Basics Points by Don Coxe from BMO Financials

Capitalism Faces Its Greatest Challenge

The global financial crisis that began on Wall Street could mark the end of the Reagan-Thatcher era in which capitalist economic principles gainedacceptance across most of the world.

Wall Street’s excesses and blunders sent the US and much of the world into recession. The worst month for US stocks in decades amid panic about a 1929-style collapse also proved to be the crucial factor in turning an electorally decisive 6% of undecided American voters into enthusiastic Democratic voters, electing a President and Congress determined to change the consensus on the respective roles of capitalist principles and government in the economy. Although Barack Obama’s long campaign promising change had been imprecise about just what that change would be, after the TARP (Troubled Asset Relief Programme) congresssional vote fiasco, most voters became convinced it would start with a return to pre-Reagan principles about

the respective powers and privileges of government and the markets. 

Somewhere, Milton Friedman is musing at the dramatic vindication of one of his core principles: the main problem with socialism is socialism; the main problem with capitalism is capitalists.

The tragedy is that it was one, numerically small, group of misbehaving capitalists that delivered this challenge to Adam Smith-style concepts of economic freedom as the most effective—and ultimately fairest—economicsystem.

This month we look at the investment implications of the possible repeal of

a political and economic philosophy which undergirded 26 years of global

growth—economically and in stock market valuations. We are leaving our

cautious Asset Mix recommendations largely unchanged, while looking

for the confirmation that the third Mama Bear stock market* in 35 years is

ending. We have slightly boosted our recommended exposure to Emerging

Markets, with the caveat that investors exclude Eastern Europe and Russia.

Those economies share terrible demographics and dubious economic policies.