Being struck by a meteorite
“The financial crisis is not a single event; it is a meteorite strike, which is multiple”. These are the words of the American Paul David Schaeffer, guest speaker at the ALFI-NICSA conference in Luxembourg. Mr Schaeffer is well known in the financial services industry. His background in government policy includes senior positions with President Jimmy Carter and Senator Edward Kennedy. He says that the crisis is far from over.
Paul David Schaeffer, is President of ReFlow Management, a provider of liquidity solutions for mutual funds and UCITS. According to him, there are numerous reasons why we still have a long way to go. The crisis occurred in the most regulated and sophisticated markets. It was not economic, but deeply structural and the issue at stake was insolvency and not credit.
He regrets that the US “has run out of spare tires”; the Government has few options given slow economic growth, a weak securities market, structural long-term unemployment, extreme deficits at every level of government and little policy consensus. “
Another weak point: there is still a severe problem in the US on the banking side. “We have a rising number of bank failures, while some of the leading names are no longer independent or no longer exist”.
Barack Obama has no Dick Cheney
Paul David Schaeffer presented the achievements and mistakes of President Barack Obama. Starting with his strong points: “He pushed for health care reform, financial reform and tax cuts. Furthermore he “repared” international relations by moving away from unilateral politics and he tried to sort out an Afghanistan strategy”.
One of his biggest weaknesses, however, is that he has not proven able to seize a disaster and turn it into an opportunity like his predecessors did, for instance after September 11 and the fight against terrorism. The biggest frustration for President Obama, though, is the fact that unemployment hasn’t moved despite the stimulus package.
Mr Schaeffer pointed out some other weak spots: “President Obama did not have Dick Cheney as a vice president and he stopped campaigning, which you cannot do in the US. The only consolation is that right now all the politicians in the US are out of favour: 47% of people say that it doesn’t matter who is in Congress.”
Election Day in November
Important elections are coming up in the US in November with changes in the Congress and the House of Representatives. Some of the hot button issues are the role and size of government, the creating of jobs, Bush’s tax cuts expiring at the end of the year and the fight against terrorism.
From a mutual fund perspective, flows have come back. “But when you dig into these flows you see that a big shift has occurred. Money is flowing into fixed income products, meaning that people are choosing less risky assets”.
Mr Schaeffer underlines that companies are rationalising their product lines and flow volatility remains high in the aftermath of the crisis.
From a market point of view, another change is happening: the rise of Exchange Traded Funds. According to Schaeffer, not every company needs to develop these products, but every company needs to have a strategy with regard to ETFs and to understand their impact on the markets. CW