How the market's crash has hit the wealthiest like Ivanhoe And Lundin And Connacher CEOs

JANET MCFARLAND

From Friday's Globe and Mail

October 16, 2008 at 8:11 PM EDT

The ranks of Canada's billionaires appear to be thinning in the painful bear market gripping global investors.

Since the market's peak on June 6, some of Canada's most famous business people have seen their stakes in public company holdings fall precipitously.

Robert Friedland, for example, who is best known for selling his Voisey's Bay nickel discovery to Inco Ltd. in 1996, has seen the value of his stakes in Ivanhoe Mines Ltd. and Ivanhoe Energy Inc. drop 66 per cent since the market peak in June.

Although his private holdings are not known, the value of Mr. Friedland's two major public investments have fallen far below the $1-billion level, totalling just $440-million as of Tuesday's close.

Two other hard-hit Canadian billionaires are Atco Ltd. owner Ronald Southern and Paramount Resources Ltd. chairman Clayton Riddell, who have both seen their public company holdings fall below the $1-billion mark since June.

In dollar terms, however, some of those hit hardest have been Canada's wealthiest billionaires because of the size of their company stakes.

The Thomson family, for example, has seen its stake in Thomson Reuters Corp. lose $3.2-billion in value since June, even though their majority ownership position is still worth $13-billion.

Grant Rasmussen of UBS Canada said ultra-high-net-worth individuals often have major investments beyond their public company shares, so it is difficult to estimate their true worth simply by looking at their companies' share prices.

“It would capture a large portion, because that is a big chunk of their wealth,” he says. “But the type of money they are rounding off, in terms of hundreds of millions of dollars, would still be a significant amount to most people.”

Older billionaires typically have the most diversified holdings: “With age comes wisdom,” Mr. Rasmussen says.

But even younger ones are often counselled to shape their portfolios to look like “barbells” to offset their risky holdings of one company's shares with large holdings in cash or equivalents, he said.

“So they would try to somewhat even out the risk profile of their two situations,” he said.

Some, he added, pledge some of their shares to borrow money, which they invest to hedge against the risk of so much exposure to one stock.

Most of Canada's wealthiest individuals are still rich by any standard, even if they have taken major hits since June.

Even Vancouver's Lundin family, which has been especially hurt by the market turmoil, still has $162-million of value in Lundin Mining Corp. and several other mining-related public companies. The estate of Adolf Lundin, who died in 2006, has seen its stake in Lundin Mining Corp. lose 70 per cent of its value since June and 97 per cent over the past year.

Lukas Lundin, chairman of Lundin Mining, said last week that he has never seen anything like the current commodities downturn.

“I'm very surprised. This is the worst correction we have had in the last 50 years,” he said in an earlier interview.

Some executives are feeling a pinch. Richard Gusella, chief executive officer of Calgary-based Connacher Oil and Gas Ltd., was required to sell almost half his shares in the company because of a margin call at his brokerage firm.

“Never in my wildest dreams did I expect, with the progress we've made as a company, that we'd have a market meltdown as we've seen,” he said earlier this week.

Amid the gloom, there are a small number of wealthy Canadians who have seen their wealth climb since June.

Prem Watsa, chairman and CEO of Fairfax Financial Holdings Ltd., has seen his stake in Fairfax climb in value by $128-million to $605-million as his company's share price grew by 27 per cent in the period. Similarly, Galen Weston, chairman of the George Weston Ltd. empire, has also seen his stake grow slightly to a total of $4.3-billion as investors move into safe staples such as grocery-store stocks.

Carrigan:three stages of a typical bear market

"Last week, I explained the three stages of a typical bear market. First, we go through the non-belief stage when investors buy declines on dips and ignore outside noise such as falling housing prices and the subtle money shift from small caps to large caps. This is the early stage of a flight to safety.

The second stage is worry as surprising disappointments in the financial sector cause investors to shift money from equities into Treasury bonds, marking the latter stage of a flight to safely.

The third stage is the recognition of a crisis. Normal sector rotation ends and global fundamentals are meaningless as a bearish stampede blows away assets at any price. Fears of another depression mount and eventually a global rescue plan unfolds.

Finally the crisis passes, and the dawn of a new bull market shines light on the debris left behind by the passing bear. The clean-up gets underway and the healing or basing process begins."


Stock mayhem takes cue from Pulp Fiction

October 17, 2008 Bill Carrigan

Last week, while visiting a branch of Union Securities at the height of the stock market selling spree, I was confronted by the branch manager who asked: "Are you scared yet?"
I paused and searched for an answer. I then recalled a line from the restaurant scene in the film Pulp Fiction when Jules (Samuel L. Jackson) was confronted by Pumpkin, a robber who points a gun at his face.

Without blinking, Jules replies: "Hate to shatter your ego, but this ain't the first time I've had a gun pointed at me."

Without blinking, I replied, "I am concerned, but this ain't the first time I've been mauled by a bear market."

Last week, I explained the three stages of a typical bear market. First, we go through the non-belief stage when investors buy declines on dips and ignore outside noise such as falling housing prices and the subtle money shift from small caps to large caps. This is the early stage of a flight to safety.

The second stage is worry as surprising disappointments in the financial sector cause investors to shift money from equities into Treasury bonds, marking the latter stage of a flight to safely.
The third stage is the recognition of a crisis. Normal sector rotation ends and global fundamentals are meaningless as a bearish stampede blows away assets at any price. Fears of another depression mount and eventually a global rescue plan unfolds.

Finally the crisis passes, and the dawn of a new bull market shines light on the debris left behind by the passing bear.

The clean-up gets underway and the healing or basing process begins.
This clean-up or basing period can last for several months – the 9/11 crisis took about nine months to repair. The bottom is first built by the market leaders – financial, technology and telecom, which bottomed in mid 2002. The market laggards – materials and energy – built bases through mid-2003.

We are now probably in that basing period. The broad indexes look to be forming a bottom, though commodity-related stocks could continue to deflate as commodities continue to weaken.
Two important tests loom.

The first test is for the major stock indexes and sub-indexes not to violate the panic lows posted last Friday.

The second test would be the return to natural market rotation – like the lows of 2002-2003 – a condition caused by investors moving in and out of various stock groups.

If over the next few weeks the lows of October 10 hold then a return to sector rotation is likely as investors focus on the economy.

You can see examples of sector rotation by looking at weekly or monthly charts of the various TSX sectors such as the financial, consumer, technology or materials sectors. In the normal course of the business cycle the financial and consumer sectors will lead the broader market indexes and the materials and commodity sensitive stocks will lag the broader market indexes.
Investors should incorporate sector rotation studies into their investment decision process by doing a quick scan of the TSX sub-groups or stock sectors.

One example is to compare the monthly closes of the TSX information technology index to the monthly closes of the TSX energy index in order to spot a lead and lag relationship.
Our two plots extend back to 2002 and clearly illustrate that the technology sector leads the energy sector to the upside and to the downside. Note the price peaks of the tech index in 2004 and again in 2007, well ahead of the energy price peaks of 2005 and 2008.

Note also the tech index is down to long-term support at the 2002-2003 base, giving us a compelling reason to own the TSX technology index and to avoid the TSX energy index.
Bill Carrigan is an independent stock-market analyst. His Getting Technical column appears Friday.

Gurus speak, investors buy late in the day

The close: Gurus speak, investors buyRTGAMA global recession has not been averted and the financial system is not humming again. But after yet another deep stock market rout early on Thursday, investors couldn't sit on the sidelines any longer: They stepped back into the market, sending U.S. stocks up and erasing most of the losses in Canada.It only helped that prominent voices from the professional investment community - some of them notoriously bearish until recently - are suggesting that the low markets are a gift to long-term investors.Jeremy Grantham, chairman of GMO, told Reuters: "The early purchases will be painful.

But if you could slice in and do some buying before and after the low, seven years from now you will not regret it."Chris Orndorff, managing principal at Payden & Rygel Investment Management, told Reuters: "Things have just gotten a bit silly. We are very, very close to a bottom in equities."John Hussman, Hussman Funds, in a note to investors: "On nearly every measure - sentiment, valuation, volatility, oversold conditions, and others, we are observing extremes associated with strong expected return/risk profiles, on average. My impression is that investors underestimate the potential for a very rapid 20 to 25 per cent market advance as risk aversion collapses."Somebody listened.

The Dow Jones industrial average closed at 8979.26, up 401.35 points or 4.7 per cent. From its low point earlier in the day, the index rallied 780 points. Of the 30 stocks in the index, 27 rose. The broader S&P 500 closed at 946.43, up 38.59 points or 4.3 per cent.Exxon Mobil Corp. rose 11.4 per cent, Wal-Mart Stores Inc. rose 9.1 per cent, Microsoft Corp. rose 6.8 per cent and General Electric Co. rose 3.3 per cent. Citigroup Inc. missed out on the rally, falling 2 per cent.In Canada, the S&P/TSX composite closed at 9269.97, down 53.88 points or 0.6 per cent.

But this is a case where down looks up: The index rallied more than 500 points from its low. The winners included Royal Bank of Canada, up 1.5 per cent, and Research In Motion Ltd., up 4 per cent.Even though the price of crude oil fell below $70 (U.S.) a barrel, closing in New York at $69.85, a number of energy producers performed well. Canadian Oil Sands Trust rose 10.6 per cent and EnCana Corp. rose 5 per cent. Gold producers, however, were hit hard by a low reading of U.S. inflation in September, which sent the price of gold down to $804.50 an ounce. Barrick Gold Corp. fell 12.5 per cent and Goldcorp Inc. fell 10.9 per cent.Copyright 2001 The Globe and Mail

TSX Drops 310 Points

he TSX Venture Exchange was off 43.23 points to 947.98.
The Dow Jones industrial average, down well over 300 points late in the morning, but was off just 36.8 points to 8,541.11 at mid-afternoon Thursday after tumbling 733 points the previous day in its worst one-day plunge since 1987.
The Nasdaq composite index was ahead 6.12 points to 1,634.45 following a 151-point loss Wednesday while the S&P 500 index declined 8.3 points to 899.54 after losing 90 points in the prior session.
"There is some good news and a lot of bad news and I think if there is any type of bad news in anything that comes out, that's really what people are focusing on – which is indicative of a bear market really," said Jennifer Radman, associate portfolio manager at Caldwell Securities.
"You still have a lot of deleveraging going on, which means there are people out there that just have to sell regardless of what the value of their stock is worth."
The latest dive in the price of oil helped send the Canadian dollar down 0.15 of a cent to 84.03 cents U.S., while the latest snapshot on manufacturing showed a sharp deterioration in sales.
Statistics Canada reported that manufacturing sales declined 3.7 per cent to $52 billion in August. The slide was led by the petroleum and coal sectors, but declines were widespread as the transportation equipment industry fell 4.3 per cent.
The Philadelphia Federal Reserve said Wednesday that regional manufacturing conditions weakened in October. The bank's regional index came in at a negative 37.5 compared with a positive 3.8 for September.

In other U.S. economic news, industrial production plunged 2.8 per cent last month, on top of a one per cent drop in August.

The Federal Reserve estimated that disruptions related to the hurricanes accounted for about 2.25 percentage points of the total drop in industrial production in September.
Also, consumer prices were flat last month rather than increasing as forecast. And claims for unemployment benefits fell by 16,000 last week to a seasonally adjusted level of 475,000 – a greater decline than anticipated.

While the credit markets are performing better than they were last week given unprecedented support by governments, they are hardly operating normally.

The ultra-safe three-month U.S. Treasury bill was yielding 0.44 per cent, higher than the 0.20 per cent reading on Wednesday.

The Toronto stock market's energy sector was down just over three per cent after plunging 12 per cent Wednesday. The November crude contract on the New York Mercantile Exchange was down $4.21 at US$70.33 – after earlier slipping below US$70 for the first time since August 2007 – as new data showed much higher oil inventories in the U.S. last week.
EnCana Corp. (TSX: ECA) eased five cents to $44.25 as RCMP are investigate a second explosion targeting a gas pipeline near Dawson Creek, on the B.C.-Alberta border, belonging to the energy giant.
Suncor Energy (TSX: SU) lost $1.78 to $23.21.


Oil has lost more than half its value in three months from its July peak of US$147.27.
Other commodities were lower with the December copper contract on the Nymex down 12.5 cents to US$2.0855 a pound after Rio Tinto PLC, one of the world's biggest mining giants, warned of slowing demand from China, the world's biggest growth engine over the last few years.

"The Chinese economy is pausing for breath after spectacular GDP growth," the company's chief executive Tom Albanese said.

Teck Cominco Ltd. (TSX: TCK.B) retreated 86 cents to $14.60.

Gold declined $34.50 to US$804.50 an ounce, sending the sector down more than 10 per cent.
Goldcorp Inc. (TSX: G) fell back $3.97 to $23.81.

NovaGold Resources Inc. (TSX: NG) faded 74 cents to $3.99 after it reported a record third-quarter profit of $16.7 million on a $33.5-million pre-tax gain from the sale of its NovaGrernPower unit.
Other materials stocks dragging the TSX lower included Potash Corp., (TSX: POT) down $11.42 to $81.15.
The TSX financial sector was down 2.5 per cent, with Scotiabank (TSX: BNS) $1.26 lower to $42.24.

Losses for Canadian insurers were much steeper with Manulife Financial (TSX: MFC) down $1.95 or 6.5 per cent to $27.10.

In the U.S., Citigroup Inc. posted its fourth straight quarterly loss due to credit-related troubles and cut another 11,000 jobs during the third quarter. The company lost US$2.8 billion in the quarter compared with a year-ago profit of US$2.2 billion. The loss was narrower than analysts had expected but its shares fell 82 cents to US$15.41.

Merrill Lynch & Co., which has agreed to be acquired by Bank of America Corp., posted a quarterly net loss of US$5.1 billion and its shares gave back 86 cents to $17.38.

The FTSE 100 index was down 218.2 points or 5.35 per cent to 3,861.39 in London
despite more action by the Bank of England to free up lending. Germany's DAX was down 4.9 per cent while the French CAC-40 lost 5.9 per cent.

In Asia, Tokyo's Nikkei slid 1,089.02 points to 8,458.45, its biggest drop since the 1987 stock market crash.
South Korea's main index dropped 9.25 per cent and Hong Kong's key index closed down 4.8 per cent.