I've been watching a lot of TV lately, trying to keep track of the credit crunch, massive bailout money thrown out by Central Banks across the globe, plunging stock markets around the world, the Iceland economy on the brink of collapse and both the US presidential race and Canadian federal election.
Protestations from both Obama and McCain that they foretold the crisis by warning about the sub-prime mortgage crisis and Fannie Mae/Freddie Mac situation respectively sound hollow. Obviously neither of these candidates had enough influence to even have their concerns addressed or register a blip on the political front, as these concerns have only been brought to light after the crisis sit full stride. The smartest financial gurus at the switch, Hank Paulson and Ben Bernacke, didn't forsee this either. Why? Because greed trumped fear ....... until recently. Sound financial principles and regulatory oversight were ignored until it was evident that something had hit the fan. Now fear has overtaken greed and everyone is panicking.
In elections on both sides of the border, the electorate has spoken as to the most important issue for them - the economy. In Canada, the incumbent Conservative Party had a seemingly insurmountable lead a few weeks ago, and because of their casual attitude to a worsening economic environment, they have experienced a voter backlash and risk not only losing their lead, but also squandering their chance to lead the country. Likewise in the US, where the economy's troubles has helped Barack Obama and forced John MCCain to focus on a topic that he has admitted is not his strong suit.
Even on shows like Dr. Phil and Oprah, hot topics are how to tighten the belt, get out of debt, stop spending money unnecessarily and focusing on what is really important in life. Whereas shows with these topics were sporadic in the past, they are now coming thick and fast. Advice is easy to provide now. Sure, it is the topic de jour, but perhaps it would've been helpful if all of this was more proactive, adding to the warnings rather than trying to put out a fire after it had started. Have things other than money only become important when the situation has become untenable?
Unfortunately, critics like hedge fund manager David Einhorn who raised the alarm bells on Lehman Brothers, Warren Buffet who called the complex derivatives that started this mess, 'financial weapons of mass destruction' or Prem Watsa of Fairfax Financial who placed a huge bet on credit swaps because he saw huge flaws in the way financial companies were over leveraged, were all ignored. All of these smart men and astute investors were derided as Chicken Littles, only to be proven correct in the end.
The smart money will be made by those who stuck to the fundamentals and did not get caught up in buying expensive items on credit, have been living within their means and saved cash for rainy days such as these. They can now deploy those resources on assets that will be sold at fire-sale prices, obtain discounts from desperate car manufacturers and retailers that are overstocked, and stocks that have been sold at the lowest prices in decades by investors who are trying to raise any cash possible.
I hope the trend of going back to basics will be a long-term one, and not only until the economy rebounds.
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