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Minyan Op-Ed: More On What The Markets See


The U.S. may be at the beginning of its own crisis, not at the conclusion of someone else's.

Hi All,

I sure hope Minyan Derk's faith in the market is rewarded. Even if I'm a little short and losing money, the world is just an easier place when everyone else has a job.

I did want to point out though, that while "emerging market debt and Japanese real estate exposure" may rhyme with "sub-prime"-- the difference is that this time it's U.S. debt and U.S. real estate.

The "Crisis of '98" was the U.S.' eventual recognition of someone else's pain. In the case of Russia/Thailand debt, their equity markets had already sustained a near 90% loss by the fall of '98. In the case of Japan, the real estate "crisis" which had been unfolding for close to ten years (with another five to go), resulted in a 68% slide in its equity market from the peak in '89 through the fall of '98.

Sadly, my sense is that we in the U.S. may be at the beginning of our own crisis, not at the conclusion of someone else's. Instead of looking for a rally, I would be wondering whether we are more like Japan or Thailand. That should give us some feel for the scale of our own market's current vulnerability.

I would also wonder how long it will be before Russia,Thailand or Japan feels our pain. Since their marginal growth results largely from our demand, it probably won't take years as it did for us to feel theirs. I doubt their sooner-than-later recognition of our "crisis" will affect the inevitable impact to our equity values, but it might just accelerate the rate at which the decline occurs.

And were such a large event to occur, it may well be accompanied by some rule changes "for the public good." This Fed and Treasury have already shown a creative bent during crisis situations. Just a word of caution to those loading up on gold-- and shorts in general. Gold can be seized (or otherwise encumbered) and short trading suspended in the name of "national interest." So even if you are right, you many not walk away with much if the pain to the public becomes too great. You can call foul, but who would care?

Minyan Bruce
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