Don't Make the Same Depression Mistakes...
October 18, 2008
– Comments (7)
Yves has a post showing the degree that government is following the same path as during the depression.
This crap about the need to get lending happening again is, well, it is crap. Debt needs to be reduced. Too much of the economy is being raped to pay debt servicing costs. Significant portions of the debt out there will already never be repaid.
John Mauldin has a post that shows how analysts earning estimates have changed. Well, it has a lot more then that, but that's the part that caught my attention, it is about 2/3rds-3/4rds down. They've gone from $92 to $55. The estimates for 2009 have gone from $81 to $48. Mauldin suggests that earnings can go lower then these estimates, which was my thoughts as well.
Every business going has had huge input cost increases which is going to squeeze margins. Business that have debt to roll over are going to see debt servicing costs go up which is more pressure on margins. Unemployment is going up so reduced buying power is another pressure on margins. They raise prices and they have to deal with reduced sales due to consumers either not buying or substituting cheaper goods. These are huge. Add to that all the dividend cheques that have been cut. Add to that that exports should weaken with the renewed strength in the US dollar. Indeed, there is going to be massive surprise earning shortfalls because of the strengthening US dollar. International companies had huge earning surprise from the decline of the US dollar and now it will be an opposite surprise.
The good news is that commodity prices have retracted so input costs will actually decline. How much good it does is really going to depend of their level of debt and how much overall sales volume changes due to the economic slow down.
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