscal solvency is at risk. The course charted by Prime Ministers Chrétien and Martin has been reversed, the budget surpluses have been wrestled into submission by questionable economic decisions, and the past year saw the largest deficit in our history. Alas, unlike Parliament, fiscal shortfalls cannot be prorogued on a whim.

The economic crisis provoked many governments to urge consumers to spend more and banks to loosen their lending policies. But Canada is just one of many countries where household debt is a cause for concern. It's reached the highest level since records started to be kept in 1990. For every $100 of disposable income, the typical Canadian owes $145. That's a far cry from the $88.60 of 1990.

Certainly, the irony is readily apparent: debt is a major factor driving the current tribulations. The solution is not to incur more. When will the powers that be ever learn?

As you likely know, seven positions have been added to the President's Portfolio over the past six weeks. Unless a seemingly spectacular opportunity  — or two  — arises, Benj will likely sit pretty tight, looking to dispose of a position or two if the stars align.

But further choices for subscribers are now available via the Vice-President's Portfolio under the watchful eye of Ben. This will also entail additional email contact. We like to think that both of these are positives.

If you have any questions or thoughts, feel free to drop us a line. We're also open to questions or thoughts from Prime Minister Harper or Finance Minister Flaherty. If anyone else calls, be aware that we don't have call display, so you shouldn't be confused if we answer the phone with "Is that you, Steve?"


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