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Financial Crisis, Consequences and Investment Opportunities

Stock-Markets / Credit Crisis 2009 Jan 27, 2009 - 10:06 AM GMT

By: Money_and_Markets


Best Financial Markets Analysis ArticleSharon A. Daniels writes: It has been said that the Chinese alphabet uses the same character to represent both the words ‘crisis' AND ‘opportunity.' While this isn't exactly correct in a literal translation of Mandarin — the meaning comes close enough.

Financial markets are a lot like this too. We have all heard: “for every buyer, there's a seller.” In other words, one investor's panic can also be considered another's profit opportunity.

After facing the most turbulent financial markets in generations, most investors I speak with today are all too familiar with the ongoing CRISIS impacting their wealth.

American's Net-Worth Plunges at a Record Rate ...

Americans are suffering the steepest decline in wealth since the Great Depression — estimated at more than $13 TRILLION of lost assets and climbing. 1

However, I don't hear much talk about the profit OPPORTUNITIES in this market, but they're there… if you know where to look and have prepared your portfolio for what comes NEXT .

Before we look ahead at what to expect in 2009, let's briefly recap the current crisis, discuss the likely consequences, and then I'll tell you where I see opportunities…

The Crisis

As we are all painfully aware, we have witnessed the steepest bear market decline last year since the 1930s — the S&P 500 Index fell a stunning 52% from the October 2007 high, to its lowest point ( so far ) last November— the THIRD WORST bear market in history for U.S. stocks. 2

The reason for this epic loss of wealth: in a word, CONFIDENCE — or rather a dramatic loss of confidence and faith in our financial system.

Years of lax oversight by government and financial industry regulators helped inflate a massive bubble in housing. The evidence: an epidemic of no-documentation “liar” loans, ZERO down payments, and “ninja” loans (no income, no job or assets).

The bubble was aided and abetted by an out-of-control shadow banking system that quickly sliced-and-diced these shaky loans into derivative securities and sold them around the world. Questions emerged about how to properly account for theses derivatives, with adequate collateral, but regulators just passed the buck. And the so-called “independent” rating agencies stamped them with “AAA” seals of approval.

This whole process was fueled by decades of rising leverage in the financial sector and on consumer balance sheets as well.

When the music stopped — as it always does — the entire house-of-cards came tumbling down with astonishing speed. The resulting bear market in both housing and equities has so far wiped out ONE-FIFTH of American's total net worth and put the country into a DEEP recession.

The Consequences

We could be facing multiple years of adversity before our economy rids itself of excess leverage, before bad debts are liquidated, and before a sustainable recovery can begin.

We are witnessing nothing less than a sea change in the way Americans think about their spending, savings, investments and debt.

Total U.S. Debt as a % of GDP

Total U.S. debt outstanding is at a record high today — nearly FOUR-TIMES the size of our entire economy — even more than during the Great Depression. 3

As a result, we are bound to experience a more frugal economy in the future. Stunned by a huge decline in wealth, worried about jobs with layoffs mounting, and with too much debt already — American consumers will be retrenching for many years — a very DEFLATIONARY process.

As a result, financial markets may not soon return to business as usual. What were once normal relationships have been turned upside down. Going forward, borrowing will be frowned upon; high debt levels will be a curse. Dividend income may again replace capital gains as the most important component of an investor's total return.

We're sure to see much more government regulation and oversight now that the “barn” is empty. Tighter security and banking regulations are inevitable. This will be a burden on many businesses — but could be a blessing in disguise for investors.

The consequences of this unprecedented economic and financial sector disruption will impact your investments for many years to come. The key question on many investors' minds right now: “How long will it last? And what can I do to help protect myself?”

The Opportunity

At Weiss Capital Management, we believe it's absolutely essential for you to carefully review your entire investment portfolio to prepare yourself for this sea change in financial markets and the economy.

Now is the time for a thorough and objective review of EVERY single item in your portfolio — to make sure you're not sitting on any hidden time bombs and to help you avoid MISSING any major opportunities ahead. That's what we do for our clients each and every day, and that's why I want to personally invite you to a very special event:

Crisis, Consequences & Opportunities:
Weiss Capital Management's 2009 Outlook

Date & Time: Wednesday, January 28, 2009 — 12:00 p.m. Eastern Time
Presented by: The Weiss Capital Management Investment Committee

Joining me for this event will be a select group of experienced Weiss Capital Management investment committee members. These are the key individuals who have helped steer our clients through a tumultuous 2008 and did an outstanding job — with better performance than many mutual funds and market indexes last year.

I cordially invite you to reserve your ‘virtual seat' at our conference room table and listen in as we explain in detail our economic outlook and market forecast for 2009 and beyond. In today's turbulent market environment, the insights and analysis that our investment committee shares with you could help safe-guard your wealth and possibly lead you to identify new profit opportunities in the year ahead.

I believe it's absolutely essential for you to join us for this special event. That's why there is no cost or obligation. Just click here to RSVP and let me know that you'll be joining us for this important briefing.

What you learn could help protect and grow your wealth in 2009 and beyond!

Best wishes,

Sharon A. Daniels

Sharon A. Daniels
Weiss Capital Management, Inc.

Weiss Capital Management (an SEC Registered Investment Adviser) is a separate but affiliated entity of Weiss Research, the publisher of Money and Markets. Both entities are owned by Weiss Group, LLC.

This investment news is brought to you by Money and Markets . Money and Markets is a free daily investment newsletter from Martin D. Weiss and Weiss Research analysts offering the latest investing news and financial insights for the stock market, including tips and advice on investing in gold, energy and oil. Dr. Weiss is a leader in the fields of investing, interest rates, financial safety and economic forecasting. To view archives or subscribe, visit .

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