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Originally Posted by Phanuthier
I hear ya Claeren, but at the same time, we're reaching levels where companies are priced far below their net equity (asset - libabil) which seems to mean that you are getting the profits of the business for free, in addition to getting a good deal for an asset. I see it sort of like a pinball machine which is worth $1000 and is bringing you in $20 a month. If right now, its only making $5 a month but in the future, its going to bring you in $20 a month, would you buy the pinball machine for $800?
I think its real tough to try and predict the absolute lows and the absolute highs. I mean, GM, Chrystler and Ford have been dying for years now, the news here isn't anything new; the only thing that will suffer are paper losses IMO and probably to the suppliers or any industry integrated with automobiles. To me, that should deter someone from buying the good fundamental companies at a fair or value price.
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I am not saying the entire world is going to melt down either, so I agree to a point that the lower we go the more resistance there is.
That being said I would be careful not to think of the past as the present. ALL of the numbers you look at are past performance. The entire point right now is that all of these companies are leveraged, the companies they buy from and sell to are leveraged, and the end customers of all the finished good and services are leveraged. ALL to the max they can be and ALL soon to be forced to cut back those positions.
Take GE, they have been pumping up their profits with 20-to-1 borrowing. Because they have to reduce that position to 8-to-1(?) going forward they have to say goodbye to virtually all of their profits and a substantial piece of their equity (as it never really existed in the first place.) In GE's case this readjustment will likely enough to bring them to the brink of collapse, in many other cases it will in the very least cause massive layoffs and the such....
Deflation is a slow death. The world powers are doing their best in inflate the economy again but I am not sure after such massive and shocking mismanagement of both government and finance by America inflation does not overshoot into hyperinflation.
Like i said, not matter what happens it is bad at this point and IMO we hit 7300 again before we hit 9000+.
Oh, and the crisis is just starting to hit Canada. Home sales (along with virtually every other retail good) have hit a wall and the reality of that is starting to hit home. Home prices in Calgary down 15% now and dropping faster by the month, car sales off a cliff, furniture sales non-existant, etc etc. Scotiabank showed a few cracks today with their big write down and right on schedule Canada wil start to follow the rest of the worlds path about 18 months behind. AS layoffs mount in America they will start to mount here and prices across the board will deflate. All of the sudden stock fundamentals won't hold at such a firm floor -- which is why deflation is so nasty....
Claeren.