"It's not a question of enough, pal. It's a zero sum game, somebody wins, somebody loses. Money itself isn't lost or made, it's simply transferred from one perception to another."--Gordon Gekko
I wrote a column in 2006 called The State of the Art
. It discussed the shifting paradigm for the financial industry as it sat at the crossroads of technology and regulation
Two years later, that new world order has emerged.Fannie Mae
(FNM), Freddie Mac
(FRE) and AIG
(AIG) have been absorbed by the government, Bear Stearns
(JPM) and Merrill Lynch
(MER) were consumed by competitors and Lehman Brothers
(LEH) has ceased to exist altogether.
There are many ways to view this seismic shift. Anger (as expressed by Main Street), sadness (as savings are destroyed), fear (as reality bites) and confusion (as folks try to understand how this could ever happen).
And then there’s anticipation, as we cast an eye forward and look for the phoenix to eventually arise from the scorched earth.
The unfortunate capital market destruction is an inevitable comeuppance, the cumulative result of risk gone awry. It’s been percolating under the seemingly calm surface for several years, magnified by financial engineering and consumed by an immediate gratification society.
The socioeconomic consequences will be pervasive as we enter the other side of the business cycle, an unenviable retrenchment that politicians and policy makers have tried so hard to avoid. It’s certainly scary as new beginnings always are.
Therein lies the opportunity.History Doesn’t Always Repeat but it Often Rhymes
The media portrays the Great Depression as one where everyone in America stood on street corners or waited in a bread line. A closer look shows that similar to today, economic hardship for the middle class began well before 1929.
History teaches us that the stock market crash didn't cause the Great Depression, the Great Depression caused the stock market to crash. It was simply a manifestation of economic hardship, much like the modern day subprime mortgage implosion.
Social mood and risk appetite shape financial markets. The recent stock market malaise is, in many ways, catching up with societal acrimony.
We’ve got a few lean years ahead but that’s nothing to fear.
In fact, it’s a healthy and positive progression.
To get through this, we need to go through this. As painful as the process is, it takes us one step closer to an eventual recovery.
I view the Great Depression as the framework for optimism. Most of society worked, great discoveries were made and formidable franchises were established.Disney
(DIS) built a global franchise through that period.Hewlett-Packard
(HPQ) was born on the back end.Texas Instruments
(TXN), Tyson Foods
(TSN) and Continental Airlines
(CAL) were birthed.
Indeed, if the greatest opportunities are bred from the most formidable obstacles, we’re about to enter a most auspicious era.
For the Love of the Game
Wall Street will take some time to recover as popular perception shifts. The opposite of love isn’t hate—it’s apathy—and we’re still in the middle of that psychological migration.
The 90’s were about wealth, accumulation and consumption and we’ve now entered a period that is entirely more austere, if not more sensible.
Debt reduction and the rejection of materialism will continue to manifest as we come to terms with doing more with less.
Flashy rides and big-ticket items that were once badges of honor now serve as hollow reminders of misplaced priorities.
Humility, once viewed as weakness, will be embraced.
Doing for others—rather than asking what others can do for you—will become more commonplace as people learn to appreciate what they have rather than constantly keeping up with the Dow Joneses.
It’s a lesson I learned long ago and I’m a better man for it.
The industry is evolving and once it’s done, it will look drastically different. After a gut-wrenching progression of consolidation and failures, we’ll be left with far fewer players and a more regulated process.
There will always be a need for broker-dealer intermediaries but their roles will shift as a function of customer need. Access to information, total transparency and human capital will be central tenets of the success stories.
This mess is a bitter pill to swallow, particularly for the mainstream American who doesn’t know a derivative from a dividend. We can point fingers and wallow in the “why” or take a deep breath and begin the process of recovery.
Something good comes from all things bad and the greatest wisdom is bred as a function of pain.
It’s unfortunate that the structural foundation of the global capital market system had to shake before people—and policy makers—paid attention but it is what it is and we’ll do what we must.
Surround yourself with people you trust. Practice risk management over reward chasing.
Preserve capital, reduce debt and become financially aware of your surroundings. It won’t be an easy road but it won’t be impossible either.
For as my grandfather Ruby used to tell me, “this too, shall pass.”
The doors to Festivus 2008 are officially open! Lock your spot for the critter trot as last year's soiree sold out. This is our annual event to commingle our professors, partners and Minyans while chowing down and listening to live music. The very best part? It's for the kids in the good name of my grandfather.
Want top traders to sit at your desk and share their insight and ideas?
Minyanville's Buzz & Banter - 14 day FREE trial
No positions in stocks mentioned.