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A tough day on Wall Street

As I write this editorial, Wall Street is being hammered. Investment bank Lehman Brothers Holdings Inc., an organization that has been in existence since 1850, has just filed for bankruptcy and Merril...


September 1, 2008  


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As I write this editorial, Wall Street is being hammered. Investment bank Lehman Brothers Holdings Inc., an organization that has been in existence since 1850, has just filed for bankruptcy and Merrill Lynch, a mainstay of corporate America, has been taken over by the Bank of America, ostensibly to avoid a similar fate.

To make matters worse, insurance giant American International Group or AIG is facing collapse as a result of the ongoing sub-prime mortgage crisis.

It does not take long for the pain to begin. Within minutes of the opening bell, the Dow Jones drops 300 points and stock markets in Canada, Europe and Asia all drop sharply. The losses mount throughout the day.

SmallCapInvestor describes it as a ‘financial rout,’ while Wikipedia reports that “former Lehman Brothers workers were shown leaving the Lehman Brothers building in Times Square, New York, with boxes of their belongings. Lehman Brothers (LEH) shares tumbled 80% in U. S. pre-open trade.”

Morgan Housel, a contributor with The Motley Fool, urges readers to buckle up, grab a drink and stay calm. This is a good time to remind yourself of a cardinal investing rule — it’s never a good time to panic, she writes in an article entitled Black Sunday on Wall Street.

“Lehman has ended –the world has not. Nonetheless, it is also important to realize the severity and ramification of these events. It’s perfectly healthy for excessive speculation to get purged out, but in this case, the purging went into overdrive. The chickens tried to come home to roost …. They just got slaughtered by a mob of paranoid investors along the way.”

Marcus Droga, a Private Wealth associate director with the Australian investment services firm The Macquarie Group writes that “you’ve probably seen more in one day of financial history than we’ve seen since the great crash of 1929. I’m not suggesting the U. S. market will crash tonight, but in terms of landmark events, it’s an historic day.”

Not everyone considers the situation to be as dire. Among them is Torontobased Charles Whaley, who founded ProfiTrend Enterprises (PTE) in 1989 a company that provides research and consulting services for Canada’s financial sector as well as tools and information resources for investors.

He points out that it is hard to call something a crisis now when the problems with asset backed commercial paper started well over a year ago.

“Nothing is new today other than one investment bank (Lehman) going into bankruptcy and one being bought by another (Bank of America/Merrill- Lynch),” says Whaley, who has a long history of investing in stocks, options, bonds and other securities.

“There is no “Wall Street Meltdown”… just another routine bear market that happens to be led lower by financial services companies this time around.”

Is it? If consumer confidence diminishes, it could conceivably have a direct impact on any number of industries ranging from steel to automobiles and structured cable and wireless, the subject of this month’s cover story.

Earlier this year, I wrote in this space about the opportunities that still exist despite all the gloom and doom caused by a downturn in the economy. There is no doubt, for example, that WLAN is in growth mode. Infonetics Research is projecting double-digit annual revenue growth expected through 2010 as “end-user organizations across most verticals adopt WLAN equipment.

Much of it will come down to attitude. The winners will be those firms that maintain and increase their existing cabling, networking and telecom budgets even when the much anticipated recession hits land.