A 55-minute Video from a Yale Professor on the Leverage Cycle
Solving the Crisis
The principal problem with the current economic crisis is that the authorities are trying to solve the debt crisis by adding more debt — which is akin to trying to cure a viral infection by injecting more viruses. In case some have forgotten, the United States is undergoing a serious credit crisis, that is, a debt crisis.
All sectors of the American economy are suffering from a chronic addiction to credit, which manifests itself as the disease of excess debt. Household, business, and public debt have reached all-time highs. Consequently, it would not seem logical for the federal government to fight the debt crisis by adding trillions of dollars to the national debt and by lowering interest rates to promote even more credit.
A debt crisis can only be solved by paying down and reducing debt; it cannot be solved by compounding ever-more debt on top of an extremely over-leveraged economy.
Why bad Multiples happen to good companies
This article has an interesting section on the difficulty of using multiples to compare companies. Also, investors are skeptical of high ROIC companies that have a lot of goodwill. Interesting…