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by Bill Singer
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Geithner and the Future of Wall Street: A Forbes Panel
Written: November 24, 2008
Intelligent Investing All-Stars
Your Move, Mr. Geithner While Barack Obama picks his top guns, the Forbes.com Investor Team searches for the bottom of the market.
With Bill Singer, Matthew Lloyd and Greg Ghodsi
A Special Message from Bill Singer: Folks, I've been involved in a number of conferences, panels, and roundtables during my nearly three decades on Wall Street, but this three-way exchange with Matt Lloyd and Greg Ghodsi is truly one of the most thought-provoking pieces of all. If you truly want to get a sense of what's on the minds of industry pros these days, and you want some insight as to why fingers are now hesitating over the order trigger (or being pressed down nervously), this is worth reading.
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Good article Bill. So you say you don't see anything new on the horizon that will be the next great thing?
I think when you least expect it, something will surprise you. I do believe it is long overdue to stop the overseas spending and start investing in OUR infrastructure. Better mass transit systems are an example of something that can add jobs and help the economy. Put more money in the average guys' pocket and hopefully he'll spend it.
Also, what about alternative energy? I'm mixed about its possibilities, especially in a timely manner, but things are on the horizon. How about healthcare? There are some incredible technological improvements happening all the time.
As for a recovery taking a long time, of course many people will agree with that. But what about this thesis: In today's technologically advanced times, where information is processed so rapidly, could market events actually occur over shorter periods of time? Instead of decline happening over 4-5 years, it actually happens in a year or two max? And, therefore, the recovery is also shortened in time? What do you think about that?
No doubt the pace of modern life has changed, but I don't see that market cycles have gotten shorter. It may appear that they have when you watch CNBC, but if you take the bird's eye view, we've had 10 years where the Dow has gone nowhere as it sorted out the irrational exuberance of the '90s. I also suspect that by trying to shorten the market cycle policy makers have only delayed the inevitable. This is going to be a nasty recesion, imo, partly because they got us out of the last recession with such low interest rates. They're going to try it again with even lower interest rates and higher deficit spending. Eventually we're going to have to take our medicine. .... Look at something unrelated to markets -- the war on terror. We wanted it to be done right away, but even with the faster pace of life today, it's going to take generations to sort out, same as the Cold War.
You both raise provocative issues and I share your interest. I think it's fair to say that computers have revolutionized the world to the extent that many things happen quicker. As such, it's an interesting point that market cycles may be shorter. Why not? On the other hand, the length of a cycle may be disengaged from its severity and although bull and bear markets could be shorter, they could also be far more volatile.
My overarching concern, which I tried to note in the Forbes panel, was a fear that the U.S. is losing its edge in innovation. We invented the car, the airplane, the television, the computer, and so many other significant products and intellectual property. We also once manufactured those creations and sold them to the world. In recent years, the manufacturing of our ideas seems to have gone offshore. My fear is whether we will also see a similar migration of the power of ideas.
Bear markets were often rescued by innovative products--be that junk bonds, high tech, dotcoms, subprime, etc.-- but those products also paved the way for the market's destruction. It's an odd symbiosis where you need to create an alternative to rescue you from the excess created by a prior alternative created to rescue you from the excess created by a prior alternative...Still, that's often what market cycles are about. However, things seem so truly devastated now, folks so disheartened, and our IB/venture capital sectors so destroyed, that you just have to wonder whether this is the time that for all the pulling on the cord, the motor just won't turn over. I hope that's not the case. But sometimes things just break beyond repair.
Here's food for thought: In today's globally interconnected world, does it really matter that something is created by the US vs. China vs. whoever? The fact is, of your equity exposure, it used to be 100% US. Now, it's widely accepted 20-25% should go to international investments. But shouldn't it be closer to 50/50? Talk about 6 degrees of separation, isn't it more like 2 now?
And as far as new innovation goes, just saw this reported on CNBC. The next thing in TV, especially sports, will be 3-D TV, without those funny little glasses. The people that follow this stuff are saying it's 5-7 years away.
The technology continues to improve rapidly. Watch any kind of interview, from local news to national news, from 10 years ago. It is crazy. It was only 10 years ago, but the picture was often grainy, people had those big ugly circular eyeglasses, and women had short poofy hair. There were no iPods, cell phones were phones, people had car phones, computers were on dial up. It's like a whole different world in just 10 years' time.
Imagine the next 10 years.
If the cycles do become shorter, the retail investor will stay away. They can't take the volatility and if the alternative is to put into a fixed rate where you see some growth year over year, I bet they will flock to that.
My BOA has the same sentiments, spears. She has been investing all of her life and told me she was finally beginning to see some progress from the hit she took in the last bear market. But here we go again.
I reluctantly have to agree with you. Going forward, people are going to place more emphasis on the return of their principal than the return on their principal.
I've actually taken the last two weeks and started planning for 09. I decided to send in my transcripts to the State Licensing dept for CPA's. I plan on getting my CPA's designation and totally transform my practice by 2011. I want to transform my business into a niche focused consultant. Have a small handful of Doc's/Dentists and set up retirement accts/insurance plans/taxes and payroll. Setup yearly contracts with one ongoing, monthly fee. Anything not in the contract would be billed separately. Help the Doc grow their practice and grow their wealth. Focus on setting up accts in destinations I like to visit...Eliminate a static office...meet at their offices or homes. Narrow my current client base down to 10-15mil in fee based accts with Less than 50 accts.
This whole correction has caused me to step back and decide where EXACTLY I want to go for the next 25 years. Less accts to totally focus my energy and efforts on and to be paid accordingly.
I think if anything was missing in my practice at Jones or now on my own was clarity. I take anyone and everyone as clients. If you asked me what type of client I would like, I could come up with one but it didn't reflect in my day to day practice. Its time to change.
Ice: I agree that MARKET cycles are quicker. The stock market fell apart this year, imo, because the invisible hand figured out in about six weeks that the real estate bubble had created this trillion dollar hole in the economy and that we are in for a long recession. Boom --- the stock market was suddenly priced for the bottom of the recession. We lost 40 percent seemingly overnight whereas maybe in the 70s it took three years.
As far as the past 10 years, yes, it appears that we've had two quck cycles. But look at the Depression era market. We think of the Depression as one cycle, but you actually had two years in the middle when the stock market was up dramatically.
I'm in my mid-40s. I've seen the PACE of life dramatically increase. For example, my kids have the Internet and calculators and all kinds of things thrown at them. But if you want to teach your kid his multipication tables, you can't speed it up. You've got to six down at the kitchen table and grind. It takes the human brain the same amount of time to learn to add as it did 2,000 years ago. You can't make them learn faster ... and I don't think we'll be able to squeeze the recovery into a six-month period.
Again, I'm old. I see the merry go around going faster but not getting anywhere.