Amy, lots of OT stuff....
Note that the Y2K number of $93 billion is also a daily number. For comparative purposes, in normal times a daily average for any week would be about $5 billion, so right now we've got 'excess' liquidity of about $70 billion/day.
Btw, it's rare to see the use of international dates in the USA, at least in high-tech. Does the financial community use this?
Nah, it's just my own idiosyncrasy. It has always struck me as much more logical to use a DD.MM.YY format, and I throw the periods in there instead of slashes so that it doesn't get misinterpreted as MM/DD/YY.
Don't you think the bust drained sufficient amount of money from the system? 1.4T (if that's the correct number) vs 93B/day.
(Note that the applicable number would be $70 b/day, the difference between the $5 billion/day normal and the $75 b/day actual from two weeks ago. The $93 b/day number was for Y2K, the only time that the Fed has thrown more liquidity into the system)
The decline in market value doesn't drain money supply out of the system. The cash that the Fed put into the banking system is still out there.
RE: "dollar will tank"
If so, does that mean stocks tank too?
There are differing opinions on this matter. My personal view is that the strong dollar has been one of the driving factors that kept our economy going for so long. It helped keep inflation low and attracted capital in spite of our balance of payments issue. If the dollar weakens, it will drive capital away, and inflation is a bigger risk. Yes, I think that stocks would tank if the dollar declined.
The other side to this coin is that a lot of people, particularly those who own domestic corporations with significant exports, think that a weaker dollar would stimulate higher sales overseas as exported products become more price competitive. I think that there are a lot of dangers in taking this approach.
Having said that, while I'd like to exceed that safety net, on the other hand I'm not comfortable with exceeding it either. We need to have some type of financial structure in place as back up, just in case, or we could stipulate a build-to-order-only, pre-payment policy. I would guess there's always going to be a certain % of customers that won't agree to pre-payment terms or miss their payments, which means we would need to somehow cover this, but how?
Given the economic conditions, I think it would be a bad idea to raise equity in this market, wouldn't you agree?
The short of my question is: with the equity market in the dog house, why would anyone raise capital through equity, rather than a loan, assuming that loan rates are lower than the cost of equity? Are loans less costly than equity? How does a person calculate this? What are the going rates for factor loans if the Fed Funds rate is .06%?
Your situation seems ideally suited for an asset based loan. You get a line of credit from an asset based lender, and you borrow against it based upon your level of accounts receivable and inventory. Normally, depending on the credit quality of your customers, an asset based lender would lend you around 85% of A/R and around 50% of inventory. In your particular case, the lender might argue for a lower % against inventory given the general aversion to tech right now.
Unfortunately, though, a factor loan most probably wouldn't be based upon the market rate of Fed Funds or even the target Fed Funds rate. Most likely you'd be asked to pay a spread over LIBOR, which is a market-based rate.
I was of the impression they [OPEC] did. I didn't know they didn't. How has this changed? Why do they have little control over price of energy?
I am certainly in the minority on this one, although it is a minority that is growing.
Without question the countries of OPEC incurred considerable debt in the 90's. The relatively low price of crude oil and the high government benefits combined to highly leverage a lot of the OPEC countries. They've GOT to have cash, and in many ways that inhibits their ability to act in concert.
It is also pretty much without question that many OPEC nations did not invest the necessary capital into their drilling operations to operate their production in the most efficient manner. This drove most OPEC nations to capacity constraints. This, more than any OPEC discipline that some analysts talk about, led to the crude price increases of 1999 and 2000. It was inevitable that the capacity issues would collide with the growing world economy.
At this point, though, is where a lot of subjectivity comes into play. I think that OPEC has been operating much, much closer to full capacity than they have implied or stated. Thus, last year, as the price of crude went well above OPEC's maximum target price of $28, they couldn't increase production to bring down the price, even though official, stated OPEC policy would demand it. Increases in production targets were only words. The only thing that could bring down the price of crude was lower demand, and we have seen that. Now, with crude prices below OPEC's target range, theory would suggest taht OPEC would be cutting back production. Some people maintain that OPEC isn't cutting production now so that they don't irritate the US. I think that the main reason that OPEC isn't cutting back production is because each country needs the cash desperately.
In addition, note that the primary consumer of OPEC crude, the United States, is much less dependent upon them than they were twenty years ago. Crude demand has shifted to natural gas demand. This gives OPEC even less leverage over the price of crude. |
