Wall Street had a very busy weekend trying to salvage the flailing financial giant Lehman Brothers, while Bank of America was busy acquiring Merrill Lynch. Monday and today were days of reckoning for the financial markets, and you can bet that this week will be one in which we see the financial implosion in U.S. banking and brokerage that many have been expecting for some time. What we are experiencing is unprecendented, possibly a once-in-a-lifetime series of unfortunate events I certainly doubt that this is the end of it.
What should you do? For one thing....do not panic. The short term pain will no doubt be felt and your resilience as an investor will be tested. But, this painful process should be a sort of “clean up” after the storm and crud left by the credit crisis.
Lehman’s demise, like Bear Stearns and Merrill Lynch, were fueled by greed and high stakes borrowing during the real estate boom and it's time for our government to clean house with the weak and feable...not to mention the really, really greedy.
While the turmoil in U.S. financial markets could turn frightening this week, the good news (if you can call it that) is that Wall Street’s players will now be smaller in number, less leveraged, and more transparent (or so we hope).
Broader efforts to tackle problems plaguing the entire industry are underway, including the FED's expansion of short-term lending to banks. Additionally, a group of 10 commercial and investment banks including, Goldman Sachs, Citigroup, Barclays and Morgan Stanley, agreed to put up $7 billion each to create a $70 billion lending facility that institutions facing liquidity issues could tap.
We are NOT planning to divest any of our client portfolios of any positions right now and remain confident that, while the rest of the year and possibly next will certainly continue to be challenging, the capital markets will continue their long term upward trends once this mess is cleaned up, if history is any indication.
