- April 2008: Vol. 20 No. 4

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Gravity Still Works: Investors Face Vastly Changed Environment

by Ethan Penner

Everything worked perfectly. We can all feel secure in knowing that, once again, economic cycles have proven to be resilient and the cause of such cycles — basic human nature and the constant tug-of-war between greed and fear — are still both intact and highly dependable. The laws of gravity are still valid. Wildly inflated asset values, oddly analogous to the inflated physiques of many modern-era sports heroes, are rapidly becoming a matter of congressional clean-up and fading memory. Even the most ardent optimist must now face up to the harsh realities of the market and accept that the past bull market, filled with and fueled by cheap and indiscriminate capital, is dead.

I recall the days of August and September last year, when Wall Street was still making hopeful comparisons to the 1998 dislocation, which lasted a mere six months and set the stage for an incredible bull market run. I could not understand the analogy because, as far as I could tell, Russia, while being

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