Monday, January 5, 2009

Company debt: a big problem in 2009

Company debt: a big problem in the coming year

"...the latest figures, smuggled out in the New Year fug and so virtually unnoticed by the media, were truly shocking. UK companies' cash deposits have now dropped to their lowest levels since the early 1980s after an unprecedented 6% fall over the year to November."

Posted by damien @ 04:24 PM (646 views)
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4 thoughts on “Company debt: a big problem in 2009

  • japanese uncle says:

    Comments by ‘Close Brothers’ is quoted here.

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  • ‘”Debt fears will play an even greater role in the stock market this year than 2008″.

    And, as we are increasingly seeing on the high street, for firms that run out of cash, shareholders lose the lot.’

    Just last month I persuaded my father to move $75,000 out of his stock market superannuation (pension) for this very reason, having only just put it in thinking the market was already down. 2009 will not be a good year for the markets, his money is safer as cash.

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  • I think the stock market will be like the Titanic on big wild waves before that pesky iceberg.

    Yet another money shift. IMHO.

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  • baertil2010 “And, as we are increasingly seeing on the high street, for firms that run out of cash, shareholders lose the lot.”

    Yes. Well not quite.

    A share is an option on the companies net assets (a “real option”) hence upon liquidation the equity becomes an option on the residual claim – if, upon liquidation, there is no residual (i.e. all debts cannot be met) then the shareholder is left with nothing. (Aside: Also note that there is still a market in shares (and debt) of liquidated companies until recovery has been made – so an individual investor in shares could still recover something in the case where the residual will be zero as long as their is a belief somewhere else that it will not be zero)

    As an investor more capital protection would be provided by lending to the company (bonds) than by owning a share of the company, this is an option which the investor gets for free (and they say there’s no such thing as a free lunch!).

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