November 23, 2007

Credit Again

Many analyst now are jumping on the band wagon that more write downs are in store, could not they have told this before. Each is coming with their own estimates...and boy those numbers are scary ranging from $100 billion to more than $300 billion. I have discussed in a previous post that I think more write downs are coming only if a further deterioration in jobs and the economy occur.

Goldman Sachs, the super doper money management firm, expect another $108 billion in write downs. If this is to happen expect no loans what so ever to take place to consumer or business, exaggeration but you get the picture there will be fewer and fewer loans originated by the system, as banks try to increase their capital requirements ratios. Other ways are discussed in this article by the economist found here, none is good.

For those businesses and companies that depend on financing and credit for their operations they will be hurt, badly. Their intermediate future is not good. Banks will shut financing no matter how attractive the proposed business opportunity, instead banks will look at the strength of the balance sheet.

So screen your holdings and pay attention to companies with high leverage or dependence on short term borrowings. Pay attention to their Accounts Receivables balances, are their customer paying up on time? If companies can sustain the next period on their own, some of the possibilities or the results will not be very favorable.

On the other hand, there is opportunity for companies with deep pockets and cash on hand to pickup strategic assets cheaply.

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