It’s incredible what has happened in the last 48 hours .. and it underscores the serious situation that faces the U.S. financial markets, which of course impact the global markets as well. Over the weekend, the rumors of Lehman Brothers being in trouble came painfully true and after a lot of last minute negotiations, Sunday night Lehman Brothers declared bankruptcy. This is one of the most revered financial institutions in the U.S. – one that survived through the great depression, but couldn’t last through today’s volaility. And of course, to protect many of the other financial institutions, the government allowed a special trading period on Sunday to allow many of the companies to make trades to avoid the crushing impact of this bankruptcy. If you were an individual investor, you didn’t get this opportunity, but the big guys did. Yet another simple example of how the individual investor gets trampled when the major elephants in the market are stampeding (due to their own stupidity). Merrill Lynch is also no more — it was bought in an all-stock deal worth $50 Billion dollars by Bank of America. Who knows what that really means in terms of value, since there is a huge question on what ANY share of ANY financial stockis really worth today. Through all of this, what happens to the U.S. dollar? It continues its strength. I don’t know about you, but if an organization I was thinking of investing in had piled BILLIONS of dollars of liability and losses onto its balance sheet, and it was LOSING $400 Billion dollars or more a year (which is what the U.S. deficit is running), I wouldn’t consider that a safe investment. Yet, that’s what is happening. I believe that once the true consequences of the U.S. fiddling with the private markets (ie: backstopping the bailout of Bear Sterns and Freddie Mac / Fannie Mae), we may see the U.S. dollar take a major slide again. I think this is not just “possible”, but inevitable. It’s just a matter of time. The good news is that the U.S. has apparently decided to stop this practice, and watched Lehman Brothers fall off a cliff and not throw it a lifeline. I think that was the right thing to do, painful as it was. I wrote a few months ago about Lehman Brothers being the likely next victim in the carnage on Wall Street. It won’t be the last. As I’ve repeated many, many times, the worst is not over. The stock markets reacted like they should have today, and dropped over 500 points. Last week, when Freddie Mac and Fannie Mae were taken over by the U.S. government, the market SHOULD have dropped.. yet crazily enough, investors somehow saw this as good news, and the market went up in the U.S. It took a day before reality set in, and the next day saw a drop. What does all of this mean? To me, the critical thought here is that what we’re seeing in the markets right now is a disconnection of the fundamentals from the reality. In other words, irrational things are happening, due primarily to emotion and psychology. Eventually, this disconnect will fix itself, and things will come back to more logical places. However, until then, the volatility and risk is huge. The visibility out there is almost zero, and as I’ve said often in recent times, now is not the time to be foolish. NOW is the time to get educated, to understand how markets work, and how to analyze risk. If you’re feeling fearful or lacking any confidence in the market, how you overcome that is with INFORMATION and KNOWLEDGE. Getting educated is the fastest path to building your sense of understanding and confidence. I recently saw a video clip of Tony Robbins’ on the Today Show, which I thought was a great piece to mention. It talks about how to move past the fear and emotions when things seem disconnected or you feel like you don’t know what’s going on. Here’s the clip, which is about 6 minutes long. And I agree with Tony 100% — to move through and away from your fears, start with gaining knowledge and becoming educated! Remember, this is just part of a cycle. This downturn was predictable. It will pass, and in the meantime, there are tremendous opportunities! Get educated, get clear on what is really happening, and practice the habit of being solution focused and NOT problem focused!]]>