Valuation...Debt...and Wealth

Discussion in 'Economics' started by libertad, Dec 23, 2007.

  1. The recent mortgage instrument debacle occurred because of the lack of a marketplace...for questionable debt obligations...

    However make no mistake ..that the bonuses of the major brokerages have benefited significantly from favorable valuations in the past...which came crashing down...when debt obligations by individuals went out of line with their financial legal agreements...

    However the houses..hard assets...are still there...relatively unchanged in their physical aspects...but have changed with regards to their legal aspects..

    Also the derivatives which depend on cash flows from this debt category..have dramatically changed in valuations as well...

    Both the hard assets...houses...and the debt obligations are going through price discovery..

    Price discovery ..is created by the marketplace....and is a temporary market agreement ..always subject to change...

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    Which brings into view ..what debt really is...and what is its role in overall valuation standards..

    To put this into perspective...one could envision the world with no debt...no debt in any form...

    What would the price of an average house be....if there were no debt instruments ?

    How many cars would be on the road...if there were no debt or credit instruments ?

    Would it be a safe assumption that both cars and houses would decline by 75% in value....if there were no debt instruments ?

    And of course the interest on the debt...simply adds to the cost of both cars and houses...which even makes their ownership far more costly...than the cash valuations...
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    Thus which entity would be viewed as having more financial strength....a company which has no debt that makes widgets A...or a company that makes widgets A with 50% debt...

    Same goes for individuals....which is stronger...an individual that owes nothing on their car or house...or one that owes 50% debt on both ?
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    Now the total well being of the US economy is subject to the legal aspects of their assets with regards to prices....although the assets being affected will be the same when one awakes in
    the morning...

    And a recession means ...that cash flows will subside which are of the paramount importance to the current assets in place...
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    Thus any major price decline...will of course present the best investment opportunities for long term players...for supposed troubled assets...

    One would want to be cash ready...for such opportunities...

    The best investments mostly occur in broad based economic malaise...

    Thus perhaps 2008 may present some good assets that are on sale...

    As humans are a very curious lot....in that they flock to clothing sales..etc...but when stocks and bonds go on sale...the flocks flee away from lower prices...on the same goods...

    Thus for those with cash ....one should look forward to economic havoc...
     
  2. What is with your unusual fascination with "...." ? They didn't teach sentences with periods and commas in your school? :)