(Published) FALL, 2008
A MAIN & WALL ALERT!!!
RE: GLOBAL FINANCIAL CRISIS
Don't Drink the Kool-Aid This Time...
Step Back and Think for Yourself...
The WORLD is NOT Coming to an End, BUT....
The Times They are a'Changin...
CHANGE...IT's all around us...It's happening on WALL STREET and ABROAD, it's affecting MAIN STREET and It's being Demanded in WASHINGTON. We're in uncharted waters so forget the charts, the charts won't help you here, the Titanic had charts too . The Winds of Change are Shifting. It's a paradigm shift and you are watching it play out in real time. Who needs reality TV? The Good News is, With Change Comes Opportunity. What we have here......when you look at WALL Street, MAIN Street and The GLOBAL Economy......is a "Ball of Confusion", that is only now beginning to be sorted out with the help of an intermediary, the GOVERNMENT, In GOD We Trust. GOD Help Us.
When it comes to the economy, the current bailout and stimulus is nothing more than a short term emergency stabilization package to buy some time to sort things out. The real problems are much larger. For the economy to sustain itself and grow, we need to generate cash flow from organic growth (real money) instead of asset leveraging and government handouts (phony money) and that requires real economic activity. Businesses that can produce things of real value and are competitive in the global economy, and jobs, ALPHA jobs, that can provide sustainable incomes and thus a continued demand for goods, services and investment. Therein lies the problem. Where will the demand come from? The party is over. Unless you shut down the internet, globalization is here to stay. Where will real jobs come from, what type of jobs will they be, what skills will they require, what are they worth, what will they pay. The private sector needs to be revitalized. If the government does not provide the proper incentives for risk taking, competition and innovation, capital will become invisible (ie. hoarded) and we are headed toward socialism. This is a multi-year transition and we're going somewhere new. For the economy to function on all cylinders and the stock market regain its footing, the banking system needs to do its job. It needs to be a facilitator of commerce in the economic system instead of a predator. Therein lies the problem. To do this, much of the financial system needs to be reconfigured so companies compete and are rewarded for succeeding in that capacity and those that can't, allowed to fail, not recapitalized or nationalized. Forget about Fort Knox these clowns hit the US Treasury with either their stupidity or charade, pick one, there is clearly something wrong here. That job makes Oceans 11 look like a convenience store holdup. This change needs to happen so a new model and a new culture can emerge, one that facilitates productive economic activity and rewards shareholders, management and workers for their value added. The current system is clearly broken, it is dysfunctional in that capacity, trying to recapitalize it will not solve the problem. It's not just about bad assets, in many cases it's about incompetence or arrogance, the wrong incentives and flawed or outdated business models, that has led to wealth destruction instead of wealth creation. The bailout lets us play another day, but when it comes to the economy we are in the first inning of a brand new ball game. The new Administration is just coming to bat. Those looking for a quick fix and a sustainable recovery, may be disappointed, the future is far from certain, watch the VIX, listen to the markets, that's money talking. What we have here.....when you look at MAIN Street, WALL Street and the ECONOMY, is a consolidation pattern with a downward bias on the long-term Globalization Chart, with a bottom yet to be found.
How long will this take and how bad can it get before it really turns around? What will the world, the country, the economy and the financial system look like in six months, six years? Who will be the winners, Who will be the losers? Where will the leadership come from and what direction will it take? Will it work? Where will it take us? How can I protect myself ? How do I position myself to prosper? Don't focus on the daily charts, you'll miss the big picture, the market action is likely to continue to be bipolar until the economy can find some traction. It's now an Obama O'conomy. What will be different, what will not? The answers to these questions will dictate where real money is made and lost in the years ahead. Oprah may be on to something with Dr. Pink - it's going to take some right brain thinking to sort this one out. Therein lies the opportunity.
Stop staring at the shrinking pie chart, stop day-trading google, and get out the chessboard Grandpa, we have some right brain thinking to do. For the economic system to expand organically, it has to stay private and the financial system needs to be Modular (competitive, vibrant, Alpha driven) instead of incestuous to function properly, that means the repeal of Glass -Steagall needs to be reversed. That's the weak link, there is no quick fix, it's a structural problem and it will take time to straighten out. If we can't get on that path after all the government spending, the economy will stagnate or continue to contract, paper money will depreciate and all hell could break loose. Either way, we are going somewhere new. It will be the job of the government to incubate a new competitive and productive culture at all levels of society. If they can't, all we will have is a dream machine and a game of three-card Monte. Hopefully, we can get there, this can still be America, but given the current political, economic & social structure of the country, the possibility of this happening any time soon is ZERO. The ultimate question is; How long will it really take; How bad can it really get and: How much will it really cost before we do? I'm rooting for the home team, but my gut tells me it will take some time to get the ship right side up. As the global economy evolves, everything is getting sliced and diced repackaged and repriced, this time, it's going to be about real cash flow, the real value of assets and the real price and value of paper money that will drive the process. The times they are a'changing, as an investor, you'll need to play this one different. Start thinking Modular Grandpa.
To get you started thinking for yourself, go to MAIN & WALL TV and listen to George Soros w/ Bill Moyers (smart guys with grey hair who have been around the block) or Peter Schiff, who has been right on, and you'll be on your way, or simply give us a call and set up a free, no obligation appointment. We're here to help you think for yourself and get you out in front of the crowd.
Bob Sefcik, President/CIO, MAIN & WALL Financial Advisors, Inc.
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