AUG 8 2011 – US Debt Situation

Warren Buffett says it best, “Success in investing doesn’t correlate with IQ once you’re above the level of 125. Once you have ordinary intelligence, what you need is the temperament to control the urges that get other investors in trouble”.

Put another way, a person of average intelligence could see that the US Government and consumers need to get their spending in order. The US consumer began this corrective action 2 years ago whereas the government is yet to lay out a coherent long term plan. The S&P downgrade recently is merely a warning for the US government to take this seriously. Fortunately, the stock market is often the place where political battles such as this play out. I say “fortunately” because despite very healthy balance sheets and the majority of earnings from outside the US, large dividend paying companies are and will be available at sale prices. The stock market is not the arena for this political conflict but I am happy it is. If we can put up with a little bit of temporary discomfort we will be nicely rewarded over the long term.

Specifically in our portfolios the last few days have seen Saputo increase its dividend 18.75% and Power Financial see its profit up 20%. Additionally, Telus has enjoyed an increase in profit of 7.3%.

On Thursday, the TSX was down more than 2%, but materials were down 6.21% and energy 4.75%. Telecomms, Financials and Consumer Staples were down only about 1%. Again on Friday telecoms were actually up .64% and other sectors that dominate our portfolios were not down nearly as much as the market average. Today in the US, in early trading Wal-Mart and Coke are also up. What does this mean? Our portfolio managers have been saying for 6 months that materials or commodities are overpriced; it appears the catalyst to correct the prices has been the US political situation. This has brought other less deserving companies with them which of course is an opportunity for the US.

As the Commentaries from two of our portfolio managers imply, they will be deploying some of your cash to buy more solid dividend paying stocks.

You will not be alone though. Remember for every seller there is a buyer. Yes, there have been a lot of buyers and they are the ones that have been able to “control the urges that get the other investors in trouble”.

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