Stay the course, Forchuk says

The current recession is just another economic blip and not the end of the financial system as we know it, according to one insurance veteran.

In a presentation to the Independent Financial Brokers’ Spring Summit, Rick Forchuk, associate vice-president, individual distribution, Empire Life, said comparing the current recession to the Great Depression is akin to comparing the detonation of box of dynamite in Nevada to the atomic tests of the 1950s.

The dynamite blast may in fact be the biggest explosion in the area since the last atomic test, but the comparison is ludicrous.

He blames the media — Forchuk started his career in newspapers and radio — for making the credit-based recession appear worse than it actually is. It’s part of human nature to focus on bad news, and the media knows that ratings and circulation are driven by this fascination.

Even the impending bankruptcy of General Motors should not be taken as a sign of economic apocalypse, he said. Since the end of the Second World War, there have been numerous automakers that failed.

The collapse of Tucker, Studebaker, Hudson and American Motors were all proclaimed as disasters at the time, and yet the North American auto industry as a whole did not collapse.

During the Depression, when a bank failed, depositors lost everything. Today, the Canadian Deposit Insurance Corporation guarantees $100,000, while the U.S. Federal Deposit Insurance Corporation ensures $250,000.

There is currently an estimated $4 trillion U.S. in cash and near-cash sitting on the sidelines of the market, as investors wait for volatility to cool. During the Depression, the only cash available to the economy was that printed by the government.

Unemployment reached 25% during the Depression, but today hovers at 8.0% in Canada, and 8.9% in the U.S. Forchuk suggested that this means 92% of Canadians are employed. Ignoring for a moment that this does not take into account students or those who have given up looking for work, the fact remains that the vast majority of Canadians who want jobs, have jobs.

“Our market has never been with the unemployed,” Forchuk said. “The fact that 8% of the people in Canada are without jobs really doesn’t have much impact. We already know that advisors today are only tapping about 11% of the existing market.

“[We have] that huge middle market, full of people who never get called, and yet you have some people like us sitting around whining and complaining that [they] can’t do any business because unemployment is up.”

Virtually every advisor has at least one client who invested a large sum mere weeks before the markets collapsed, Forchuk said, and it may be hard to look these clients in the eye.

“You know what? They’re over 21, and they know that they bought a speculative investment — unless you said to them ‘this is guaranteed’ and I know you didn’t,” he told the audience. “The best thing to do with these folks is to communicate that to them: we did the right thing, at the wrong time, but the good thing about that is times always change.”

He pointed out that insurance always sells better than investments in difficult times, and that advisors who have kept their skills sharp on both sides of the business will have an easier time in a recession.

(05/27/09)