I received the following comment by e-mail (nothing to do with this Blog) from a long-time friend who is a successful Investment Advisor with one of Canada’s larger wealth management groups.  The business model of the group he works with is to attract money from (largely) individual investors into ‘managed pools and segregated securities’, to screen and select external money managers based on prior performance and other criteria, and then invest client’s money in a globally diversified group of pools that are sector diversified.

“Good day.  I have been searching for some time for a rather concise summary of the background to the 21st century tsunami in the credit markets.  Investors have suffered miserably for the past 19 months and deserve to know what and who played a part in setting the stage and controlling the play.  The media has not been very forthcoming to date with investigative journalism.   The answer should come as no surprise – organized activists and an accommodating US political party.  If the Polls are correct, this same political party may well control the entire US government after November 4th.  What further fiscal management mischief will they bring to America and the world?  Cheers.”

I think readers of this Blog might be interested in my e-mail response to him, which follows:

“I think you are ‘sort of correct’.  I think you have to also ask ‘how much independence did Greenspan have in his role as Fed Chief’.  I don’t know the answer, but I suspect not much.  You should read my Blog Post of yesterday headed ‘Greenspan’s Failure to Get to 20,000 Feet’.  Having said that, I have to think it would have been the Republicans, not the Democrats, who dictated to Greenspan that the U.S. needed continual growth in an unregulated environment in circumstances where the Democrats went along with it in exchange for ‘Pork’, believing that U.S. GDP growth was essential to support the Republican’s deficits driven by the war on Iraq, fiscal policies, and trade policies that resulted in a massive loss in manufacturing jobs and huge annual net trade deficits.  The ‘smart’ money managers then took over and greedily sucked the system (read the middle class) dry in the prevailing ‘free enterprise’ system – but then why wouldn’t they do that, and who can really blame them for conforming to basic human nature – see my comment on Cheetahs in my aforementioned Post.  Having said that, as you know I only perceived about 3 of the 13 money manager representatives we met with two years ago in New York to be focused on the underlying erosion of the U.S. economy I by then had concluded was ongoing and irreversible.

Frankly, I don’t really think it matters much who is in power going forward, the U.S. economy no longer has the underpinnings of solid manufacturing jobs, is increasingly dependent on the third world economies going forward, and if the Democrats get elected and introduce ‘trade protectionism’ policies I say ‘watch out below’ because I think economic globalization is too entrenched at this point to enable protectionism to succeed.

Hang on to you hat, I think the current market uncertainty, volatility, and decline is far from over.  I feel sorry for the people who are being advised to ‘hold on’ for the turn-around.  I can’t see how a turn-around can come any time soon unless it comes from the herd reversing direction for reasons that have to do more with ‘herd mentality’ than logic.”

By the way, my successful Investment Advisor friend disagrees with me about holding on!  He believes life and business move in cycles and it is just a matter of time before investment markets improve.  He also believes no one can accurately time the market (I agree with this) so he believes investors should stay put provided their portfolio structure is sound.

The views expressed in this Post are those of the author. They are offered to readers for information and general guidance only. They are neither intended to, nor should be taken to, constitute economic or investment advice. See Legal Disclaimer.

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