Friday, July 27, 2007

Conundrum Solved?

Has the great Wall Street conundrum been solved? I wrote 2 days ago about the disconnect between deal fever and the viability of financing those deals, and the decline in the market yesterday may have validated my words. The market was down 447 points at one point in the afternoon and it was a little unsettling to watch such a free fall.

Is it over? Wall Street is notorious for having a selective memory so maybe the buy on the dips investor will drive things back up. But remember 300 points is not what it used to be. The market is down 4.8% from the high reached a week ago but that statistic is deceptive since it is from the intra day high of 14,121.04. The market closed that day at 14,000.41, giving us a correction of 3.9% from that close.

I had some serious flashbacks yesterday to the late 1980's, when Wall Street was riding high. It was the age that gave us "Bonfire of The Vanities" by Tom Wolfe, and the movie "Wall Street" directed by Oliver Stone. Everyone remembers the famous "greed is good" line from that film but the one I remember was spoken by Martin Sheen who played the father of Bud Fox.

"Stop going for the easy buck and start producing something with your life. Create, instead of living off the buying and selling of others."

We thought it was the age of excess but now 20 years later we know it is nothing compared to today.

I remember sitting at my desk when the news came out that Michael Milken had earned $550 million in one year heading up Drexel's junk bond unit. Today that might not even get you a table during the evening rush at the 21 Club. And then one day in October 1989 it came to an inglorious end when the leveraged buyout of United Airlines fell through. It was a watershed event that precipitated a 7% drop in the Dow in one day.

Does Chrysler equal United Airlines? With hindsight it just might be.

1 comment:

Adventures In Money Making said...

i think it will be.

my biggest concern is that the subprime lending debacle will spread to other sectors and cause a complete loss of liquidity, causing a 30s style depression.

how has your fund fared the past few days?