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Stock Market Meltdown

Written By Brian Hicks

Posted September 15, 2008

Here’s a different take on an old Warren Buffett joke:

Question: What’s the quickest way to become a millionaire?

Answer: Start out as a billionaire and own a Wall Street investment firm or a mortgage bank.

That adage has never been truer than right now.

As you read this…

  • Lehman Brothers… gone!
  • Bear Stearns… gone!
  • AIG… fighting for its life!
  • Freddie Mac and Fannie Mae… bailed out!
  • Washington Mutual… grave being dug!
  • Wachovia… could be next!
  • UBS… nearly gone!
  • Morgan Stanley and Goldman Sachs… running for the hills!

A year ago, the combined market cap of Freddie Mac, Fannie Mae and Lehman Brothers was $165 billion.

Today? $1.093 billion.

Welcome to the reverse "wealth effect."

And the end of the bleeding looks like it’s nowhere in sight.

America’s greatest industry – finance – stands at the precipice of the abyss.

Banks aren’t lending. They’re filing for chapter 11.

As a result, Americans aren’t spending.

And since 2/3 of US GDP is consumer spending, where’s the economic growth going to come from?

Jim Rogers, a legendary investor who has been 100% spot on in his prediction of a financial meltdown, sees more pain for US markets.

From 2010, Fannie and Freddie will have to shrink their portfolios by 10 percent a year until they reach $250 billion, to reduce the risk to the taxpayer, according to the Treasury plan. But this may put additional pressure on the housing market, Rogers said.

"That’s going to also ensure that house prices continue to go down. It’s going to be harder and harder to get a mortgage."

Investors should not pin their hopes on this year’s presidential election for a solution to the problems, as none of the candidates is likely to find one, Rogers said.

"This is a big huge mess and neither one of them has a clue what to do next year. It’s going to be a mess."


But dear reader, there’s always an opportunity in a crisis. Always. It’s as axiomatic as death and taxes.

Bull markets never end. They just change asset classes.

By the way, the market’s most speculative sector – biotech – is up 18% this year. Compare that to the Financial Sector (XLF), which is down nearly 35%.


BBH Chart


Go figure.


Brian Hicks
Founder, Angel Publishing