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Pastimes : Clown-Free Zone... sorry, no clowns allowed
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To: Lucretius who wrote (62431)1/28/2001 2:53:15 PM
From: Mark Adams  Read Replies (1) of 436258
 
While some stocks may be fairly priced, it appears they have not built in a sufficient risk premium given a certain amount of chaos in today's environment. For this reason, the risk adjusted return has racheted downward even if the nominal return remains steady. It's this lack of risk premium that makes it difficult to go long today.

Possible positives going forward:

If amortization of goodwill is eliminated,

+ increased profits for large goodwill holders
+ increased takeovers

Lower energy costs?

While US costs, especially Natural Gas and electricity in the Western US will likely remain high by historic measures, the balance of the world should see lower total energy costs on the back of lower demand.

Lower interest rates?

In light of reduced economic activity, it is quite possible that interest rates could test the 94 lows. While this may be unable to kick start the us economy, which does have some malinvestment to work off, it could improve prospects for non us economies. Both by lowering borrowing costs, and encouraging repatriation of capital.

Lower dollar?

This should also benefit non-us economies, as resource prices based in us dollars become more affordable in local currencies. Multinationals with significant global earnings will see a reversal of the negative currency effect when repatriating earnings (assumed they didn't hedge too much).

Paints a brighter future on a global scale?

The US is hosed, but the world will see continued growth?
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