Email to Investment Partner
I saw this coming a couple months ago and it is going to get worse. Credit card defaults are rising, so are number of unprofitable bank loans. People were using their homes as cash machines (as we have said many times) to fund their overindulgent lifestyles. They will try to continue the lifestyle as long as they can (using credit cards now). But, it will eventually pop. Many companies have done the same thing. They were buying back stock and using cheap/easy money (debt) to finance it. As a CEO it was easy to announce a buy back in your stock would pop 10%. But, the cheap money always comes to an end. Private equity, companies, individuals all took out debt they shouldn’t have and banks and brokers were lending to them in many cases without looking at Cash flows and assets, and without getting guarantees. And even allowed them to make payments on loans with more debt (payment-in-kind loans). No way this doesn’t end BAD. Dow 10,000 within 12 months.
Companies with big debt and no cash flow are going to be in a bad position going forward…. Companies with little debt and good cash flow will benefit long term