Over the past several years of economic ebullience, England’s Premier Soccer (football) League has had teams purchased by tycoons from Russia, Iceland, Abu Dhabi and the US. In addition, many sponsors of their kits (jerseys) are multi-international companies such as AIG (Manchester United), Northern Rock (Newcastle), and XL Leisure (West Ham United) that have either collapsed or had to seek government intervention. The teams in the premiership, which had revenues of $3B in 2007, earned mostly from television fees, tickets sales and sponsorship deals (according to Deloitte and Touche, LLP report on soccer finance), have accumulated over $5B in debt. New owners and sponsors came from all over the world and acquired teams using leverage that has paralleled the insane exuberance of debt accumulation without reason world wide. Storied franchises like Liverpool, which was acquired by American billionaires Thomas Hicks and George Gillett, and Manchester United, purchased by the Glazer family in 2005 for $1.3B have saddled their teams with tremendous debt. The fans of West Ham United, which was acquired by Icelandic owner, Bjorgolfur Gudmundsson, are all worried that their owner’s losses in his country’s collapsed bank will be sold to facilitate the owner’s own bankruptcy. Finally, the fans of Newcastle have an even more ironic issue to worry about: The team’s main sponsor, Northern Rock, was nationalized by the UK government earlier this year. How ironic that the circumstance of the “beautiful game” in England parallels the world’s financial meltdown abroad.

It is hard to argue that with the stock and currency markets in turmoil that a global economic deep recession is either here or imminent. The declines have been broad, across every economic barometer. Currently over half the states in the US are considered in a recession. The US stock market touched a five year low, down nearly 45% from its record high a mere year ago. Lending markets have been closed while governments have been churning and printing money to open up the venues of lending. Not a day goes by that some government announces yet a new program to assist in recovery. Investors continue to flee from risk and many countries appear to be teetering close to crisis conditions (e.g. Iceland, Pakistan, Russian, England, Spain…). If we have learned anything from the American banking meltdown it’s that chaos on Wall Street hits every part of the globe, from Oligarchs in Russia to Policyholders of AIG in Singapore to banks in Iceland. Today’s crisis consists of four vicious circles which governments are proposing to fix. The first is a crisis of confidence. Companies such as Bear Sterns, Lehman Brothers, AIG, Fannie Mae, Freddie Mac and Washington Mutual had always appeared as if they could repay all of their obligations on short notice. We have learned that it is not the case and thus the widespread perception that banks and insurance companies were solid was clearly surreal. The second was that these prior aforementioned companies and many others have been simply carrying too much debt and their coverage assets may not be worth what the balance sheets listed them at due to liquidity issues. Third, in a very short period of time, the credit markets totally stopped lending so many businesses, large and small municipalities and even countries could not access capital. And lastly, the housing market and the complicated, sophisticated financing tools created to further it, appears to have been the root of this financial meltdown. Credit derivatives we now know to be a highly toxic financial instrument that laid waste to some of Wall Streets oldest and most Prestigious firms. “Credit Default Swaps” have now been identified as the instruments that jeopardized the entire global financial well-being. It is literally the “perfect storm” of financial meltdowns! In order to break this vicious circle, massive government intervention has been the recipe. In the past it has been very helpful during the Depression, the New Deal during WWII and the Resolution Trust Corp, which assisted in stopping the savings and loan crisis of the 1980’s. Washington is feverishly implementing its largest intervention ever in hopes of regaining the public and the markets’ trust.

This author, in his twenty-four years in the Financial Service business, like many others before him, has never seen economic conditions dissipate as rapidly as we have seen. Many have asked what is a proper course of action during this frightening time: 1) While panic is often the worse way to make financial decisions, clearly it will be prudent to learn from these mistakes; 2) If you have tax losses they can be carried forward from one year to the next to offset future capital gains. Eventually, if history is our guide, high quality stocks are likely to move up again; 3) Asset allocation has always been a valuable tool to diversify a portfolio and reduce risks; 4) Yields on Municipal Bonds from many highly rated municipalities are often comparable to treasury bonds; and 5) It is important to know that Money Market Mutual funds are not always as safe as we thought. As we recently saw with the Reserve Family of Funds and their inability to expeditiously settle redemption requests, money market mutual funds can “break the buck.”

While China remains the most financially solvent and viable economic power in the world, it too is seeing a slowdown of growth. Its 3rd Quarter growth of 9% was it’s slowest since 2003 and while its exports have increased 21.5% year to date, it is only a matter of time that reduced demand from Europe, Asia and America cuts into that growth. China’s domestic situation is also experiencing a decline. Demand for raw materials, especially since the end of the Olympics, has dramatically reduced (e.g. steel, copper, iron, concrete, oil…) and auto sales have started to decline. The government though is taking an “active macro” approach, the first such involvement since the late 1990’s Asian Financial crisis, to protect its own economic and sociopolitical welfare.

Note: This report was produced by Wellfleet Partners, Inc. (“WPs”), an Independent firm, from various public research sources, for the sole purpose of general information. WP makes no warranties to its factual content and is not a brokerage firm, registered Investment Advisor nor securities dealer; therefore, nothing contained in this report shall constitute an offer to sell, solicit or buy any securities or investment advice. Investment in these securities mentioned here involves risk and should not be considered without first reading the target Company’s most recent financial statements, 10Q and 10K, its Private Placement, Offering Memorandum or Business Plan, if applicable, and discussing the investment with your registered representative or professional financial advisor. Venture capital and investment in the market is inherently extremely risky. Mr. Lev, the author of this newsletter is a registered representative of WestPark Capital, Inc. an FINRA member broker-dealer headquartered in Los Angeles, California

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