financial crisis

Page1of4

September19,2008

TheCurrentFinancialCrisis(inplainEnglish)

ByBrentWagner

Vice-President,NationalSales

UnitedFinancialCorporation

Wellit’suponus….rethetimeswheninvestorswithanyexposureto

financialmarketswatchCNBCmoreinoneweekthanthey’vedoneinfiveyears,grindtheirteethintheir

sleepandsaystothemlves“Ican’trememberwhenit’verfeltthisgrim”.Thebottomlineisthatit

e,whilestrikinglyclotothetechmeltdown

andthereforeborderlineexcruciating,isreallynodifferentthantheothers.

Withtherelentlessbarrageofnegativeandsometimescontradictoryinformationcomingfromthemedia–

andtheinvestmentindustry–wethoughtitwouldbeagoodtimetotakestockandanswersomeofthe

,howdidwegetintothismess?Howdo

wegetoutofthismess?Ismymoneysafe?And,whatlessonscanbelearned?

Howdidwegetintothismess?

AfterthetechmeltdownandtheSeptember11attackarlierinthisdecade,ment

loweredinterestratestohistoriclowsinordertofendoffaprotractedrecessionandadeflationaryspiral.

ult,manyloansandmortgageswere

giventallStreet

“financialengineering”,whichesntiallypackagedandrepackagedthequestionableloansandsold

themtoinstitutionsandindividualsacrosstheglobe.

Inevitably,whenthemusicstoppedandborrowersbegantodefaultontheirloans,oneofthelargest

tiesbegan

,ofcourexacerbatedtheproblemcausingamassivecorrectioninU.S.

Page2of4

housingprices–ialinstitutionsholdingthebadloans(orpackaged

versionsofthem),we’verecentlyen,

ger

problemthatnowexistsisthatsurvivinginstitutionshavebecomehighlyskepticalaboutlendingtoeach

ckofcreditavailabilityhasputmorefinancial

institutionsindirestraightsandthreatensaglobaleconomicslowdown.

Howdowegetoutofthismess?

Attheriskofdodgingthequestion,we’llsimplysaythatanynumberoffactorscouldleadtoaclimaxof

dbetherecentannouncementoftheFedworkingonclotoatrilliondollar

dbethattheWallStreet

landscape,alreadytransformedforeverinanunprecedentedrashofbankruptcies,bailoutsand

acquisitions,,itcouldsimplybethatinvestors,

bothinstitutiorankly,it

doesn’’simportantisthat,thoughtheeventsthistimeareunique,thebroadercontextisthe

encewillberestoredandmarketswillreach

adiversifiedportfoliotocashatatimelikethiswillonlyrvetolockinlossand

preventinvestorsfromthebenefitsofaninevitablerecoveryinfinancialmarkets.

Weoftengetaskedthequestion“When?”

Thisquestionwewillboldlydodgewiththeanswerof“Wedon’tknow”.Anyonewhogivesyouan

unequivocalansweronthisiitherdelusionalorpsychicandwouldn’tlikelybetellingyouanyway.

They’dbelivinginacastlesomewheresurroundedbyrvantsmakingbillionachdaytradingfinancial

spectiveonthe“when”question,plearefertotheparagraphaboveandtakecomfortin

afewstatistics:

ondayonOctober19,1987tooktheDowJonesdownby22%ket

actuallyclodwithamarginalgainthatcalendaryear.

gestonedaydropintheTSXin2008sofar,ay,January

21,theTSXdropped605pointsor4.7%.ThemarketclodonFriday,January25witha157

pointor1.2%gainfortheweek.

ek’sunprecedentedcourofeventstooktheS&P500downby7.6%andtheTSXdown

by7%asofWednesday’s(September24)sfinished

higherattheendoftheweek.

Page3of4

Ismymoneysafe?

Ofcour,xtentthatyou

haveawell-diversifiedportfolioandalong-termtimehorizon,ave

heavyexposuretoanarrowportionofanymarket,especiallyifyourwindowisshort,theansweris

alwaysmorequestionable.

Usingthisanalogy,tbe

instructivetoknbanks

CitigroupandBankof

epositsformastablesourceofcapitalforthecompaniestofund

arison,investmentbanksdiversifytheirbusinesslinestoa

muchlesrextentandrelyonshort-termsourcesofcapitalfromotherfinancialinstitutionsinwhatis

calledthe“overnightmarket”.Anotherdistinctionisthatinvestmentbanksgenerallyumuchhigher

lbankmayleverageitscapitalbabyasmuchas10toonewhereas

investme

invementbanks.

Thebottomlineisthatyourbankdepositsaresafeandhistoryshowsthatyourportfolio,ifit'swell-

diversified(thoughlikelyreturnchallenged)ywhenthathappens

cannotbeforetoldbutwithhistoryasourguideweknowthatallpastbearmarketshaveeventually

recoveredtoachievenewhighs,lreadyhaveawell-

structuredportfolioandyourfinancialgoalshavenotchanged,atthispointyourverybestcourof

actionistostayinvested,andifyou'refortunateenoughtohavesomecashlyingaround,you'dbewell

advidtoputittowork.

Whatlessonscanbelearned?

,withrespecttotheglobalfinancialsystemandcond,

withrespecttotheendinvestor.

Page4of4

Thetermmoralhazardhasbecomealmostclichéetheoveruoftheterm

ersarepayingtrillionsofdollarsto

coverWallStreet’erformittakes,thereshouldbeandwillbe

tighterregulationinthefinancialindustrytopreventthetypeofleverageandconcentrationofriskthat

caudthismessinthefirstplace.

Sadly,whenitcomestotheendinvestor,ho

decidedtocapitulatetowardthebottomoftheearly2000’sbearmarketarestilllikelyunderwaterintheir

id,thelessontobelearnedwouldbesimplyto

putthoughtandstructureintoadisciplinedinvestmentstrategyandsticktoitthroughthickandthin.

Ironicallythebestinvestorsareoftenthowhoneverlookattheirstatements,eitherduetoadistinct

lackofinterestortimetoworryaboutit.

Thereisaveryrealdangerthatinvestorsallowemotionstoclouddecisionmakingduringtimeslike

ighlyimportantduringregularmarketconditions,adherencetodisciplinedinvestment

eroptions

simplydonotmakelogicaln.

Weemployaholisticwealthmanagementphilosophythatencompassacustomized,disciplinedand

dinancialadvisorcan

helpyouansweranyquestionsyoumighthaveandbringarationaleperspectivetotherecentevents.

tasalesprospectus,norshoulditbeconstruedas

rUnitedFinancialCorporation,noritsaffiliates,ortheir

respectiveofficers,directors,employeesoradvisorsareresponsibleinanywayfordamagesorlossofanykind

Financialand/orUnitedFinancialanddesignisatrademarkof

UnitedFinancialCorporation.