We Need a Reality Check - 3 / 31 / 2009

If I hear another so called Wall Street expert tell us in an interview that mark to market is a poorly designed policy and that the value of the TARP assets are significantly higher than currently represented I may just wait outside the studio where the interview is held and egg the the "expert". What ridiculous planet have these "experts" been living on?

Oh yeah its Planet Wall Street. Were values are not based on replacement value plus a 4x cash flow multiple, but on 2x replacement value and 12x cashflow.

Conversation between bulge bracket Wall Streeter ("WS") and a true investor ("TI"):

WS. If a bank is not getting capitalized by Uncle Sam and it can not sell its assets at the value they were purchased at what does that mean?

TI. It means the assets are worth less than they paid for them.

WS. How much less?

TI. Whatever anyone will pay for them.

WS. What if I can't get a bank to finance me so I can pay even a much less amount?

TI. You are still paying too much.

WS. But the Banks are saying they can't lend money because they have had to mark down assets too much.

TI. If they hadn't paid speculative values they thought were discounts to future value for these assets they would not be in the bind they are now.

WS. That's ridiculous , do you really believe that all the value, cost, labor, materials used to build these assets also have less than half the value they were paid for and compensated at?

TI. When it comes to the assets you are claiming the Banks won't lend against and have been more than halved in value by mark to market accounting, yes.

WS. That makes no sense at all.

TI. I am not surprised to hear you say that.


We have been living in a hyper inflated world for so long, 20.0x multiples became the norm. $1.5 million for a 1 bedroom apartment seemed reasonable. Billionaire 30 year olds were becoming common. $85,000 cars were common. People, these values were created by unrealistic economic policies and thinking that moved 3 deviations from real for so long that 2 deviations seemed like bargain hunting.

Tomorrow we'll discuss finding stocks in any market that protect your principal and build value for you over time in any market.

Build Value Every day

Brad van Siclen



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