Shell Shocked, by John Stephenson
This is an excerpt from Shell Shocked: How Canadians Can invest After the Collapse, written by John Stephenson.
Canada gets no respect! For as long as I can remember, we've thought of our home and native land as a sleepy branch plant economy. Anyone with any ambition had to head south of the border to make a fortune.
Canada was just too small, too conservative and too unproductive an economy to play with the big boys. Yes, the United States was it and we, as Canadians, had to just thank our lucky stars that we happened to live right beside such a big, successful and generous neighbour.
But Canada is rising. Everything you've heard about Canada's supposed mediocrity is about to be proved wrong. All of the things the naysayers have said are exactly why this is the country best positioned to survive the collapse of the Western world's financial system. Too conservative?
Too risk averse? Our cautious nature helped keep our chartered banks out of major trouble when the world was lapping up the toxic securities that American investment bankers were out there peddling.
Too weak on productivity? While our national productivity has been nothing to write home about, at least it wasn't based on a lie-like in America. No global brands? Just you wait. Research In Motion is on the move and so, too, is Royal Bank of Canada, which is picking up the star employees of disgraced Wall Street giants. Our lack of entrepreneurial drive is another shortcoming the pundits like to hurl our way. Maybe, but that dog-eat-dog type of entrepreneurial zing that is so much a part of American life was the Achilles heel of its investment banking industry. Best of all, Canada's focus on natural resources is exactly what will be needed when the dust clears on the collapse and the startling truth becomes plain: economic power has shifted away from the United States to the emerging markets in Asia.
Despite all this, investors are petrified. They have seen their wealth destroyed and their prospects dim in a global financial tsunami. We have witnessed the greatest financial cataclysm of our lifetimes. We don't know how this train wreck will end, but we are certain of one thing - it will end badly. At the heart of this disaster was a very simple supposition that turned out to be tragically flawed. Upon that flawed supposition, financial products were designed, lies were told and whole industries were created. When the lies and promises were finally exposed for the hot air that they really were, the punishment meted out was devastating. Globally, trillions of dollars have been eviscerated in one dramatic wave of selling after another. Stocks, bonds, commodities, currencies, real estate, you name it and it's gone up in smoke. Years of work, good intentions and dreams have all been lost in the ether. No wonder investors are shell shocked and scared to death.
To invest, you need to trust. You need to trust that the system is fair. You need to trust that there is at least a reasonable expectation of earning a decent return for all of your troubles.
Yet, all of the experts misled you. They failed to warn you of the land mines that were planted on the road to investment riches. Instead, they fed into your greed and told you what you wanted to hear, rather than what you needed to hear. For the most part, these experts were employed by the very same people who were the architects of this disaster - the Wall Street wizards. These wizards lied to you, they lied to their clients and they lied to one another. It was a very big lie and a very convincing lie, but once the market figured out that there was something rotten in the state of Denmark, the jig was up.
In punishing session after punishing session, markets around the globe have created the most massive fire sale the world has ever seen, sending valuations crashing to multi-decade lows. In less than three months, stock exchanges around the world shed more than $34-trillion - the largest and quickest loss of stock market wealth ever.
Plunging stock values are one thing, but what's keeping us up at night is not just our declining net worth - it's the impact this financial crisis might be having on the real economy. We've always heard that when America catches a cold, Canada gets the flu. Is it really going to be any different this time? In America unemployment is up, consumer confidence is down and the auto industry is almost sure to collapse, leading us to wonder if Canada can be far behind.
Yet, Canada is doing just fine. While it is only natural to be cautious, there's no reason to be paralyzed by uncertainty. On just about every measure, Canada is ahead of the pack. We have the best fiscal situation of any G8 country. Our banking system, while not unblemished, has survived the meltdown and is in an ideal position to cherry-pick the cream of the crop globally. Canada's housing sector, while over-valued, never saw the excesses so prevalent in the United Kingdom and the United States. We have a national health care system, our government sector is strong and our reputation globally has been enhanced rather than diminished with this ordeal. And, in the emerging world order, Asia will be ascending and America will be falling. A rapidly industrializing Asia will be hungry for all things Canadian. Our much maligned resource sector will be front and centre in this rising wave of prosperity led not by America but by Asia.
The biggest casualty of all has been the American mystique, which has been shattered. The United States, as the largest, most successful economy, was until recently the envy of the world and the safe haven in times of trouble. Nothing symbolized American power and success more than the Wall Street banks and the masters of the universe who inhabited them. But after the collapse, a truth became clear. Like America's citizens, these financial institutions were living well beyond their means. Their collective credit cards were maxed out and when problems started to appear, the banks fell fast and hard. The speed at which the long-established banking system unravelled caught even the most seasoned investors by surprise.
Excerpted from Shell Shocked: How Canadians Can invest After the Collapse. Copyright 2009 by John Stephenson. Excerpted with permission of the publisher John Wiley & Sons Canada, Ltd.