Unprecedented

Unprecedented. Watching the financial markets is watching history in action, I told my sons that they will study this point in time when they are in college ten years from now. It is good to hear politician’s like McCain encourage the people, we all need it, the fundamentals of the U.S. economy are strong. No, this isn’t referring to actual fundamentals such as housing prices, employment trends, and GDP growth, it is referring to the “get it done”, “go for the gold”, “where’s the opportunity” mentality of the American worker and businessman. This crisis will get worse before it gets better, we are experiencing an unprecedented deleveraging of the economy and the bottom line truth in the process is there are losses that need to be taken, wealth lost. As the smoke clears in 2009-2010 what will the financial landscape look like? I would suppose that it will look a lot like a forest after a raging fire storm. There will be few trees standing, those that are will have been the strongest with the firmest root systems, roots that spread out far and wide. Those anchored by few roots (less diversification/significant risk concentrations) or that were rooted in shallow soil (built on leverage) will be no longer. Credit will be tighter and harder to get, renting will become more accepted because while a individual might have the cash flow to service debt they will also need cash for a down payment, think 20% down payment as standard. Operating companies, real estate developers, and others will need real equity, and lots of it, to fund new ventures. An economy built on a firmer foundation but one, as least for a while, that will grow at a slower pace.