"A Bear Market is Approaching" © Connolly Report August 2000 p.463
As you know from previous reports, I am of the opinion that we are in a bear market-that the long term trend in stock prices is down. With the TSE still reaching new highs, it's hard to believe a bear market is imminent: one has to remember, however, that Nortel now makes up some one third of the TSE valuation and NT has been rising. And while some other common stocks are rising too, the TSE index is a skewed indicator of the market's direction.
There are many bear market signs about. David Dreman, a practising money manager, began his July 24 column in Forbes this way: "It's pretty clear to me that a bear market is approaching. Record volatility is one warning sign. Near-record margin debt on speculative issues is another. Then there's the humbling of red-hot initial public offerings." Nasdaq's drop earlier this year, Dreman pointed out, was its sharpest break in the post-war period. "Investors have been coddled by a false sense of security for many years now. The last bad bear market was in the 1970s. Since then the bad markets have faded quickly. But we are overdue for rocky times that will last a painfully long while, as they did in the 1970s." I well recall the 1970s too. I told friends who had been sold mutual funds in the funds frenzy of the late 1960s, Bernie Cornfeldt et al, to hold on through the 1970s...prices would rebound. It was not until 1982 that the market finally took off.

In the midst of all this chaos, the common stocks I follow...the dot.calms which the techies branded as dinosaurs earlier this year...have staged an impressive rally. The exception is Pacific Northern Gas (see page opposite). In my view, this puts many of these common stocks in limbo: too high to buy, but not quite high enough to sell. With the exception of Barrick, I have not been buying recently. I don't see much value. Ben Graham's margin of safety is missing.

TransCanada PipeLines
In early August, TransCanada announced deals to sell Canadian assets worth $1.15-billion in gas liquids extraction, gas gathering and processing. TCPL has now sold off some 80% of the $3-billion in non-core assets it said it would unload. In the days after this announcement, TRP's stock price rose significantly. The high price of gas aroused interest in TCPL's gas assets and, it seems, a better than expected price was obtained.
The worst seems to be over for TransCanada. TCPL can now focus on its core Canadian pipeline network and power generation operations. Hopefully, TCPL can now obtain some favourable regulatory changes from the National Energy Board. With significant reductions in debt and financing costs, the 80¢ dividend should be secure.

BRASCAN
Brascan's profit for the second quarter and the first six months of this year have increased significantly. And BNN.A announced a dividend increase...the first since 1991 unless you count the 1997 merger of Brascan and Edper when "old Brascan" shareholders saw the dividend go to .245 from .174.
I wrote and asked Brascan about further dividend increases. Even though they cannot answer the question, dividends are declared by the board and not announced in advance, reading between the lines of these corporate replies is alway interesting. The dividend increase on November 30th was "in response to shareholder suggestions that we round up the annual dividend to $1.00", they said. Brascan is considering a dividend policy statement in this year's annual report.
I like companies like Brascan with their diversified asset base. Brascan includes Noranda 40%, Nexfor 31%, Brookfield Properties 50% (now in the process of taking over Gentra...the old Royal Trust shell), Great Lakes Power 93% and Trilon Financial 65%. Holding companies are somewhat like mutual funds...without the annual MER. However, and Brascan is typical, conglomerates tend to trade at a discount from their real asset value.