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- 500 points and counting.


thorne
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Certainly a possibility, but one which assumes that earnings will remain somewhat constant. Companies in the "consumer non-durable" category (food and OTC drug companies like Kraft and Johnson&Johnson) should be able to maintain or even improve their earnings. Others (Citigroup, JPMorgan, General Motors) not so much. As earnings go down, the P/E ratio goes up, meaning further price reductions are required to hit that magical 5.

 

Actually, I'd be willing to bet many folks not on some sort of promotional rate are in the 20-30% interest range, even those with flawless payment records and 750+ FICO scores. I'm one of 'em (I even called and asked why maybe two years ago... the CSR's response? "We've never made a penny off you."). So you start with people deep in debt who can't afford to borrow more and banks unwilling to lend to all but the most worthy, but in many cases, those who are worthy don't care to borrow anyways. So it's really from three directions that the so-called "velocity of money" (what Paulson and Bernanke euphemistically call "liquidity") is being attacked, not just the two you mentioned.

 

I am talking more business side. The people who are the most worthy, but don't care to borrow, won't be seeing hardly any growth in their business. Growth takes leverage at some point in time. To see any growth we are going to need open credit in this country.

 

The short term money not being available is what is going to hurt. You just even yourself admitted to borrowing short term money. The company that borrows operating capital for 30 days to open their new location is the one I am worried about. Not the company that is over leveraged and is 1 year of payroll in debt.

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To see any growth we are going to need open credit in this country.

Growth does not necessarily require debt or leverage. Buffalo Wild Wings has been growing quite deliciously using operating cash flow. Yes, correct usage of debt makes growth much easier, but it's not an absolute requirement.

 

The short term money not being available is what is going to hurt. You just even yourself admitted to borrowing short term money. The company that borrows operating capital for 30 days to open their new location is the one I am worried about. Not the company that is over leveraged and is 1 year of payroll in debt.

Yes, I do borrow short term, but it's because:

1- It's safer to use a credit card than to use a debit card

2- BofA gives me anywhere between 1-5% back on purchases

3- JPMChase pays absolute shit for interest on checking accounts

4- It's a lot easier to write one check/month for all my trips to Chipotle, CVS, Krogers, etc, than to do it nickle/dime fashion

 

As I said, it's paid in full every month. Cutting my cards up, sticking them in the freezer, or otherwise removing them would be an annoyance since I'd have to carry a higher balance in my checking account (and suffer the indignities of 0.05% interest), but except for the possibility of large expenditures (car repairs, in particular), it would not be a game-changer. Likewise, any company larger than just a handful of locations *should* be able to grow organically, without the use of commercial paper. Is it a pain? Yes, but it's also a nice, big, "BUY MY STOCK" sign when they're able to do this (see aforementioned B'Dubs, though they were a little too rich when I looked a few days ago).

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