Where We Are and Where We're Going
Nobody said it was easy.
No one ever said it would be this hard.
- Coldplay
As last year drew to a close, we revisited our 2007 themes and weighed them in kind. Many of them came to fruition, others were early, but most hit the mark.
When we entered 2008, we offered a fresh set of forward-looking expectations. With a conscious nod that we must stay humble or the market will do it for us, it’s time for some reflection as we cast an eye towards the home stretch.
Theme 1: Hedge Funds Buying Brokers
January thought: The critical issue facing financial institutions after years of engineering and risk recreation is the solvency of their balance sheets, particularly if they're forced to move Level III assets back onto their books.
Look for large, well-capitalized hedge funds to take selective stakes in troubled brokers as the financial continuum comes full circle. 
Update: We offered in July that during the recession of 1989-1991, 25% of the financial universe disappeared but in the midst of what was an entirely more problematic credit crisis, only 8% evaporated. That chasm has since narrowed.
We’ve indeed seen investments by private equity firms and hedge funds. The TPG investment in Washington Mutual (WM) and Lehman Brother's sale of Neuberger, Berman to Bain Capital and Hellman & Friedman come to mind.
There’s a new world order on Wall Street, one where the industry itself has been called into question. I foresee further mergers as a function of need as companies strive to survive. There will be fewer, more regulated, less-leveraged institutions once this consolidation process completes.
Bank if America (BAC), JPMorgan (JPM) and Wells Fargo (WFC) -- and now Citigroup (C), or so it seems -- have been circled as survivors, but that doesn’t mean they’ll prove to be profitable investments.
Theme 2: Migration Toward a Middle-Class Mindset
January thought: As Kevin Depew wrote on Minyanville, "If the '90s were about wealth, accumulation and consumption, 2008 will continue the mean reversion toward something altogether more austere, if not more sensible. Debt reduction and the rejection of (and guilt projection toward) materialism will continue what began in 2006 and 2007 as meditations on not just doing more with less, but doing less... period."
Update: The last few years highlighted the chasm between the “have’s” and “have not’s”. While the former middle class has struggled for some time, the comeuppance of the upper echelon has arrived. The flashy rides and outrageous spending habits that were badges of arrival during the era of consumption now serve as hollow reminders of misplaced priorities.
The short-sale ban shifted the construct of capitalism when it suspended the free market system. One of the unintended consequences of that action will be the destruction of wealth across the financial continuum. Few people on Main Street will shed a tear for them, but the implications for spending habits and the perception of wealth will be long lasting.
It’s been our view that the economy has long been in a recession, one that’s been masked by the decline in the dollar and skewed by the spending habits of a slimming margin of society. The voluntary thrift that will now manifest as a result of this culture shock will permeate an already fragile socioeconomic structure.
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.
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The view from where i sit (lowest middle class)
is the cancer has been eating at america for the last 20 years give or take a bit and now the driver of the car is ripping down the road and the canker has bit into a portion of the body that is likely to prove fatal so the end result is the dreaded car crash as said driver is incapable of controlling the vehicle anymore
At the end of the day, many middle and lower class Americans may have nothing except low credit scores...Car crash for sure!
JPM
You are selling yourself short on #9. InBev's purchase of Budweiser certainly qualifies as a foreign purchase of a franchise property.
KSH
Firstly, thank you thankyou for all your insights, perspectives, honesty and humor.
I have been an avid reader from the Land Down Under for the last couple of years and absolutely love your your work.
I found you in a link from a very large mainstream site that has market prices and news and have been hooked ever since.
The fact of where I found you guys is my only slight concern, as mainstream news tends to not want to hear too much
from guys like you, yet you seem to get some what of a fair go.
Wow! It's game on at the moment. Halftime in the Grand Final(Superbowl to you guys). Scores are locked.
The coaches are having heart attacks trying to figure which play to put on next.
You can smell the fear of losing excreting from the players.
Only a couple of people in the world KNOW who is going to win. ie the owners of the NFL.
And their not even at the stadium!
5 THINGS I NEED TO KNOW. or maybe more.
Who owns the fed?
CHASEing mother M with a gutful of CHEMICAL, SACHS full of gold, shiti CITI? All together now.
Who tells the fed what to do? The government? Flipside
In the last 18 months how many trillions of dollars have the feds around the world pumped into the financial markets?
Makes the bailout look like a teaspoon full of ice cream after a 5 course banquet!!
How much does the fed hold in deposits? None?
Where do they get their money from?
Do they pull it out of their a, or mid air? One of the 2
The hand that lends is always above the hand that borrows. I borrowed that line.
99.99999% of banks around the world borrow.
Please if I am a deer with no eyes(No Idea) please correct me.
If a business is in 9.5 trillion dollars debt, is the only way out to increase that debt? Huh
Was it only 3 weeks ago that Georgey boy, teacher Ben and Sachs full of gold Hank said everthing is beautiful?
Are they either dumb as dogs--t or bald face liars? I don't think they are that dumb.
Funny how in 3 weeks they go from everything is beautful to if we don't do this now and I mean now the world is doomed.
Funny, I am am still here, you guys still there?
Tell me, should businesses that need credit to pay empolyees wages be allowed to even operate?
Tell me would the heads of banks rather see their business go bankrupt rather than have their exorbatant salaries and bonuses reigned in?
Why would you want total indemnity from prosecution when you are going to "save" America, if you didn't think it was fraudulent?
Isn't it funny how banks all over the world have let themselves become so intwined with each other that if a few big wigs fall of the cliff the rest get dragged over too.
If everyone in the world went to the bank tomorrow to withdraw all their money, how many would receive their money?
About 3%
The beauty of the fractional reserve system.
How long do you think 700 billion would help?
A week or 2.
I can't understand how trying to get banks to lend more is going to fix anything when banks lending money is root of problem.
The hand that lends, lets the money out, lets the money out, lets the money out, then, it scrapes it all back in.
Weath is not destroyed, it is just transfered.
The MONEY C H A N G E R S playing tag, and America........... your it.
Thanks again Todd and the crew.
You guys are awesome and if you ever make it down under drop me a line.
Come over for a barbie and I'll shout you a few beers.
Cheers
Go, you good thing! (My wife has an Aussie pal).
You hit the nail on the head. And, as Americans, the joke is on us. Funny thing is that everyone is yelling and screaming as if there is anything to be done about it. Looks like it is time to move the empire to the east (China) and maybe a chunk south (Brazil).
In the 1990's the experts said we did not need information jobs in a service economy, so the information jobs went overseas to slave labor.
In the first decade of the 21st century the experts said we did not need service jobs in a finance economy so the service jobs went overseas to slave labor, or the slave labor simply came here illegally.
Then in 2008 the finance economy collapsed because from day one the experts were simply fools paid by swindlers bent upon strip mining the functional economy that used to exist by bribing elected officials and trotting 'professors' with 'theories' in front of cameras to discuss 'globalization'.
And then there was nothing but printing presses printing money.
