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safety audit…

Good blog discussions, again. Dry as it is, this is the stuff of our daily obsessions (for the moment at least).

Good point. Although the return on infrastructure will depend on forecasts of growth – which are all over the show

I’m not sure that there are any “sure bets” at the moment . Generally, if anything has a strong balance sheet and good management they will always be a good pick – so go with them

“I do think it’ll ultimately fundamentally reorganise accounting/auditing practices”

I think we all agree that there will be an impact on the way some industries keep accounts – and the regulation around accounting.

“The extent of off-balance sheet trading troubles me, it’s inconsistent with the notional symmetry of information. The prevalence of swaps, undisclosed margin-calls and dubious practices like naked short-selling have, IMO, undermined the reliability of a lot of public reporting.”

Indeed, the fact that so much information is missing is the reason why credit markets have frozen – hopefully there will be a push to increase the accessibility and availability of information – at least within the constraint of property rights!

“Perhaps I’m being too jaundiced, but with family that were hit by the systematic failure of finance companies, I’ll be giving them a wide berth for a while.”

I agree that finance companies were (and are) dodgy, and that they don’t convey information fully.

However, if the government guarantees deposits – then that really limits an individuals downside.

Is investment based on government guarantees fair – probably not. Is it efficient – no. Will it end up costing society – yes. But it is in the individuals best interest – as they are sharing the risk, but getting to keep any upside!

My earlier comment was perhaps more philosophic than I’d conveyed. While I’m not of the view that this crisis spells the end of capitalism as we know it, I do think it’ll ultimately fundamentally reorganise accounting/auditing practices.

The extent of off-balance sheet trading troubles me, it’s inconsistent with the notional symmetry of information. The prevalence of swaps, undisclosed margin-calls and dubious practices like naked short-selling have, IMO, undermined the reliability of a lot of public reporting.

Perhaps I’m being too jaundiced, but with family that were hit by the systematic failure of finance companies, I’ll be giving them a wide berth for a while.

I was hoping for some specifics – anyone know any that are still taking deposits?

Doesn’t that apply almost all the time?

“The key is that it is hard to get a “fair value” calculation on firms during a recession time – as P/E ratios get all wacked out given the volatility in earnings. In many ways the fall in prices leads the decline in earnings – so it looks like there is a lot of good buys out there, and then ex-post everyone realises there wasn’t.”

Fair point. However, I was thinking more long term investment. Sure, earnings might be a bit sluggish for a while but companies with assets still own those assets. I thought infrastructure companies might be a good place to start.

Doesn’t that apply almost all the time?

The key is that it is hard to get a “fair value” calculation on firms during a recession time – as P/E ratios get all wacked out given the volatility in earnings. In many ways the fall in prices leads the decline in earnings – so it looks like there is a lot of good buys out there, and then ex-post everyone realises there wasn’t.

“Tell me more. ”

Finance companies mate – it might be a bit late to give them funds now, many of them are cutting back on how many deposits they are accepting!! It is hard to reconcile that with the existence of a credit crunch aye

I was thinking shares, but the same principles apply.

“The fundamentals are so shaken by the last six months, I’ve little faith in the logic of the market, not nearly enough to think PE or EBIT might really indicate future value.”

But surely not every company is overvalued?

“When I can get a government-guaranteed 10.5% yield on a term deposit why should I bother with shares, which could well have another 20% to fall?”

Tell me more.

“Based on my investment history this is an infallible signal that shares are about to take off, so buy up large!”

Heh.