Amazing Week of Destruction
In one week, we saw the equity of Fannie, Freddie, Lehman, and WaMu pretty much get destroyed. We watched these four financial companies, which once had a combined equity value of over $200 Billion recently, pretty much wipe out shareholders. $200 Billion dollars of equity gone.
To put that number in perspective, it would have been almost a 10% Total market correction about 15-20 years ago.
It is not only an amazing amount of money, it is an amazing number of important financial companies in such a short period of time. If these four, who is next??? Most very large financial companies hold similar assets. How much equity are we contemplating? Isn't the stock market an equity market????
As a nation we are watching our wealth evaporate at the fastest rate in history while Wall Street is projecting over 20% earnings growth next year....who are they trying to fool? Our home prices are crashing, so is our commercial real estate and business values.
There ain't much left after that. Especially when the economy is so leveraged. If home prices drop 40% more, ALL equity in the American home is wiped out.
When you build an economy on leverage.....deleveraging destroys the economy. We are now well into that process. Our housing is being destroyed. Businesses are being destroyed. Unemployment is skyrocketing and our municpalities are running out of money.
In this environment there are few "safe" places. America's slowing will cause the world to slow as well. The crazy part is that we are just in the early stages of this process.
You will hear terms like adverse feedback loop and others simply describing a process that feeds upon itself. Along the way, Wall Street will try to tell you we are at the bottom. Until leverage comes into balance with revenues, there will be no bottom.
At this point, we are not even close and the decay is accellerating. It seems like more and more are becoming aware of this fact. How long it will take to play out is anyone's guess. But as it plays out, expect to see lots more road kill along the way.....