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So Who Wins?

Every recession plants the seeds for economic advantage in the future recovery.

In the very tough 1973-1974 recession, prices fell so low that it enabled the creation of the leveraged buyout industry. With many manufacturing companies in particular trading at 3-4 times cash flow, new market entrants like KKR, Forstmann Little and Dyson Kisner Moran came in and created gigantic wealth for themselves and early investors.

In the 1991-1992 downturn, engendered in part by the massive office space overbuilding funded by Savings and Loans (Resolution Trust Co, anyone?) made it possible for telcom and internet start-ups in Austin, San Jose, Northern VA, Boston's Route 128, Dallas, etc. to rent offices at a fraction of the cost had those communities not been overbuilt.

And the 2001-02 downturn gave us cheap fiber and bandwidth, and bargain-priced software to feed productivity gains in corporations everywhere.

So, where is the upside? At this moment, all that I can project with some confidence is lowered home prices. For those consumers who don't ruin their credit with defaults and save up a healthy down payment, there will be a once in a generation opportunity to acquire a home. Prices like these (i.e., whenever the bottom is put in) won't be seen for a long time.

If we get real leadership and we really develop some energy independence, that will be the real payoff. But, until we see nuclear plants being built, I remain skeptical that there will be a serious attempt to stop transferring our wealth to foreigners....

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