Scale and perspective: March 9, 2008

It was only a few years ago that Royal Bank was Canada’s biggest corporation and, for the first time in its history, had earnings of one billion dollars in one calendar quarter. It was a red letter day for a big well managed Canadian company.

Last year General Motors lost $31 billion US. There once was a time when GM was the biggest company in the world. Now they are talking bankruptcy and bail out. Makes Royal Bank’s one billion look small.

Earlier this month, AIG, recently the world’s biggest insurance company, announce a quarterly loss of $67 billion US. Makes GM’s loss look small.

Sometimes we can be mesmerized by big numbers: a billion here, a billion there. We can become numbed the sheer size of these accounting facts and figures.

Do not be numb to this fact: America’s giants are going down. There’s no doubt about that. In the early 1990s Soviet communism fell: now it appears that American capitalism is falling. America’s biggest and best are coming down.

We feel sorry for new US president Obama: what a job he has! In fact, we feel sorry of all heads of state in this global financial fiasco. But, at least they are all trying to do the right thing. They are trying to ease the problem by intervening, by offering help when help is needed. They are trying to reduce the risk in their economies.

We are concerned that today’s financial planners are not acting in the same manner. Governments all over the world are trying to bail out the big corporations. But financial planners are not trying to bail out their clients. It costs taxpayers billions to bail out big companies, but it costs the financial planners nothing to save their clients. All financial planners have to do is recommend that their clients sell their stock-based mutual funds and switch to money market or bond mutual funds. It’s that easy. Then, no matter what goes wrong in America, their clients’ investments will survive.

Last week CastleMoore sold out its small position in the stock market. It was easy. They noticed that the US stock market had dropped to a new low and they sold their clients out of the stock market. Why did they sell? Are they trying to ace the market and “time” every tick and bop of the stock market? No, not at all.

CastleMoore is an investment counsellor that manages people’s life savings. And right now the danger level of the stock market has increased beyond their level of tolerance. Why would they expose ordinary investors to that much risk?

Do they hate the stock market? No. They just don’t want to invest in it at this time. They will buy back once there is evidence that the down trend is over.

Why don’t financial planners do the same thing? Just because Blue Chip America is coming undone, there is no reason for ordinary Canadian investors to come undone. There is no need for our savings and investments to evaporate like American capitalism.