SmartRemarks

Boy, doesn’t that sound just too exciting for words? (Don’t drool all over your keyboard in anticipation.)

See, here’s the thing. On the one hand, an old friend had made a comment in response to my recent post about the top news stories of last year, with a link to a piece from AlterNet calling into question just how serious the problems on Wall Street really were. And I read that with some mild interest, but didn’t really follow up on it… until he shared that same link on Facebook, kicking off what became a lengthy discussion thread.

Meanwhile, on the other hand, on New Year’s Eve an entirely different old friend and I were having a semi-intoxicated discussion about the current economy, and he put forward the proposition that much of the blame for the downward spiral (on Wall Street, at least) should be pinned on mark-t0-market accounting. It was all a bit slurred, however, and didn’t quite dovetail with what I thought I knew about the subject, and I pretty much forgot about it… until the subject popped up again when he linked to an article about it in that very same Facebook discussion.

And it was off to the races!…

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Heh. It continues to be amazing, the things you’ll find looking at mutual fund reports. I got another one just the other day, from one of my funds that used to have a really solid track record (DODGX, if you’re curious).

In their introductory letter, the President and Chairman blamed the sinking Financials sector for their poor performance in the first half of 2008 (several points below the relevant indexes). But things were bound to get better soon, they said:

“We have selectively expanded the Fund’s Financials weighting because in our opinion their valuations have declined more than their underlying long-term fundamentals have deteriorated.”

IOW, their view was that the sector had hit bottom, and strong fundamentals would soon bounce it back. Already wincing, right? But wait, it gets better. How, specifically, did they act on this view? Well…

“…in the face of recent stock price declines we have added to positions in American International Group (AIG)… and started a new position in Fannie Mae in the first quarter.”

Wow. And this is what they were bragging about in a report datelined August 7th. A mere six weeks ago. How quickly things change, eh?

No wonder executives in the finance sector bring home the big bucks. No way we lowly civilians in the hinterlands could duplicate that kind of foresight. For performance of that caliber, you just have to turn to the experts.

And how did it get that way?

To my surprise and amusement, out of the reams of commentary produced over the last year or two, one of the best summaries I’ve seen showed up attached to the Semiannual Report from the mutual fund company behind some funds I own. In a “Message from the President” attached to the report, MainStay Investments president Stephen Fisher, attempting to explain why customers shouldn’t panic just because every sector of the market is tanking at once, offered a impressively succinct and logical account of just what chain of events and combination of factors created this mess. Read the rest of this entry »