My World and Welcome To It

Boy, has this been a quarter.

After yesterday’s action the markets are down about 13%. That’s the worst quarterly return since 2002. Indeed, over the last 70 years, the market has declined more than this only 13 times. That’s a telling statistic. Because while declines of this magnitude are unsettling, they’re not unprecedented. In fact, they happen every 5 years or so.

Make no mistake: the current downturn is a made-in-Washington affair, with politics trumping policy and radically mixed signals confusing the markets. Add to this an unpopular lame-duck administration that doesn’t have the political capital to push through bold measures to add to our financial capital, and we have a witches-brew of double trouble.

But witches warnings are dangerous signals to run by. Over these same 70 years, if you bought into the market after each of these large quarterly downturns, you would have received a 13%  return over the next 10 years. Just living through the waves give you an 11% return.

Because the world has a way of not ending. Whether it was Pearl Harbor, Nixon’s resignation, or the Enron debacle, the fundamental factors that caused the market’s decline were overcome. But our economy recovered, and investors with staying power profited. Yes, you can.


Douglas R. Tengdin, CFA
Chief Investment Officer
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Stayin’ Alive

So will it help, or not?

The global markets seem to think that the Paulson plan will be a good thing. Since the idea was first proposed, global financial stocks have appreciated by about 900 billion dollars. While that’s still a long way from the 3 trillion or so that has been lost since last summer, it’s still a pretty good piece of change.

So on first blush,  the plan is a success. It’s big enough, and systematic enough, to make a real difference. But can it help us take the next step to recovery?

That depends on what happens in the real economy. Up until now there has been a disconnect: markets have been predicting a nasty downturn while the global economy keeps on chugging, even if at a slower pace. This plan helps the banks facilitate this continued growth.

The plan isn’t perfect: some bankers will remain in business who really shouldn’t. But “payback” is not a sound financial policy. And an old western saying goes that before you ride out for revenge, be sure to dig two graves. Paulson’s outline should keep both the banks and the economy alive.


Douglas R. Tengdin, CFA
Chief Investment Officer
Leave a comment if you have any questions—I read them all!

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Fast Forward

What’s unique about this crisis? Speed.

Every 10 years or so we have a financial crisis that wags say “ends the nature of capitalism as we know it.” Indeed, ever since Marx predicted capitalism’s succession by communism, every recession or panic has been heralded as the forerunner of the revolution.

This latest downturn isn’t that complex. It’s simply the bursting of a housing bubble and attendant write-offs by leveraged financial institutions. This threatens the professional courtesy that banks and their cousins usually extend to each other.

So why are things moving so fast? Information is widely available and liquidity is now provided “at will” so institutions in real trouble can become insolvent in a matter of hours. As a result, much intervention has the intent of extending the time available for business partners to react.

What to do? When the Feds step in, it may be time to step out. Because temporary help is likely to be—temporary.


Douglas R. Tengdin, CFA
Chief Investment Officer
Leave a comment if you have any questions—I read them all!

Follow me on Twitter @GlobalMarketUpd

direct: 603-252-6509
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www.chartertrust.com • www.moneybasicsradio.com www.globalmarketupdate.net

The Upside of Contagion

Every cloud has its silver lining.

That was my thought when I looked at a little-known side effect of global financial crisis. Because it has given the Russian market a wicked cross-check.

From their treatment of BP employees to the recent Georgian invasion, Russian behavior has been pretty aggressive. Moscow’s estimate of the Golden Rule—whoever has the gold, makes the rules—meant that they felt their immense oil wealth made them immune to world opinion.

But with falling oil prices, the Kremlin’s recent actions, and the global flight to safety, a lot of major players have walked away. In fact, many 2nd-tier firms are facing insolvency.

After spending hundreds of billions the Russian Central Bank could be downgraded. But if they conserve their reserves the spiral of lower stock prices and tighter liquidity probably will continue. Only a long period of responsible behavior could induce outside investors to return.

One of Russia’s favorite sports is hockey. For the Russian market, this global financial cross-check may have put them into the penalty box.


Douglas R. Tengdin, CFA
Chief Investment Officer
Leave a comment if you have any questions—I read them all!

Follow me on Twitter @GlobalMarketUpd

direct: 603-252-6509
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America, Inc.?

So the government is now in the banking and insurance business. Are autos and imports next?

Through the stimulus plan and interventions in the markets the government is now the lender, spender, and investor of last resort. In order to keep the financial gears greased the Fed has been manning the pumps.

But I hope that somebody over there has studied their history, because all this government intervention is starting to remind me of Japan, Inc.

In the ‘80s, the Japanese government was an inside partner to a whole host of critical industries. They thought that by careful planning and selectively intervening they could manage their economy to a better tomorrow. At first it seemed to be working. But around 1990 the wheels came off and the Japanese economy has stagnated ever since.

I understand that lawmakers want to do something, and some kind of new regulation is surely needed. But I don’t think America, Inc. will be any more successful than Japan, Inc. And I really hope the folks in Washington and New York remember.


Douglas R. Tengdin, CFA
Chief Investment Officer
Leave a comment if you have any questions—I read them all!

Follow me on Twitter @GlobalMarketUpd

direct: 603-252-6509
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Terrible Tuesday

Everybody keeps comparing our current financial mess to the Great Depression. But for my money, it looks and feels like October of 1987.

On Black Monday the market fell over 20% in one day. That was pretty bad. Mind you, the market had rallied over 30% early in the year, and essentially gave it all back from August through October. But the volatility was a killer.

On Tuesday many of the specialists on the New York Stock Exchange had had their equity wiped out. So many stocks just stopped trading. Soon the indices stopped trading as well. We were looking at a true financial seizure.

That’s what it looked like last Thursday when T-Bills traded with negative interest rates. But just like 21 years ago, someone stepped in with a plan to normalize the markets. In 1987 it was the big investment banks. This time it’s big Hank Paulson.

In 1987 we actually ended the year with a positive return. The lesson was that nothing is as bad as it seems. Crises come and go, but people who can hang on usually end up okay.


Douglas R. Tengdin, CFA
Chief Investment Officer
Leave a comment if you have any questions—I read them all!

Follow me on Twitter @GlobalMarketUpd

direct: 603-252-6509
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www.chartertrust.com • www.moneybasicsradio.com www.globalmarketupdate.net

Back From the Brink

Last week we looked into the abyss. And pulled back.

On Monday Lehman failed. Tuesday AIG scrambled for financing. On Wednesday AIG was propped up. Thursday was a day of general panic. And Friday the Treasury rode to the rescue.

In years to come, I think Thursday will be remembered as the day we pulled back from the brink. Gold had shot up over $100. The Dow had fallen 1000 points. And Treasury Bills yielded less than one tenth of one percent. Several major financial concerns saw their market value fall in half.

But something turned the situation around. It may have some comments about short-selling that came out of London. It may have been the rumors of talks between Paulson, Bernanke, and Congress. Whatever it was, by the end of the day Thursday the markets had breathed a collective sigh of relief. Friday’s rally was almost an afterthought.

After all these gyrations, the markets ended the week almost where they began. If you’d stayed away, you might wonder if you missed anything. But those who lived through this week’s volatility aged about five years!


Douglas R. Tengdin, CFA
Chief Investment Officer
Leave a comment if you have any questions—I read them all!

Follow me on Twitter @GlobalMarketUpd

direct: 603-252-6509
reception: 603-224-1350

www.chartertrust.com • www.moneybasicsradio.com www.globalmarketupdate.net

A Few Questions

As the politicians play the blame game, I have a few questions:

For Barack Obama: you say that the current financial mess is a result of the failed policies of the Bush administration. Fair enough–which ones? What would you change? How will increased regulation stop our global financial giants from making bad investments?

For John McCain: you bemoan the use of taxpayer funds to bail out Wall Street, while Main Street is left to pay the bill. Good point. But if Wall Street collapses, how will Main Street borrow money, sell stock, or exchange currencies in this rapidly globalizing economy?

For both VP candidates: which of your boss’s policy proposals do you think would be most effective in calming the markets, re-capitalizing the banks, and keeping our system dynamic and competitive? In your own words.

We’re going through one of the most tumultuous times of the last 50 years, and we’re seeing it happen in the midst of the first presidential election without an incumbent or successor VP in 50 years. I’d love to see our candidates face these serious times with serious proposals.


Douglas R. Tengdin, CFA
Chief Investment Officer
Leave a comment if you have any questions—I read them all!

Follow me on Twitter @GlobalMarketUpd

direct: 603-252-6509
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www.chartertrust.com • www.moneybasicsradio.com www.globalmarketupdate.net

The Dissent that Wasn’t Voiced

“The most curious incident is the dog that didn’t bark.”

In Silver Blaze Sherlock Holmes noticed that a guard dog didn’t bark as expected, and this clue helped him solve the crime. Similarly, the most curious aspect of the latest Fed meeting is the governor who didn’t dissent.

Unlike the Greenspan era, in Bernake’s Fed dissent is a way of life. For the past year, one governor or two has disagreed with every Committee decision–and it’s been both hawks and doves. This is a Fed where spirited discussion rules, and the members aren’t afraid to vote their opinions.

But not this time. The current financial market turmoil must have convinced the members that they need to present a united front. This is both deeply concerning and encouraging. It’s concerning because it’s a big deal to get people who are in the habit of dissenting to vote unanimously. But it’s encouraging because this Fed is paying attention, and they seem to know how high the stakes are.


Douglas R. Tengdin, CFA
Chief Investment Officer
Leave a comment if you have any questions—I read them all!

Follow me on Twitter @GlobalMarketUpd

direct: 603-252-6509
reception: 603-224-1350

www.chartertrust.com • www.moneybasicsradio.com www.globalmarketupdate.net

The Road Ahead

Are we looking at a replay of the Great Depression’s banking crises?

Whether the Feds come to the aid of AIG, this is the kind of environment we see around market bottoms. Panicked investors hear breathless reports of a financial meltdown and wonder if their money is safe. The short answer is that nothing is absolutely safe. The longer answer is that the health of any portfolio is tied to the health of the economy.

And while the economy is slowing, it’s not collapsing. We’ve had some bad economic reports the past several weeks, but the market’s volatility is more associated with the excessive leverage that the investment banks took on during the good times. But away from New York, business is getting done.

So while we’re concerned, we’re not worried. Markets always go down before they go up again. And in the long run, this fluctuation will look like fly-specks on a mirror.


Douglas R. Tengdin, CFA
Chief Investment Officer
Leave a comment if you have any questions—I read them all!

Follow me on Twitter @GlobalMarketUpd

direct: 603-252-6509
reception: 603-224-1350

www.chartertrust.com • www.moneybasicsradio.com www.globalmarketupdate.net