For the Quarter ended September 30, 2008
 
It has been a quarter where superlatives such as “unprecedented” and “historic” have often been inadequate to describe the turmoil that has impacted investors around the world. While many markets have been experiencing a prolonged downturn, until July, Canada’s markets had enjoyed gains resulting from the extended run-up in oil prices, commodities and materials. Due to the ever-increasing concerns regarding the severity of a US-led global recession, the anticipated decreasing future demand for oil and commodities resulted in significant declines in prices, with oil dropping dramatically from its near US$150 per barrel mark to below US$100 during the quarter, bur with significant volatility along the way.

 
The financial sector, particularly in the US, saw scenes of chaos as continued fallout from the US sub-prime crisis claimed several investment banks, the world’s largest publicly-listed insurer, two US mortgage corporations, and a number of regional banks. The list of companies impacted this quarter by the continuing crisis reads like a “Who’s Who” of the financial services sector: American Insurance Group Inc; Lehman Brothers Holdings Inc., Fannie Mae, Freddie Mac, Washington Mutual, and Merrill Lynch. Of Wall Street’s original investment banks, only two now remain, and both Morgan Stanley and Goldman Sachs were granted permission to change their status to bank holding companies, allowing them to take deposits, but with the stiffer regulatory oversight that comes with their new status.

 
The carnage was not just restricted to US companies – in Europe, Germany’s Dresdner Bank was taken over by Commerzbank, Britain’s largest mortgage lender HBOS was taken over by Lloyds TSB, Bradford & Bingley was nationalized, an there were bail-outs for Belgium’s two largest banks, Fortis and Dexia.

 
As the third quarter came to a close, US Treasury Secretary, Henry Paulson, put forward a dramatic and wide-ranging proposal to offer a broad-based strategy to rein in the crisis. Called TARP (Troubled Asset Relief Program), the measure proposed US$700 billion of funding to buy back troubled mortgage portfolios from banks in order to free up liquidity. Being an election year, and also facing the perception that the crisis is one impacting Wall Street and not “Main Street”, the measure was rejected by the US Congress, causing stock markets to plunge once more. While a revised proposal was being formulated, as the quarter closed it was not clear whether this new proposal would be the tonic markets were looking for.
 

This article provided courtesy of Credential Asset Management Inc.

 
 
 
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October 15, 2008