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The Great Expression

By

Opportunity awaits those who are proactively prepared.

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"Time is the only critic without ambition."
--John Steinbeck

Wall Street is dusting off its history books for lessons in how to deal with the financial crisis. Traders are quickly finding that this script has never been written.

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, the new world order has emerged.

Fannie Mae (FNM), Freddie Mac (FRE) and AIG (AIG) have been absorbed by the government.

Bear Stearns (JPMorgan (JPM)), Washington Mutual, Wachovia Bank (WB) and Merrill Lynch (MER) were consumed by competitors.

Lehman Brothers ceased to exist altogether.

There are many ways to view this seismic shift. There's 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 happen in the first place).

And then there's anticipation, as we cast an eye forward and look for the phoenix that will 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 endure the other side of the business cycle, an unenviable retrenchment that politicians and policy makers 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 longest recession ever The Great Depression lasted 44 months. In the thirteen recessions dating back to 1929, the median S&P bottom occurred 58% of the way through the recession.

If our current conundrum is on par with the worst financial crisis in history in terms of duration and we assume that the business cycle peaked in the fourth quarter of 2007, we could extrapolate that the stock market bottom will arrive in the first quarter of 2010.

The media portrays the Great Depression as a time when everyone in America stood on street corners waiting 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 a manifestation of economic deterioration, much like the modern day sub-prime mortgage implosion.

Social mood and risk appetites shape financial markets, they always have and they always will. The current stock market malaise is, in many ways, simply catching up with preexisting societal acrimony.

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No positions in stocks mentioned.

Todd Harrison is the founder and Chief Executive Officer of Minyanville. Prior to his current role, Mr. Harrison was President and head trader at a $400 million dollar New York-based hedge fund. Todd welcomes your comments and/or feedback at todd@minyanville.com.

The information on this website solely reflects the analysis of or opinion about the performance of securities and financial markets by the writers whose articles appear on the site. The views expressed by the writers are not necessarily the views of Minyanville Media, Inc. or members of its management. Nothing contained on the website is intended to constitute a recommendation or advice addressed to an individual investor or category of investors to purchase, sell or hold any security, or to take any action with respect to the prospective movement of the securities markets or to solicit the purchase or sale of any security. Any investment decisions must be made by the reader either individually or in consultation with his or her investment professional. Minyanville writers and staff may trade or hold positions in securities that are discussed in articles appearing on the website. Writers of articles are required to disclose whether they have a position in any stock or fund discussed in an article, but are not permitted to disclose the size or direction of the position. Nothing on this website is intended to solicit business of any kind for a writer's business or fund. Minyanville management and staff as well as contributing writers will not respond to emails or other communications requesting investment advice.

Copyright 2011 Minyanville Media, Inc. All Rights Reserved.

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