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Thinking About Bears

by Fred Cederholm

Cutbacks and layoffs are not isolated incidents. They are becoming norms as corporate America battens down the hatches and prepares to “sleep thru” the malaise of the coming quarters.
I’ve been thinking about bears. Actually I’ve been thinking about the stock markets, the wider economy, competition, dis-employment, and hibernation. Last week saw the continuation of the global roller coaster ride in the equity markets. This has gone well beyond a simple market correction where the values of securities re-price themselves downward to reflect current estimations of future cash flows from operational profits (or losses). We are not seeing a valuation turmoil that happens once in a generation; the current situation occurs once in a century. We are looking at a very long haul here.

You see a “correction” is defined as decline of 10% from recent equity pricing highs. We have gone way beyond that. A “bear market” is defined as a decline of 20% (or more) in multiple broad market indexes. We have gone way beyond that -- with the market indexes testing declines of 40% to 50% from the highs. Historically... this has been common in past panics, depressions, and major recessions. We are witnessing a widespread pessimism where many investors, anticipating further losses, are motivated to sell with the negative sentiment feeding on itself in a vicious circle.

We are also seeing cash strapped investors, mutual funds, hedge funds, and pension funds unloading large blocks of investments because they have no choice. They need the cash now to fund obligations! They, too, are wary of yet further losses in the coming months AND coming quarters. This present situation (and the perceptions of where we are headed) is not going to change anytime soon. Cash and liquidity are now king, but this is NOT the “liquidity” being hyped by Treasury Secretary Paulson or FED Chairman Bernanke. Their liquidity is one of having the funds available to promote more debt. It is not a liquidity of having assets which are cash, or readily convertible into cash. This is a critical distinction which must be at the forefront as we evaluate the financial gurus in DC and Wall Street in their lame attempt to spin away and justify their “fixing” of our current problems. I repeat: “liquidity” of assets is a far cry from the “liquidity” which only facilitates more debt.

The bear concept and metaphor goes well beyond its use in describing a downward trend in equity market indexes. There is a bear mentality which applies to the wider economy. Here, the major corporations are preparing to hibernate and weather a prolonged cold and dark spell. It is evident that they do NOT expect a quick turnaround by their daily announcements of cutbacks and layoffs. The terminations are not isolated incidents. They are becoming norms as corporate America battens down the hatches and prepares to “sleep thru” the malaise of the coming quarters. A generation ago, such draconian dis-employment waited until after the Thanksgiving and Christmas holidays. Not this time!

America once prided itself on its competitiveness. Now the competition is not to create some new product or expand into a new area of production using their work force, or their product engineers. The corporate competition in America now strives for getting their piece of Uncle $ugar’s bailout monies using their DC lobbyists and their DC attorneys. They are also going beyond begging for monies to save themselves; they are effectively seeking handouts for mergers and acquisitions. Uncle $ugar is not only getting into the retail banking business, Uncle $ugar is now tapping the “full faith and credit of the future taxpaying generations” to underwrite soiree/ junkets (make that sorties/ missions) into the realm of investment banking. Ubi est Mihi? (Where is mine?) is the new battle cry!

Uncle doles out mega BILLIONS in newly printed currency. Uncle creates mega BILLIONS in tax credits. Uncle assumes yet still more mega BILLIONS of obligations on the backs of the credit worthiness of the American public at large. Just how have we as a nation benefited from such profligate generosity? These actions will only buy time and shift responsibilities from the culpable parties to the American public at large! I fear it is the corporate and the financial bears who will bunker down in a sheltered hibernation thru the coming prolonged economic winter while the general public is left to fend for themselves out in the cold.

I’m Fred Cederholm and I’ve been thinking. You should be thinking, too.

Copyright 2008 Questions, Inc. All rights reserved. Fred Cederholm is a CPA/CFE, a forensic accountant, and writer. He is a graduate of the University of Illinois (B.A., M.A. and M.A.S.). He can be reached at

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This story was published on October 27, 2008.