Q-News

December 2008

Nice to get this one behind us

Posted in Mike's Commentary

We all know and accept the fact that we work in a cyclical business.  That’s just the way it is.  Until recently, pundits claimed that recessions, while becoming more volatile were also becoming cyclically shorter.  Boy, has that view changed.  With observations that the US has already been in a recession for over a year, it’s good to know that we have at least 12 months of pain behind us.  While it’s impossible to predict the future, at least all of the world’s major economies are attempting to work aggressively to meet this challenge.  All we know for sure is that things will eventually get better.

 

More to come?  One of Canada’s largest labour-sponsor funds, Vengrowth Asset Management, took extraordinary measures this month when it announced that it was halting redemptions from its $47 million Vengrowth I and $260 million Vengrowth  II funds with investors only being allowed to get their money back in the form of an annual distribution starting August 31 2009 from the available surplus cash as determined by the board of each of the funds.  This move certainly does not bode well for investors in those funds, particularly given the brutal market for exits.  But Vengrowth’s management stated that they believed this measure will prevent any mid-term liquidity challenges and was in the best interest of the shareholders.  According to the ROB, for the year ended November 30, Vengrowth I was down 39% and posted a 10 year average annual loss of 5.8% while Vengrowth II declined 26% for the year and had posted average annual losses of 9.8% during the previous five years.  Let’s hope this isn’t the beginning of a trend.

 

An interesting article was posted on Dangletech last week by Mark Macleod.  While I can’t agree with everything that Mark had to say, who am I to disagree with his three recommendations on investment banks to use for IT/telecom companies – RBC Capital, Macquarie and Q1 Capital.  Nice crowd to hang with!

 

We’re often accused of a negative or pessimistic tone in our monthly newsletter, particularly when we comment about the apparently never-ending decline in investment capital available for private Canadian technology companies.  So, for our year-end edition we thought we would put together a list of some of the positives coming out of this particularly brutal market environment.  Here goes, and please forgive the sarcasm:

 

§         Remember the guy in B-school who never went to class, copied your assignments, cheated off your exams, and ended up pulling in seven figures at Lehman Brothers?  He’s now working behind the desk at Kinko’s.

 

§         While the auto execs are begging for billions, at least we don't have to do the same in order to fill our gas tank anymore.

 

§         Sale on Gulfstream G-V's.  Buy one, get the second for half price!  Only at Crazy Rick W's House of Jets!

 

§         Can't afford to fly the family to Disney World this year?  Stuff your kid in your Samsonite and you're good to go!  With Air Canada eliminating the surcharge on second checked bags, now you can take both of your children.

 

§         Why buy new office equipment when you can buy an entire TSX-listed company for half the price of a laptop?  Just call your broker, structure a takeover, and raid the supply closet.

 

§         That place in Muskoka that you were hoping to buy for your retirement?  Now you'll have ten extra years to save for it.

 

§         As a way of staving off bankruptcy, Nortel management implements additional cost cutting measures by eliminating the numbers 3 and 7 on its phones.  The good news?  Fewer numbers to remember.

 

§         Feel like getting out of the fast lane and settling into a nice, cushy government job?  You can get yourself a great deal on a seat in the US Senate!  Only slightly used.

 

§         With the US Treasury printing money in trillion-dollar increments, the Canadian forestry industry is due for a major comeback.

 

§         Abandoned bank towers make for excellent public housing.

 

§         Those stock certificates are an excellent alternative to tissues.  Think of all the money you'll save…especially if you're a Leafs or Raptors fan.

 

§         Lower energy prices allow Santa to stay out of bankruptcy for one more Christmas.  At least we won't have to see him going before Congress to ask for a bailout.  We were not looking forward to hearing Barney Frank ask Santa how he can justify flying to Washington in a private sleigh.

 

§         When you consider Countrywide, Lehman Brothers, Citigroup, AIG and the rest, you pretty much had to kill a guy to make it onto Santa’s "Naughty" list this year.

 

§         And finally, remember all those stories your grandparents used to tell you about how they made it through the Depression?  Now you'll have your own stories to share with your grandchildren some day.

 

On a serious note, 2008 has been an interesting year at Q1, with many new opportunities and probably and equal number of challenges.  Certainly, our growing success would not be possible without the support of our new clients, our old clients (who have all become personal friends) and our friends in the investment community who continue to show strong support for our firm.  As we move toward the close of 2008, we at Q1 Capital would like to wish all of our readers and friends good health and prosperity in the coming year and all the best for 2009.

 

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