Thursday, March 5, 2009

It's Not About You

“It’s not about you.”

These are the opening words of the Rev. Rick Warren’s best-selling book, “The Purpose Driven Life,” and the sentiment may be comforting to everyone affected by this unhappy economy.

To wit, we are all in this together. As much as folks who have lost their jobs or seen their incomes and retirement funds shrink may feel alone in the storm, in fact every one of us is touched in some way.

Of course, this is somewhat distinct from Warren’s intention of the words – he advocates a life of service to others with a higher meaning in mind – but the interconnected nature of our travails is worth a look.

In Canada, manufacturers and exporters were having a difficult time even before the current downturn began, owing in part to an inflated currency that made our goods more expensive. But now that our international trading partners, including and especially the United States, find themselves in financial turmoil and unable to buy what we are selling, times get even tougher. This translates to share price declines and massive job losses – 129,000 in January 2009 alone – which means that whether you are an investor, a worker, or both, you got hit.

On Parliament Hill, opposition parties have pledged to force an election if Prime Minister Stephen Harper and Finance Minister Jim Flaherty do not turn around the country’s economic fortunes by June. This is Olympic-calibre silliness. One hopes, certainly, that Canada’s economy rebounds in the next three months, but many of the factors affecting that outcome are beyond the powers of any Prime Minister or his cabinet. International trade and the global nature of our economy dictate that recovery or recession depend in large measure on the health of our trading partners. If other countries do not have the demand for our commodities and manufactured exports, the rest is just so much chin music.

As for the United States, the markets have rendered their verdict on the high tax, spending and borrowing prescriptions of a new president and Congress, and it is not good. Indeed, the Dow Jones Industrial Average shed 20% of its value in the six weeks after Barack Obama became Commander-in-Chief and began to re-centralize the American economy.

Markets don't take things personally. The market has no politics, per se. What you see in the Dow and other indices is an objective assessment government policy and where it could lead. This is distinct from a poll or a vote in that investors’ assets are at stake, not their ideas. Opinions on abortion or government-funded television do not steer the markets; that is the task of steely-eyed pecuniary interest. So when a president announces higher taxes and unprecedented borrowing, market downturns occur as night follows day.

The good news is that this can be remedied, and whether you are in government, invested in the markets, or just working day-to-day, there are reasons for hope and steps you can take.

For example, companies that emerge from this period intact will be leaner and healthier than they were before this started. Bad news and cutbacks are announced and effected during such times, so when companies start to generate income again, it goes straight to the bottom line.

The task for investors, then, is to find the best companies in the best industries and buy with discipline and careful planning. For managers and workers, be brave and alert, ready and willing to adapt to new realities, in the form of concessions and improvements. Lastly, if you are in government, by all means spend and regulate where you must in order to get us out of this fix in the short-term, but then get out of the way and let people’s innovation and initiative lead on. One hopes that somewhere in this list of prescriptions, readers will recognize themselves.

It may seem like cold comfort to be reminded that the global downturn is not something that is happening to you, personally, but it is nonetheless true. More important, bleak as things may seem and despite the blame-laying on all sides, bear in mind that we as a society, a system, and a family of nations will get out of this mess the same way we got into it – together.

Theo Caldwell, President of Caldwell Asset Management, Inc., is an investment advisor in the United States and Canada.