We Are Busted, But We Are Not Broken
Wednesday, February 25, 2009 | Teeka Tiwari
Bank nationalization ... wow! I mean, just ... wow. It’s a sobering moment for all involved.
I have no intention of minimizing the very real damage taking place across all income brackets the world over, but are we seeing anything we’ve never seen before? No, I don’t think so. The numbers are certainly magnified from previous bust times, but the core reasons for the break down are as old as time itself.
Which means it's fixable. We will get through this.
Bank nationalization, while abhorrent to free market thinkers (and I count myself squarely in that camp), may be the only lasting solution. The banks must stabilize their balance sheets. The constant deterioration in the value of their assets vs. their liabilities is just occurring at too fast a rate for them to keep up.
For all intents and purposes, our major financial firms are nationalized already in all but name. Unlike with other industries, a country cannot grow without a healthy banking system. This crisis has robbed more money from our economy than any war ever could. It is a direct threat to our national security and should be treated as such.
I’m not defending the idiots who created this mess. Far from it. To me, they are traitors to this good country and should suffer the same fate as all traitors.
After big busts like this, the banks typically re-liquify their balance sheets by borrowing cheap money from an accommodative Fed, and then lending at much higher long term rates. There are a couple of problems with that old plan, though ...
Long term rates are LOW, LOW, LOW. Far lower than in the last bank bust of 1991. The spreads just aren’t as big as they used to be.
The other issue is that, as we came out of the recession of ’91, we did so going into a huge expansion period fueled by quantum leaps in technology, new drug development and productivity. This created the demand for capital that the battered banks needed, and they were happy to lend it because they were making a killing on the spread between short term and long term rates.
This time is a little different.
Where is this century's transformative technology? By 2009, weren’t we all supposed to have flying cars and stasis chambers? The pace of technological innovation has slowed. The drug companies, once at the forefront of cutting edge science, have become lazy leviathans of process-driven inefficiency.
Where are the inventors? The mad men of the 1970’s, ’80 AND ‘90’S. Where are the Wozniaks, the Steve Jobs, the Michael Dells of this new century? It’s people like these who move our country forward. And Bill Gates, (love him or hate him) -- the fact is his software tools have helped hundreds of millions of people to be more productive.
It almost feels like we are experiencing an “Atlas Shrugged” moment in our country, where all the producers -- the "do’ers" of the world -- have fled.
But here is the beauty of America: we are a self correcting society. We are a nation of people who are unafraid of change.
Whether you support Obama or not, it’s pretty darn cool that a country that once embraced slavery and apartheid could move beyond that history and elect an African American President. When was the last time Germany, France or England had a black leader? Cue crickets ...
So forget the finger pointing from the Europeans. Like any jealous rival, they take a curious pleasure in seeing us stumble.
But a stumble is not a fall. Yes, we have more pain to come; there is no question. The bad real estate loans still haven’t been thoroughly purged from the system. There are millions more foreclosures still waiting to occur. Corporate earnings will still continue to be garbage for the foreseeable future, and the headlines will continue to get worse.
Don’t confuse a bust with a break. Yes, for the time being we are busted, but we are not broken!
The point of today’s article is to impress upon you that you can still make money, even in times as dire as this. Don’t let the media brow beat you into thinking that the U.S. is finished. There will continue to be opportunities to trade market volatility both on the long and the short side.
I strongly urge you to read as many of Chris Rowe’s articles as you can. This is a guy with his finger on the pulse of this market! What he gives away for free in The Tycoon Report is staggering. Educate yourself. Get some knowledge. And The Tycoon Report can help. It’s loaded with tons of free investing articles from Wall Street professionals.
You need to start taking the reins, because I can assure you that 99 out of 100 so-called professionals are simply unequipped to help you navigate these times. We at Tycoon are here to help you. We are not always going to get it right, but you can always count on getting our very best thinking in a clear and easily understood format.
All of us at Tycoon were once where you are. On the outside looking in, trying to fathom this great game called Wall Street. We’ve spent our entire adult lives engaged in the pursuit of market knowledge, and because we understand what it’s like to be an outsider, we are happy to share that knowledge with you.
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Teeka Tiwari
Chief Investment Officer
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