boisterousbob

A Dow Double in 10 years? Easy

Inflation will help the dow doubling case. Stocks are commodities priced in dollars. If the value of a dollar falls (inflation) the price of a stock expressed in dollars will go up more quickly.


On Oct 07 02:13 PM Larry House wrote:

> It may sound easy enough, but don't underestimate the long-term economic
> problems we face. Other "experts" who manage billions of dollars
> are predicting growth of 1-3% for the next few years--a good-sized
> chunk of the 10 years. Beyond that, we may face high inflation.
> On top of all, we have growing budget deficits. Stocks will have
> a hard time averaging 7.2% per year with that backdrop. I hope it
> happens, but I don't expect it.

Goldman Sachs One-Upped Wells Fargo in Accounting Shenanigans

I don't think they booked $10bn in gains from AIG at all. What have the told us? That they recieved $7.5bn in collateral in AIG to secure the obligation. This means is AIG defaulted they would keep the $7.5 Bln for a net loss of $2.5bln. They further told us that they purchased additional protection for the balance of this and assuming they did this effectively (quite plausible) they had limited exposure.

I don't understand people's comments around you. If somebody owed you $100 and they paid you that $100 would you consider it a profit?

Deciphering the Issue of Tangible Common Equity

Thanks so much for this, it is beginning to shed some light !!!!!

I am going to ask a noob question, but I suspect I am not the only one who doesn't understand.

I am confused about the adequacy ratio. You state convincingly that if a company has $100 in assets and $90 in debt, then a greater than 10% reduction in assets would cause an inability to repay all debt. This makes sense. But I note the use of the word assets.

After using the word assets in explaining the adequacy ratio, you then switch to using the word collateral and discuss different types of collateral including but not limited to common shares.

You then discuss which types of collateral, including common shares, could be included in the capital adequacy ratio.

I cannot make the connection and am completely confused. The company cannot take the market value of its common shares and use that to pay down debt or meet any obligations. It has already sold those shares, generally years ago, and cannot use them to pay a debtor. Further, the share price only represents the market opinion of value including current and future prospects of the firm. In this sense, it is not a 'real value' at all, certainly not cash or anything that can be used to satisfy obligations. Put another way the market could decide tomorrow that the company is worthless (or worse) and the share price collapse to zero. There would be no 'collateral' left to even discuss.

Is the implication that a higher share price helps a bank meet it's obligations and hence improve its adequacy ratio? If so, how?

I probably should just go read a book, but any help understanding these concepts from anyone would be gratefully received as I doubt I am the only one not yet fully educated.