Time to close book on ’08, and not a moment too soon

"Annus horribilis" was the term Queen Elizabeth used to describe the year 1992 for the royal family—a year the royals suffered
through three failed marriages and Windsor Castle caught fire.

Anyone with a vague recall of Latin will arrive at the translation of "horrible year." For investors across the globe, most
would agree that 2008 was an annus horribilis.

In the United States, the list of financial titans gone by the wayside is stunning. And most of the large financial institutions
that remain standing resemble a walking wounded. Across the pond, the United Kingdom’s financial industry is in as bad or
worse shape.

And whoever predicted the closing ceremony of the Olympics would mark the peak of China’s meteoric economic growth could not
have been more accurate. Chinese growth shut off like a spigot, taking down with it the entire commodities markets. The free
fall in commodity prices abruptly sank the commodity-heavy economies of the BRIC nations (Brazil, Russia, India and China),
Canada and Australia. Elsewhere, an entire country went bankrupt—Iceland.

By the end of September, the word bailout had become commonplace in the financial press. The government, led by the Treasury
and Federal Reserve, devised an ever-changing plan to attack frozen credit markets.

While originally directed toward the financial industry, the monetary bailouts are spreading to other industries deemed too
important to fail—namely the auto industry. A list of industries lies in wait, include the insurance industry and commercial
real estate. Even the ailing RV industry has politicians in northern Indiana seeking rescue money.

Where the line is drawn that ends bailout mania has yet to be determined. However, as a result of the various cash injections
and loans, the U.S. government now finds itself a prominent investor in many private businesses. What the end game is for
the government to extract itself from the private marketplace is anyone’s guess.

On the investor front, the masters of the universe, the financial whiz kids who operate hedge funds, are closing up shop left
and right, bloodied by the market slide even though one of their strongest selling points was supposed to be their "non-correlation"
to market returns.

The wreckage of the glamorous New York private-equity shops—Blackstone Group, Fortress Group and KKR entities, which attracted
billions of investor contributions and invested at the top the market—is visible in low-single-digit stock prices. You’ll
recall they had initial public offerings as part of their failed effort to allow the public in on their perceived genius.

And if all that weren’t enough, December was capped off with what very well may be the largest financial swindle in history.
With all the carnage, investors finally may demand an end to excessive executive compensation and the lucrative Wall Street
overrides on investor portfolios.

Needless to say, the events of 2008 will be vividly debated in the financial history books of the future. However, the problem
for us, the human beings living in the here and now, is that we do not know how the script ends.

The turning of the calendar doesn’t appear to hold any magical answers. And while a new presidential administration may spark
a fresh look at things, the bear market will end when investors begin to put their capital back to work at what may be the
best stock, bond and real estate prices this generation may witness.


Skarbeck is managing partner of Indianapolis-based Aldebaran Capital LLC, a money-management firm. Views expressed are his
own. He can be reached at 818-7827 or ken@aldebarancapital.com.

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