dimanche 17 janvier 2016

Could Double in 2016... err... sorry... Could Go to zero.

Some of you who followed the mysterious convulsions of financial markets over this nascent millennium, with instant access to "information" thanks to the Internet, will remember seeing on the same portion of screen completely contradictory commentaries or analyses, from the same source or media. Around 2000-2003 it was almost daily, and again in 2007-2008. Typically you had a title like "Stocks start with a strong rebound into market recovery on robust, rock-solid jobs statistics" and the breaking news headline, some pixels above, was "Stocks erase early gains, investors cautious". Now, with an almost perfect 7-year cycle, you see again such commentaries from the buy-buy spin doctors:

(screenshot from a finance site,
underlines and smileys added)

What analysts, commentators, etc. often forget, even if they are sincere, is that behind equities there are companies, and behind companies there are often lots of debt. If a company (typically, an average shale oil company losing money at any barrel price below $150) makes only losses year over year, you can have the nicest possible buzz, the most talented spin doctors, nothing will help. The company will go bankrupt, because no competitor will want to buy it even for one dollar, and this because a buyer would have to take over billions of debt as well. So better to wait for the bankruptcy, buy the assets at a discount price and let the debts live their own fate...

Shameless plug here for my Bullshit Generator.

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