As a first time poster and novice - thanks to all the old hands. For every post made by you there are probably 100 more of us reading on trying to pluck up the courage to say something of value.
One of the chants drummed into me in my early days as a lender was the "ity" rule - "Profitability, security, liquidity, equity; and not necessarly in that order". Find all of these and you will have a solid business to lend to.
My concern is that what is going on in the world is knee jerk and far too short sighted. All of the "ity" factors have gone out the window. Various governments might think they can fix the liquidity problem, but are they just wrecking the fundamentals of the other 3 for themselves and us. Quoting Iraq and Afganistan as an example, what is the US government's strategy to extract themselves out of this mess. How do the actions of yesterday, today and tomorrow fit in with their five year plan.
So much of the world's economic expansion in the previous four or five years has been done by companies using someone else's buck. How many times has it been announced that a company has paid a record price (often double the traded value) to take over another company and that the take over was financed on borrowed funds.
What level of balance sheet expansion has occurred around the world because companies have revalued assets based upon this "market evidence" and then relied upon this "new" wealth to then gear themselves further.
At a smaller mum and dad scale, this is exactly what has been happening in cities and in the bush for the past five years as well. It is for this reason that I have no doubt that Australia will not escape from all of this and then the accusations will start flying.
Like many, I too have been subscribing to the "4200" level on the xao simply on the argument that everything trends to a long term average. It seems nonsencical to assume that the people back in '28 and '88 were any less inteligent than we are today. So I just can't subscribe to the "it won't happen again" theory.
While I would like to say that this downward trend is the magnetic pull of the trend lines that everyone continues to talk about, ultimately it will be factors surrounding equity and especially balance sheet contraction (be they from real losses or via revaluation) that will drive the world economy back to lower levels.
As a Valuer, I am reliant upon market evidence to guide the outcome of my valuations. Based upon the rapid repricing of risk and the sale of assets at distressed levels, I would have to be guided that at present "this is the market and this is what the market is prepared to pay". What will happen when companies start reporting asset write downs in their annual reports. Not only will this make lenders very nervious, but what will this do to future business growth.
While I don't profess to understand short selling, fundamentally, profiting from someone else's demise doesn't seem quite right. Clearly in the events of the past few months, short sellers have played a vital role in weeding out the "stressed" animals on the landscape. Unfortunately what they have exposed is that the stressed animals aren't within the herd but they are the feeders at the top of the food chain who usually circle the pack.
Perhaps, the sooner these are allowed to be weeded out and the market capitualtes to this, the sooner we can all move on and be better for it.
(20min delay)