How did we get here?
What is causing all the market turbulence? What began simply enough as a spike in access to easy money due to low interest rates over a number of years – has spiraled into a full-blown financial disruption. This disruption froze up credit markets due to a large unwinding of bad debt that lingered in complicated and layered investment vehicles in the U.S., largely built from the sub-prime mortgage market and other leveraged loans.
These loans were packaged up as investments products and sold off in other parts of the world. Hence the rippling and global effects of this turmoil.
The availability of cheap credit and loose lending standards, combined with misguided or absent policies all collided to create a situation that allowed the sub-prime mortgage market to occur in the first place. This market essentially sold loans to prospective homebuyers with poor credit ratings at high rates these homeowners could not hope to pay back. Enter mass foreclosures, bankruptcies, and a serious erosion of housing prices in America.
These events have created tremendous uncertainty in the marketplace and as access to capital has dried up, sentiment has shifted from one of confidence to one of fear. This has resulted in a general tightening in consumer spending which is having an impact on the broader economy and translating into declining growth, employment, and sales.
Today, efforts to keep the flow of capital going are starting to take hold with programs and incentives that are expected to eventually change the direction of sentiment, the markets, and the broader economy.
This has been an incredible time in the financial markets, and a challenging one for all investors. When he wrote, “Tough times never last, but tough people do,” author Robert Schuller observed that to a large degree it is not so much a function of having problems – a universal condition – that is so difficult for people to overcome, but rather the attitude towards those problems that can have a tendency to exacerbate the situation.
Scott Penman, B.Comm (Hons.), CFA
Executive Vice-President and Chief Investment Officer
Scott has 28 years of experience in investment management and global capital markets.
"Throughout history, markets have gone through many challenges – only to gain new ground and reach new heights."
