What a week! What a week indeed!
To say that i am shocked is just a tip of the iceberg. I knew we would see more financial institutions come crashing down ever since the falls of Fannie Mae, Freddie Mac & Citigroup. However, this week alone has indicated that the American Market is still reeling from their past Sub-Prime scandal. Especially this week with the fall of 158 year old Lehman Brothers, the merger of 94 year old Merrill Lynch with Bank of America & the recent Fed rescue of AIG.
I really had hoped that we would have seen past the dark days of the market after the crazy rise in commodities as investors shunned companies stock. The markets was really beginning to pick up pace till this week that is. The fall of Lehman Brothersis indeed fascinating. A conglomerate respected giant filled with magnanimous history wiped out within a week with debts amounting close to $600 billion. To such an extent, why such a company with top minds didn’t find a way out is certainly mind boggling. Seriously, i believed they were hoping for the Fed to do a Freddie Mac and save them. Unfortunately though, Ben Bernanke had other ideas and thus Lehman Brothers which was once going at $65 a share last year is now a measly 30 cents. Declaration of bankruptcy has a devastating effect for any company, especially when you are a financial institution that’s deemed to have better financial acumen. Merril Lynch though was a tad smarter as it had been busily looking out for potential buyers to carry it’s debt and not relying on the Fed’s help. AIG was indeed lucky. Needing to find an additional $50 billionfor protection, it too was deemed to follow the fate of Lehman especially when the Fed remained quiet on the proceedings. However, we are not talking about a financial institution that simply deals with investments. We are talking about a company that provides insurance from personal, health, fire, disasters, debt to high-margin corporate insurance. If AIG fell, many other will be affected and ultimately America’s & the World economy will feel the repercussions. Thus, the Fed agreed to give a rescue package worth $85 billion. The world market are breathing a sigh of relief now and indeed prices went up with this wonderful news.
That’s the funny thing. We are talking about respected financial institutions. Companies that specialise in making money. However, they got too greedy in earning ridiculous profits. They forgo basic principles that make such institutions respected. Honour & Dignity were thrown out of the window for money. MANY financial institutions in both Singapore & the World are blinding the people. They inform investors to invest during bad market times cause of wanting to earn their commission. They encouraged investing into commodities when they know that they will be causing a great increase in inflation. Millions of lives were affected and millions other faced difficulties in buying food & oil for their daily needs.
What now?
Well, what has happened has happened for a reason. As Charles Darwin said, Survival of the Fittest. I have to agree with his theory here. Lehman and companies like AIG & Merril have to fall. It is to be a lesson learnt. To educate the people to shift their thinking and goals. To serve as a wake up call to the financial sector to be once again a proud respected entity that cared more of principles and not profits. The economy will return back to it’s prime days. We need such downturns to weed out the bad seeds and also to provide opportunities. Am looking at JP Morgan, recently an article was published in Forbes regarding the company, and i was impressed with the management team that was brilliant enough to avoid the sub-prime problems. There are also news that Barclays have bought a unit of Lehman and Morgan Stanleymight be looking for a merger. The economy will become stronger with greater financial fundamentals enforced within the company. It seems everything is in accordance to my forecast that the market will recover once the new President of the United States is appointed. I still hope it’s gonna be Obama as McCain did a wonderful move of hiring Senator Paulin.
I encourage investors to not enter the market now as it still is shaky but please do not remove your investments from long-term respectable companies that are still performing despite this shaky market. If you still wanna enter, please avoid commodities as it causes inflation and problems for the world. Do your research and invest in respectable companies that are earning profits and avoid any association with the real estate and financial sectors. Happy stock hunting people!
Fai @ ilovelookinggood
Please read my other post- J’s Wok & Grill
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