Holiday Client Letter
December 24, 2008
Dear Jeff and Donna,
Well, it has been quite a year. Who would have thought, that in the space of twelve months, we would be in the most severe economic downturn since the great depression and at the same time be in a time of such profound and wonderful change. Could these two occurrences be linked somehow? I believe they are.
The downturn, triggered (but not necessarily caused) by the imploding of real estate values, has revealed a number of severe dysfunctions in our, now global, economic system.
Mortgages became available to almost anyone, and for terms that seemed too good to be true – because they were. We all knew Wall Street was a place of greed and excess. However, the magnitude of this, as revealed by one brokerage firm failure, bailout, or Ponzi scheme after another, is staggering. For years, the big three U.S. auto manufacturers have ignored the inevitability of rising fuel prices and have instead offered us mediocre small cars alongside extremely profitable, for them, state-of-the-art SUVs, which have now become dinosaurs.
I could go on and on, but the point is that greed and lack of regulation, starting back during the Reagan years, have been running rampant in our economic system. The impact on everyone’s investments has been brutal, but not unprecedented. At this point, the market, as measured by the S&P 500, is down only slightly more than the last bear market, which occurred from March 2000 until March 2003. The current one has occurred as more severe simply because it has happened so fast – about one year.
We are in the midst of a global breakdown. However, as I have learned, after every breakdown is the opportunity and possibility of a breakthrough. I believe that this breakthrough is starting to take shape right now. Without the brilliantly bad management of our country by George Bush and company, we would probably still be going through a recession (which is a natural part of the economic cycle) and a bear market (a natural part of the market cycle), but it would most certainly not be this severe. The silver lining, with George Bush’s terrible leadership, is this severity has revealed the dysfunctions, which now can be fixed and/or changed.
Real estate values had lost touch with reality. Qualifying for a mortgage was child’s play. Wall Street needed to be brought to its knees – and changed. Detroit needed to come into the 21st century – or die. The global economic model that we have been operating in was and is not sustainable, largely because it is based on a finite resource: oil. Something needed to shift and it did; on November 4, 2008. Whether we like it or not, we are the leaders of the free world. We had been leading negatively, and on that day, we started leading positively again.
The United States elected Barack Obama, arguably the most charismatic, intelligent, and natural leader this country has seen since Kennedy (I believe more so). He is a brilliant speaker and a brilliant man. He makes decisions thoughtfully and carefully. He is gifted at bringing people together. The fact that he also happens to be black speaks volumes.
We have now demonstrated to the world a major step in healing the racial divide that everyone outside of this country has seen even while we refused to. From what I have read, and experienced in conversations with folks in Canada while I was there for the SRIR conference, most of the rest of the world wanted us to elect Barack Obama, and is grateful that we now have.
While of course I don’t think he is perfect, or walks on water, I firmly believe with Obama’s leadership we have the opportunity to not only heal our own nation, but heal our relationship with the rest of the world. In so doing, we can lead other countries to more peace, a cleaner environment, and a more sustainable global economy. I am not saying it will be easy, or will happen quickly, but it needs to happen, and I believe that if anyone is capable of the vision and strength that it will take to lead this shift, it is our newly elected president. The important point here is that Barack Obama would not have been elected if our economy and markets were running in “business as usual” mode. We needed a crisis to reveal how bad things were and that a change was needed, and this gave us the opportunity to elect someone who offered this change.
I expect that things will continue to be rough for awhile. There will likely be more companies that fail, jobs that will be lost (temporarily) and government bailouts. However, I firmly believe that at some point, all of this will turn positive again, because it always has. I believe the impact on our investments is temporary, because it always has been. Due to the fact that our accounts have not gone down as much as the market(s), when the market(s) rebound, as they always have, our patience will be rewarded. In addition, because we are invested in Socially Responsible Investments, we have, and will continue to have, a much larger share in the changes we have wanted all along. In order to benefit from the opportunity that this situation gives us, it is critically important to stay fully invested and stay the course, so as to maximize the positive impact when the market(s) rebound.
I believe Christmas is a time of hope and belief in what is good in the world. I believe this “crisis” that we are going though is actually an opportunity that happens perhaps once in a century. I believe this will become clearer over time. I also believe we all have a lot to be grateful for.
I know that I am grateful that you are my client. Thank you for the trust you have placed in me, especially during this challenging time. I promise that your trust will continue to be well placed. Have a very Merry Christmas and a Happy and Prosperous New Year!
Scott M. Buttfield, CFP®, AIF®