• Financial & Investment Management Group
  • Tuesday, January 06, 2009

Recent Market Events

From: Paul Sutherland and the Investment Team
Posted September 30, 2008

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A senior lobbyist from one of the giant financial institutions that hasn't been bought out or bailed out recently wrote this excerpt with his weekly Washington update:
Politics is being blamed for the difficulties Congress is presently experiencing in passing the $700B troubled asset relief program ("TARP" – sounds better than "bail-out"). Politics defines everything that Congress does, and no one should be surprised that it applies to this proposal, too. In a contentious presidential election environment where sensitivities are even higher and trust is lacking, almost any action that anyone takes in Congress is viewed as "political." This leads to the current approval rating of Congress falling somewhere between 9 and 25 percent.

It is important to note, however, the challenges Congress faces in passing this proposal in a week's time. Congress was stunned to receive the briefing it did late last week from Secretary Paulson and Chairman Bernanke about our dire economic situation. More stunning was the proposed remedy: the use of $700B in taxpayer funds to buy troubled assets from Wall Street firms. Throw in the growing and overwhelming public outrage generated by the potential taxpayer exposure, and Congress is left with few good options. Congress isn't by nature designed to act quickly, and having this proposal put in their lap with a week's deadline is a tough sell. The difficulties in passing this package shouldn't be a surprise and is part of the too-often ugly process of legislating. We still think the package will be approved in the next few days, despite the nay-saying we all hear, as the pressure in not passing a bill exceeds the concerns over the remedies contained in the package.

America is in turmoil. Gut-wrenching times like these are part of living in a capitalistic democratic system. Economic fundamentals will – as they ALWAYS DO – win out over the panic, mania and fear-driven behaviors. Often fear can be dispelled by logic, understanding and truth.

Religious texts, evidence and the reassuring words of "lets go see what is making that spooky noise" from my Grandpa ( also an Eagle Scout leader) as the remedy to my fear of the bumps and hoots in the night on our Northern Michigan camping trips, taught me this. When I would get scared we would look, and explore what caused that fear. Often it was a raccoon going after our food, a curious owl, or my Dad trying to scare us were the usual findings of our midnight tracks in the dark without a flashlight. However we would look, and find the truth of the situation. (He was also a minister so looking to find the "truth" was a big deal to him.)

But today, the truth is that people are scared. Our institutions from Washington to Main Street seem to be breaking down. What once seemed sure now seems shaky. Financial institutions, FDIC, bond guarantees, insurance and government sponsorship all are in need of an authentic evaluation to see what is real and truthful. Looking deeply at history, economics and government's place in our economic lives can help us get to the truth of the matter. It will not help much with the anxiety and fear, but it can help us to make good choices about whether staying the course is rational and appropriate. Of course, if you study great investors – Templeton, Buffett, Graham and Dodd – you can easily conclude that panicking and selling out of a portfolio in times like these is irrational. This is the time, if fear is winning over logic, to look over each investment in your portfolio in order to get a better, more complete understanding of it.

This is exactly what FIM Group's investment team does constantly in the dynamic and ever-changing environment.

To help our clients get a better understanding of our thoughts and strategies, we have posted yet another few webcasts on www.fimg.net . The goal of these webcasts is to provide timely answers to the most pressing questions we are getting from clients. We also have a DVD and a transcript available for those who do not have Internet access or prefer a different medium.

The topics discussed are:

  • Is this time different? Are we headed for a depression? And if so, what will my portfolio do in such a scenario?
  • Will we have stagflation, a big recession, hyperinflation or Japan-style deflation? And, most importantly, how will my portfolio weather those economic periods?
  • Is my income safe? Will I be able to retire or stay retired?
  • Why is my portfolio down? Is it done going down?
  • Why did my portfolio own some of those financial stocks that are on the front page of the papers?
  • Should I be in CDs, Swiss annuities, U.S. treasury bills, U.S. or foreign government bonds or cash in a safe?
  • Should I send my money overseas? Is it safer in Europe, China or Singapore?
  • Am I well-diversified?
  • Should I pull the plug on my investments?
  • When will this end? When will my portfolio recover?
  • Is it time to panic, or is it rational to stay the course?

As your portfolio managers, we are committed to helping our clients understand how and why we are investing on your behalf. We hope you will investigate and strive to get a better understanding, so you feel comfortable and confident that your portfolio is structured prudently, logically and from a point of strength. In a week or so, our October FIM Group Current Observations newsletter will be sent along with your portfolio's progress reports and appraisals. As always, feel free to call with any questions.

Blessings,

Paul

 
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