The Fear is Well Founded
I am reading
"Dow's Worst Week Comes to an End"
"Mr. Baer, who was a Treasury-futures trader on the floor of the Chicago Board of Trade in 1987, said, "I've never seen a credit market like this one. The fear has gotten way ahead of the fundamentals," including an unprecedented round of coordinated central-bank rate cuts this week that would normally prompt banks to increase their lending to one another."
This may be true for some stocks, but there are so many pink elephants out there that are so well hidden the fear is well founded.
Take the automotive industry. I am hardly an expert on it, but a very quick look at it and what I see is debt that has little hope of ever being repaid. In order to move forward they need massive amounts of new capital to retool more economically efficient vehicles.
Here's what should happen, plain and simple. Any money they borrow should have a 3 year plan to pay back 100% of the money.
By allowing excessive and an poor business model workers have managed to demand wages that ensure that debt never gets paid back. On top of it, there is the expectation that pensions larger then average wages be paid to these people. There is nothing to enable this industry to survive short of going bankrupt, selling off the pieces and starting new with a sound business plan. As long as this industry continues under the existing unsustainable financial burdens it simply pushes the death of the industry closer. It enables competition to gain a larger market share.
I truly have no idea how many businesses are run like this with morons being taken as experts saying that the credit markets are essential to roll over debt rather then any effort to pay the debt back.
That's my take on the bigger picture. Like I said, I'm not an expert, but I do think my take will prove to be true.
This is all about 25 years of easing credit blowing up.