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Five Things You Need to Know: Financial Cataclysm Feared


With wealth and lifestyles evaporating right before our eyes, The Fear is really the only tangible thing we can hold onto.


Kevin Depew's Five Things You Need to Know to stay ahead of the pack on Wall Street:

The SeaEagle Yacht Tender... BBC Predicts Cataclysm... It's Happening?... What Does It All Mean?... The Fear...

The SeaEagle Yacht Tender

While global markets plunge, I have spent all day riffling back and forth between pricing inflatable lifeboats and making a list of things to hoard. I'm leaning toward the SeaEagle Yacht Tender, the 8.10yt model with pivoting oarlocks. The problem is it weighs nearly 60 pounds and the literature claims it takes 5-7 minutes to inflate.

Even though I live barely 100 yards from the East River, the probabilities are 3-5 I would be savagely beaten and robbed no fewer than three separate times in the 10 minutes it would take me to inflate and launch the thing. Who needs that kind of hassle?

That attitude may strike you as unnecessarily careless, especially given the fact there will be outrageous bumper-to-bumper traffic and gridlock when everyone decides to flee Manhattan through the bridges and tunnels at the same time. But I'm a gambler by nature, and when we reach the point, as we did this weekend, where drunken photographers from the BBC are staggering around Manhattan on a Saturday night asking passersby to pose for a photo essay on the "Financial Cataclysm Affecting New York City," it's time to take the other side of that wager.

BBC Predicts Cataclysm

It was just after 9 on Saturday night in midtown near Lexington Ave. and 53rd when a rumpled blob stumbled out of the shadows in front of me and my two companions and started in on some kind of weird talk about financial cataclysms. He was clearly drunk, out of breath and waving a camera around.

"What? Slow down. What is it?" I demanded.

"I'm from the BBC," he huffed, "and we're taking photographs of New Yorkers for a photo essay on the Financial Cataclysm..."

I immediately cut him off. "Whoa, you need to stop right there, man. You can't be jumping out of shadows with a camera in New York City and mumbling crazy talk about financial cataclysms, especially in your state."

He just laughed and yammered on about the photos ("it will only take a moment") and the looming cataclysm and illustration of the New York Face, the pure image of the crisis. This was an increasingly dangerous situation. One of my companions was finally able to reason with him, and as a gesture of good faith gave him a cigarette to help him calm down and shut up.

"I would pack this photo gig in for the night," I warned him one last time as we left, but the whole incident felt spooky and half-finished and left me feeling jittery and unsettled for the remainder of the weekend.

It's Happening

There's a crackling nervousness around the city these days, not so much a sense of foreboding as the feeling that something bad no one can really explain is happening Right Now.

Bloomberg, Oct. 6, 2008: "Deflation May Be Next Threat as Commodities, Asset Markets Sink"

"As Federal Reserve Chairman Ben S. Bernanke and his global colleagues fight the worst financial crisis since the 1930s, one danger is looming larger by the day: deflation."

Indeed. That's the heart of it. Deflation (Five Themes for 2008). That is what is unfolding right before our very eyes. So few are around that have ever lived through it no one can really explain what it means or how to deal with it (Debt Crisis vs. Liquidity Crisis).

Meanwhile, the next phase of the crisis is already beginning, and for those with jobs that are not on Wall Street, this is the one that matters most: the consumer phase. The American consumer comprises more than 70% of Gross Domestic Product and nearly one-fifth of global GDP. So far we have only experienced the real estate de-leveraging process, the one that impacts Wall Street most directly. We have yet to reach the full Main Street impact that entails the unwind and deleveraging among all types of consumer loans. But we're getting closer.

For stocks, the probabilities of a full-bore king high rally are growing. But that's going to be a fleeting, if effervescent, conclusion to this first, brutal stage. I was going to catalog all the historic "first time ever" events that occurred today with respect to stocks but lost interest after about a half hour. The list of statistical anomalies was overwhelming. That's to be expected as we are truly at an historic juncture; living through a massive deflationary debt unwind.

What Does It All Mean?

What does Deflation mean in practical terms? Here's an anecdote from the New York Times on Sunday ("End of an Era on Wall Street: Goodbye to All That"):

"I had a rental on the market for $11,500 a month. On Monday, we got an offer for $8,500, which we countered with $9,500. They came back with $8,000," she said. "I told them they were going the wrong way but they said, because of what was happening in the financial markets, this is our new offer. And guess what? The owner accepted it."

Welcome to the new world of deleveraging and downward price discovery. Welcome to the new Stealth Depression. In a practical sense, for anyone who doesn't make a living in financial markets, the best course of action is to get out of revolving debt, repair your balance sheet, protect your assets and come back to the market later.

But despite this "Stealth Depression," or "Deep and Prolonged Recession," whatever characterization makes you feel better, don't drop whatever it is you're doing. Don't get up. It's not going anywhere. It will wait. It's just going to sit over here in the corner and read a magazine while you do whatever it is you need to do.

"A Depression doesn't run hot and fierce like some crazed meth burner. A Depression is methodical, purposeful, patient. It will build a shelter out of tree branches and newspaper, light a small, well-contained campfire and wait you out, brother. While you feed on the empty calories of denial and popcorn, it will quietly gather shards of broken dreams and fashion them into a terrible weapon of blunt force reality."

"It's a hell of a thing to call this day and age the next Depression. It's dangerous tinfoil hat territory inhabited mostly by screeching lunatics and volatile nutjobs. But by the time they get squeezed out by reputable folks the whole gig will be up, the circus will have left town."

Indeed, I wrote that nearly three months ago, before we had seen nearly 20% of the 50 largest financial services firms in the world at the beginning of the year go away. Shockingly enough, that's where we are today.

But how can this be? To understand the mechanics of this, the nature of it, let's look back at the last Great Depression.

Despite the seeming enormity of it in retrospect, the stock market crash of 1929 barely even registered for most Americans, not like today. The day before the crash, Time Magazine's Oct. 28, 1929 issue was business as usual; national stories, Washington stories, a review of the newest plays opening in Manhattan, a piece on a cat washing contest in Kingston, NC.

A week later, in the wake of the stock plunge, the cover story was as far from a piece on crashing share prices as you could get - a profile of a man named Samuel Insull, the "financial father of the Chicago opera." The crash did make the magazine, of course, second billing in the Business section in a piece titled, "Bankers v. Panic." The next piece, however, was about a $2.5 million investment by a Wall Street investment bank in orchids: "Last week, however, to the orchid industry went 2,500,000 Wall Street dollars, not squandered, but carefully invested."

Heh. Yes, the dream dies hard, doesn't it?

The Fear

Three months ago we found ourselves slowly sidling up to The Fear. Now it's jumping out of shadows and threatening us with a royal stomp down, as our friend from the BBC illustrated.

With wealth and lifestyles evaporating right before our eyes, The Fear is really the only tangible thing we can hold onto. The Fear is always worse than the actualization. The Fear feeds on potentiality, unimaginable potentiality.

Now, there are two ways to look at that. One is to despair over our misfortune at finding ourselves in the wrong place at the right time, taken along for a ride on this wave past the cresting point, and the other is to consider what adventures await on the other side. I'm in the second camp because I am an optimistic person by nature, or at least a defensive pessimist, and also because I understand that despite it all, we will continue to live our lives, raise children the best we can and find ways to make the best of whatever situation we are in.

During the first Great Depression, times were tough for many people, but then, as now, the vast majority of us will adapt and continue on and soon take for granted the change in lifestyle that may (or for a select few may not) entail.

Meanwhile, I'm going to remain calm and write more letters.

Dear BBC -

I have no idea what kind of shady, slapdash operation you people are running over there, but when any news organization stoops to sending drunken photojournalists out to stagger around Manhattan street corners at night, hounding innocent passersby like an earwig and begging them to pose for a photo essay illustrating "The Financial Cataclysm Impacting New York City," whatever train they think they're running is clearly off the rails.

This is a damn serious crisis and the last thing anyone in this city needs is some belligerent Gin-head waving a camera around and slobbering gibberish about financial cataclysms and "the face of New York."

Your photog is fortunate. I can be a violent and ill-tempered person, especially when surprised after dark, and if I hadn't been in the company of two normal people I would have instinctively rained furious blows of capitulation down upon the miserable bastard.

But that's not why I'm writing. I'm wondering when this photo essay is scheduled to run? It sounds vaguely amusing, in a sinister champagne-cake-and-Schadenfreude cocktail way, and I want to be among the first to belly up to that bar, as usual.

Keep up the good work, and let me know if you could use some inside perspective for the captioning part. I am a writer.

Kevin Depew

No positions in stocks mentioned.

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