Close your eyes and cover your ears…

An editorial by Chuck Young,

I am writing today about a letter that an investment bank sent to all of their customers (see below for a copy of the letter). This letter was sent to a relative of mine, who upon receiving it asked me to review it for her. After I read this letter I was shocked at the inferred meaning that seems to be in this letter. Which is: don’t confuse yourself with the facts, leave everything to us. In other words, don’t get educated on what is happening in the world.

The title of the letter is "Weathering The Storm" and was received by my relative just a few weeks ago. The very first paragraph of the letter states that "in difficult financial times like this the best thing you can do is to remember your financial goals, turn off the financial news channels and be patient". The letter goes on to say "I don’t want you to get confused by all the frantic news you are hearing in the media so let’s discuss the ‘Credit Crunch’". The author goes into a very short description of what CMO’s and CDO’s are. But the author fails to discuss the impact that the ‘credit crunch’ may have on the economy, or the extent of the losses that banks and mortgage companies have already reported, and the possibility that the losses could extend much further.

The author describes that the stock market action is "… a correction", and that they are a normal occurrence in the markets. The author is correct in that corrections are a "natural part of the markets". But he or she fails to mention in the letter why the market for the CMO’s and CDO’s has collapsed, no mention of the declining housing market which the Chief Financial Officer (John Stumpf) of Wells Fargo Bank said on November 14th 2007 that the housing slump was far from over and was the worst since the 1930’s Great Depression. No mention that mortgage lender CountryWide Financial said on July 24th 2007 that prime mortgages are now suffering losses  and that it is seeing housing price declines at a level not witnessed since the Great Depression. And what about the potential that the United States could be heading into a recession? Nope, no mention of that either.

It is my opinion, that the author of this letter wishes for their clients to remain in the dark, keep the TV off so that you don’t learn the additional facts of what is going on. For if they learn the facts about how bad the financial markets are in this country they may want to withdraw their money from the bank. What if an investor at this bank decided that upon reading the Wall Street Journal, or watching the financial news channels for the monthly Government data on the housing market conditions decides that they wish to put their money somewhere they feel it will be safer? That is their right to do, but for a bank to tell their clients to "turn off the TV" and "read a good book" is an insult on the intelligence of their clients.

The writer says that the global economic growth is good and states that 120 countries have growth at a rate of 3.5% annually. But what about the economic growth of the United States? Even Ben Bernanke, Chairman of the Federal Reserve, said in testimony to Congress last month that the United States economy was slowing. The author fails to mention that as well. And because we are in a ‘global economy’ now, when the United States’s economy goes down, there is the potential for the growth rates of other countries to also be impacted. But the author does not mention that either.

If I had money being managed by this bank, and I got this letter, my personal response would have been to close my account immediately. For I am an intelligent person, and to tell me to "read a good book" or "go for a walk" is an insult. The author says "Of course there are no guarantees and past performance is not an indication of future performance", but why tell your clients to turn off the TV and go read a book? Are you afraid that if they learn the facts that they may wish to withdraw their funds and invest them in safer money market accounts or perhaps Certificate’s of Deposit (CD’s)? Be fair to your clients, don’t tell them to close their eyes and ears. It is interesting that the company did not even date or sign their letter.

NOTE: I will send this editorial to ‘First Citizens Investor Services’ for their comment. Any response to my editorial they wish to provide I will publish here in verbatim in fairness to them.

 

Click here to view letter