Monday, January 21, 2008

Market Melt Down

I am very curious as to why a very important issue has only recently begun to get the attention of the media. That issue is the falling stock markets. Last week I spoke with members of the media and financial advisors. In fact, on the afternoon of January 18, 2008 I took the position that the failing American economy was one of the root causes of economic instability and that they are on the verge of slipping into a recession. I was not taken seriously and was informed that stock losses are only on paper and represent a correction in the market no different than we have seen in the past.

Two hours later I am at home hearing the news from economists that the US is in the early stages of a recession. That the President of the United States has announced the US government will allocate over 140 billion dollars to stave off a recession. This amount of money represents only 1% of the US GDP, but would run the war in Iraq for a year, run the Canadian economy for about nine months and put 800 hundred dollars in the pockets of every American to help them offset their personal financial suffering as a result of the failing US economy. The US economy began its downhill slide for many reasons and was accelerated over the sub-prime mortgage factor.

Here in Canada we have just experienced a fall in the markets that compares with those experienced in the period of post 911, but those losses were truly paper losses and the market corrected itself in less than a year. I don’t believe the current losses will be recovered in the next year. I believe it will be more like three years, but don’t listen to me, as I am not an economist or a financial advisor. Regardless, I was correct in my assessment of the markets last week and on the first day of this week we are in a virtual market melt down. The TSX lost over 4% before your coffee break today. The TSX lost all of last year’s gains in just one week.

My concern is for retirees who invested their life savings and are relying on the interest from those savings along with a portion of the principle amount invested as their primary source of monthly income. The market losses are not simply paper losses, as the media would have you believe. They are actual losses as capital losses are realized when you take funds out of your investments as retirees must do to survive financially. More generally we can look forward to a failing economy here in Canada over the next two or three years. Ontario is the second largest manufacturing centre in all of North America and is hurting badly on the export market as a result of the rising Canadian dollar against the historically weak US dollar.

Canada and Saskatchewan are in for a rough ride in spite of our current strong economies if the US doesn’t stop trying to fix the world’s problems and begins to look after their domestic issues like the failing economy. Individual Canadians have already lost tens of thousands of dollars in the last few months and it is time our governments, politicians, economists, financial advisors, financial institutions and the media began reporting daily on this very important issue.

Saskatchewan residents are among the biggest savers of money and investors in the country as a result of our proportionately high senior population. We may stand to be hurt the most until the markets level out and begin to get back to normal gains. You can talk to your financial advisor or your bank, but all they are going to tell you is that you have to stay in for the long term. That’s good advise generally, but if you are 65 plus you have to wonder just how long you have to live to realize any gains from your investments. Dying shouldn’t be the solution, but I can still remember my mother hoping she would die before here investments ran out. She has since passed away and had every reason to be concerned. How many seniors are in a similar situation now with the markets falling as they have been?

It is time our politicians and the media began to give this important issue the coverage it deserves. The economy consistently polls high over other issues and it is time the Canadian government took a serious look at this issue. It would seem that the best investment is a job and the way things are going we will have a wave of 65 plus Canadians applying for a job to make ends meet. The pioneers of this country deserve better.