Three months ago Paul Siluch, a veteran retail Investment Advisor with Raymond James in Victoria, sent out a note to his clients just as the equity markets had dropped to new lows for the year.

“It has been numbing, to say the least,” wrote Paul, in his weekly client newsletter (one of the best you’ll ever find, by the way) as the Dow Jones Industrial Average hit 8,000 and the S&P/TSX touched 8155 at the end of November, 2008.

Paul then went on, with his usual insight and humour, and took note of the lack of investor confidence in the market at that time. Here’s what he wrote:
“The economy and its associated stock and real estate markets are a confidence game. We exchange pieces of paper and squares of dirt and agree on a value in the process. Both buyer and seller must have confidence in the underlying value of the paper or the dirt to keep the system going. For most of 2008, confidence was battered, but still essentially intact. We looked forward to levels where things would become attractive again.
“Confidence has now broken down completely, however. No matter how low stocks drop - and this is now the worst year on record since 1931 - there are few waiting underneath. In fact, it could be argued that the lower stocks drop, the more investors want out. It is a time without sails or rudders, quite frankly. Every measure of value we have used for 25 years has been rendered ineffective as level of level has been shattered in the stock market. Toronto is now the same level as it was in 1999 and New York is back at 1997 levels. Surely 12 years' worth of earnings and dividend growth count for something.
“In terms of sentiment, here is the cycle of market emotion, according to Russell Investments:


“Judging by the level of mutual fund and hedge fund selling,” Paul concluded, “our best guess is that we are somewhere between "Panic" and "Capitulation", and are looking quite forward to "Despondency" and "Depression". “
Three months later, with the Dow 700 points lower and the TSX more than 250 points down from the November lows, it looks like Paul was right. Maybe we are now entering Despondency and Depression.

That certainly seems to be the case if you’re a shareholder or a part of the leadership team of most early stage public companies on the TSX Venture Exchange, which is where Peterson Capital’s clients are found. With the possible exception of some gold stocks, it appears that no matter what sector you’re in – resources, life sciences, or technology – the public venture capital markets are cold, dark and unfriendly. There is virtually no financing available, no investor interest, no market support, and no end of pessimism all around. If this isn’t Despondency or Depression, it’s not far off.

Where are you going?
This is a very, very critical time for most junior companies, and many of them simply are falling by the wayside. When capital dries up in the junior markets, only the very best survive – as we’re seeing today. Success in the junior markets depends solely upon access to capital.

Believe it or not, some companies are successful at raising money in the junior markets, even in this ugly environment. I know, because two of them happen to be Peterson Capital clients: life sciences company Med BioGene Inc. (www.medbiogene.com MBI – TSX Venture) and junior resource company Columbia Yukon Explorations (www.columbiayukon.com CYU – TSX Venture)

How have they done this? By answering the questions that Diana Ross poses in her lyrics that appear at the top of this page: by knowing where they’re going, clearly outlining their business milestones, hitting their targets, and reporting back to their shareholders. It’s as simple, but as hard, as that – because very few companies are good at this.

The reward is huge: a loyal group of shareholders who hold on even if very poor markets; and success in raising money, which allows them to continue on and build successful businesses, creating significant wealth for shareholders in the process.

Case in point: Med BioGene Inc.. The company’s CEO, Erinn Broshko, has done an excellent job of setting out a number of scientific and business milestones leading to his goal of bringing to market a genomic-based diagnostic and prognostic test for lung cancer by the fall of 2009. For the past two years Erinn has consistently and faithfully set out milestones, hit them all, reported back to his shareholders, and has built up tremendous credibility in the process. Result: in the middle of the market meltdown last September, MBI raised $1.8 million in a financing that was one of the only life sciences financings to take place in all of Canada in the last half of 2008. It’s clear that once the lung cancer product hits the market, as promised, in the fall, investors will be rewarding the company and anticipating similar success with the two additional diagnostic products for leukemia and cardio-vascular disease that MBI has in the pipeline as well.

Second example: Columbia Yukon Explorations: President Ron Coombes reported just a few weeks ago that this junior exploration company is in the enviable position of sitting on $4 million in cash, enough to meet all its expenditures for the next 12-18 months, without having to raise additional financing for its Storie molybdenum project in north-central British Columbia. How did that happen in these markets? Quite simply, the CYU management team, including Chairman Doug Mason and Director Bruce Morley, has consistently set out timelines and targets for development of their property, have even exceeded these milestones, and Clive Shallow has lead an investor relations team that has done a great job of telling the market about its success in hitting these milestones. As a result, CYU has been able to tap the capital markets, allowing it to develop the Storie property on schedule and even look at other opportunities, given their strong cash position.

Both of these companies above have sufficient capital to weather this market storm, and are on track on their business plans. Their stock prices are down dramatically, like most other junior issuers, but there is absolutely no doubt in my mind that these, and other like them, are set for some dramatic gains, once we turn the corner on the Russell chart above and move towards Hope, Relief and Optimism.

And, we will.