WHAT'S NEXT
I have looked over the market (wreckage) & I have come away with some ideas for what to expect next. It seems that the equity markets, both here & abroad, have effectively crashed & last week we had what is nothing other than a dead bull bounce. World markets have declined precipitously, precious metals have fallen sharply, oil had its worst weekly decline ever. Herculean efforts & programs have been put into place & are being set in motion, albeit slowly, and the governments all around the world have effectively agreed to not let the system fail, regardless of the consequences of what they do to prevent that failure, not sure which is worse, but the sales pitch is that what they are doing is better than the alternative, can't disprove that, but we will see what the results of the fixes are in the coming years, but I digress. System saved, where do we go from here?
The economy is showing clear & ominous signs of weakness, and most do not believe this will be a "V" recovery. In fact, some are now looking towards a deeper & more protracted recession, with some even murmuring depression. I anticipate, and now others do as well, that the economic data & corporate reports will continue to be bad for the next few months, maybe quarters. The housing & mortgage problems are being addressed by the treasury & the FED, yet the general economic fallout is starting to pick up steam & there really are no quick fixes for the general economy ... rates are already very low, consumer stimulus has been tried & failed, more consumer & business stimulus will be tried, but consumers are frozen & businesses are in contraction mode to cope with the weakening economy & forecasts for a slower recovery than most would hope for. Lastly on the general stuff, Credit has been changed dramatically, for both borrowers & lenders it will be harder & more expensive to get it…for consumers & businesses and the demand for it is even in question as businesses & consumers make a secular change to utilize less leverage/debt/credit.
Going forward it will be critical to determine if an industry or individual company will be deemed too important to fail & thus deserves a government bailout. The good news about that is that you know the enterprise will not fail. The bad news is that the government is your partner & your business model will be different & probably less profitable.
Once you determine that an industry or company will be allowed to fail, normal fundamental analysis of the industry & business prospects will be similar to previous efforts to determine value, with some additional emphasis on avoiding businesses that require credit or debt to operate.
Here are some additional financial issues that could have a significant influence in determining the valuation of companies.
1) Determine if the company has investment losses embedded in the corporate cash reserves & investment portfolios.
2) Determine if the company has goodwill writedowns.
3) Determine if the company has unfunded pension obligations that will require cash infusions.
4) Determine if the book value of the company has to be reduced.
Bottom calling on the market or individual stocks is an exercise in futility. I think the best we should hope for is stabilization...sideways trading for a few weeks. At that point, we will have had enough time to determine new valuations with consideration for the weakened economy and more restrictive capital/debt markets, That's when the bottom will form & a new recovery phase for the equity markets can start to develope.
The economy is showing clear & ominous signs of weakness, and most do not believe this will be a "V" recovery. In fact, some are now looking towards a deeper & more protracted recession, with some even murmuring depression. I anticipate, and now others do as well, that the economic data & corporate reports will continue to be bad for the next few months, maybe quarters. The housing & mortgage problems are being addressed by the treasury & the FED, yet the general economic fallout is starting to pick up steam & there really are no quick fixes for the general economy ... rates are already very low, consumer stimulus has been tried & failed, more consumer & business stimulus will be tried, but consumers are frozen & businesses are in contraction mode to cope with the weakening economy & forecasts for a slower recovery than most would hope for. Lastly on the general stuff, Credit has been changed dramatically, for both borrowers & lenders it will be harder & more expensive to get it…for consumers & businesses and the demand for it is even in question as businesses & consumers make a secular change to utilize less leverage/debt/credit.
Going forward it will be critical to determine if an industry or individual company will be deemed too important to fail & thus deserves a government bailout. The good news about that is that you know the enterprise will not fail. The bad news is that the government is your partner & your business model will be different & probably less profitable.
Once you determine that an industry or company will be allowed to fail, normal fundamental analysis of the industry & business prospects will be similar to previous efforts to determine value, with some additional emphasis on avoiding businesses that require credit or debt to operate.
Here are some additional financial issues that could have a significant influence in determining the valuation of companies.
1) Determine if the company has investment losses embedded in the corporate cash reserves & investment portfolios.
2) Determine if the company has goodwill writedowns.
3) Determine if the company has unfunded pension obligations that will require cash infusions.
4) Determine if the book value of the company has to be reduced.
Bottom calling on the market or individual stocks is an exercise in futility. I think the best we should hope for is stabilization...sideways trading for a few weeks. At that point, we will have had enough time to determine new valuations with consideration for the weakened economy and more restrictive capital/debt markets, That's when the bottom will form & a new recovery phase for the equity markets can start to develope.
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