Well... Yes, And Here We Go Again*

There are two ways to view yesterday's financial meltdown: (1) this is simply a large correction in a normal bear market; or (2) a fundamental change in our financial system. If you believe the first, investors prepared to buy and hold for the long-term will enjoy significant returns. Global de-leveraging is only just beginning, banks are crashing but governments see the world on edge and will work to pull it back somehow. If the second, however, then we are headed into a near-unstoppable deflationary bust, similar to Japan in the '90s. If so, then earnings forecasts are not worth their paper. That is why equities and corporate bonds cannot find a floor, commodity prices are in free-fall, and ultra-safe government bonds, especially at the short-end, are so expensive.

During the past two weeks, equity markets have suffered some of their largest falls ever, including '87 and the Great Depression. What is certain is that there will soon be a tremendous rally - just as there was during the Great Depression. The 1930s saw nine of the 10 best days for US stocks ever recorded. None of those rallies, however, was sustained.

I love the Fleet Street photograph of a stressed-out Wall Street trader screaming (or crying) into his head-set staring, presumably, at the Big Board. This as dated as a toaster at the bank: securities trade electronically, no longer requiring a physical presence.

"Buy the rumours, sell the facts"
source? Wall Street mantra

* Hunter S Thompson, "The Great Shark Hunt"

Empty warehouse image from richstone.org