Carl's Comments

As I close in on my 25^th year in the financial services industry, it seems to me that history does repeat itself. I was studying my brains out to get a life insurance license in order to sell life insurance, annuities and health insurance products. Twenty-five years later, I am still studying to become a certified hedge fund specialist. Some things never change.

However, some things have changed dramatically. Inflation in the early 80s was pushing 14%. Interest rates were pushing 20%. Unemployment was running out of control and homeowners were dropping off their house keys at the bank. It was worse than a buyer's market. There were many properties listed, but no buyers could be found. The Canadian dollar was at 86 cents. Burton Cummings wanted us to break it to you gently. Linda Ronstadt wanted back in the USA and somehow Ann Murray thought we needed her. I thought heaven really can wait until we get this mess cleaned up on earth.

The 11 o'clock news was the scariest time of the day. Massive layoffs were announced each day: GM, Ford, General Electric and the list went on and on. Most people couldn't watch because they were afraid to see their picture on the tube with an announcement that they too had lost their job. GICs were paying about 19%. However, investors would not lock-in to a five-year contract because rates were projected to go higher. At one point in time, one genius projected the U.S. prime rate would reach 35%.

It appeared that we were doomed. Wow, what a great career opportunity I had chosen. Could the dirty 30s repeat? I was intrigued, green, stubborn, eager, and hungry for knowledge, so I toughed it out. Also, at that point in time there was not an abundance of job opportunities available.

No doubt, things did start to turn around. Interest rates did not reach 35% and unemployment and inflation did start to drop. Consumer confidence picked up once again. Housing sales began to pick up steam and we were off and running once again.

These proved to be valuable lessons to me and I never forgot them. They actually prepared me for the obstacles which would eventually confront me, such as Black Monday in 1987 when all out panic hit worldwide stock markets. Investors thought that the world situation was rapidly becoming unmanageable and again feared global recession. However, banks and governments moved quickly and the market regained confidence. The Canadian government introduced the Loonie to help solve world problems. Things stayed fairly healthy until the early 90s and stock markets broke through the 1987 highs. The government introduced inflation control targets in 1991 when inflation was 6%. This helped individuals, businesses and government to focus on expectations of future inflation and avoid the double digit inflation again.

Our new Loonie continued to climb, cresting at 90 cents U.S. in November 1991. Weaknesses flared up in the mid-90s and hit the historical low of 64 cents U.S., largely due to the persistent government budgetary problems. A government debt was rising and interest rates were also on the rise. In 1994 the federal government debt was growing by $40 billion a year. Recognizing an urgent need to begin balancing the nations books, the government undertook a massive program to reverse the nation's financial course in 1994. Because of reductions in program spending and the growing economy, not to mention the G.S.T. revenue (implemented in 1991), Canada was well on its way to a financial turn around before the decade ended. In 1997-98 the government courted its first surplus in 28 years. The following year marked the first back-to-back surplus in 50 years.

This was not all the excitement. Stock markets pulled back significantly in 1994. We had a referendum in Quebec which threatened Canada as we know it, not to mention the failure of the Charlottetown Agreement and the collapse of Eatons in 1997, a Canadian institution which once claimed one-half of all department store spending in Canada in the 1950s. Many other events were waged: Desert Storm, the Asian Flu, Bre-X, the collapse of Olympia York, government budgets, higher taxes, alternative minimum tax, higher RRSP limits were proposed and then scaled back, adjustments to capital gains taxes increased and then decreased twice in one year, trust companies failed and the savings and loan collapses in the U.S. As we come to the end of the decade, Y2K was hanging over everyone's head. This had no effect on the stock markets, in fact, they soared. Tech stocks were all the rage and investors sold good solid blue-chip companies and jumped on anything tech. Once again the experts were predicting the Dow to hit 25,000 or beyond and investors flooded to the markets. Then came the tech wreck, followed by 9/11, corporate accounting frauds, WorldCom and Enron. This became the catalyst for market meltdowns worldwide bottoming in October 2002, when operations in Iraq began. Since then, markets have rallied 30%.

What I have learned during this period as we have moved from crisis to crisis to crisis is that, through it all, the markets have been the best place to have your money. Most people would argue, perhaps I included, that the best investments in the past 25 years would have been real estate. But truly, you would have twelve times more had you invested in the Dow. You needed patience and calmness to resist what others were doing and to also avoid the hype. You needed to search for undervalued assets and to not let greed be your driving force. You needed to have reasonable expectations and to never ignore risk. Always weigh risk and return and don't buy long term products and look for short term results.

Housekeeping Notes

Many of our on-line clients have noticed a significant face-lift when reviewing their portfolios. This conversion to Worldport is one of the largest in mutual fund dealer history. The conversion exceeds $3 billion in assets, over 2 million transactions, a total replacement of the existing platform and new Web based tools and services for all advisors, administrators and investors. We would like to assure you that no matter what the post-conversion issues, we will do what it takes to fix them. Please note that life insurance and trust company products will show up on our web page in Phase 2. However, this information could be e-mailed to you upon request. We also welcome any comments or suggestions. Feel free to e-mail me directly at eppstadt@futurefinancial.com

Wealth Management

What is all the buzz about wealth management. Wealth management has been around for as long as I can remember. I believe that institutions are promoting it because they are selling nontraditional products. For example, banks and investment firms are trying to get all of their clients' investment insurance business. In the old days, everyone stayed on his own turf. Now, no one is content with just one piece of the pie. The Integrated Wealth Management Service chart shows the various aspects of wealth management. The report card on the affluent is that they do well with most items but score poorly with estate planning. They may give up large portions of their estate to tax and administration costs. Ipsos-Reid wealth management survey indicates that out of the most affluent, only 30% have developed a written financial management plan for their estate after their death and that only 14% of business owners have any succession plan. The question I have for you is how are you doing with your goals in each area?

We cannot emphasize enough how investors continue to miss opportunities. You can clearly see at the maximum opportunity point that there was an outflow in excess of 1 billion dollars. At the point of maximum risk, inflow exceeded $9 billion. One can clearly see that this is a case of selling and buying at the most appropriate time. I can't help but wonder if this is where we are in the housing market?

So what are hedge funds anyway?

In the wake of the bear market, hedge funds have garnered significant attention from both investors and the media. During a period when the broad equity market indices have declined on a trailing three-year basis, investors have discovered that many hedge funds have not only delivered significantly higher relative returns, but have actually delivered positive returns during the same three-year period.

Hedge Funds or Alternative Investment Funds (AIFs), while lacking a formal or legal definition, can be satisfactorily described as investment funds that are not constrained by the rules that apply to mutual funds or pooled funds and thus are able to employ flexible investment strategies. In particular, hedge funds have the ability to use leverage and take short positions. Most hedge funds also have performance bonuses.

A.W. Jones created the first hedge fund in 1949. Recognizing that the two primary risks inherent in equity investing were stock selection risk and market risk, Jones launched an equity fund in the form of a private partnership that used both long and short positions to minimize market risk while using leverage to augment performance.