Debtor’s Equity

With all the fussing about Greek debt, Goldman’s deals, and the equity markets, it’s important to remember a few fundamentals.

First, remember that every asset is someone else’s liability. If you own a bond, someone else issued debt. If you own stock, somebody raised equity.

This may seem trite, but it has significant implications. The world is 100% long itself. In the end, there is no net hedging. If Goldman made money when housing crashed, someone else lost more. That happened because Goldman made a good bet on housing prices. There’s nothing illegal, unethical, or immoral about that.

When the world goes gaga over a new investment idea, it’s likely that we’ll get overcapacity and subsequent collapse. That’s because all that money can’t go to work profitably in the same place at the same time. It doesn’t really matter if it’s debt or equity: the dot-com bubble was an equity bubble; the sub-prime bubble was a debt bubble. The new idea may seem inevitable, but too many cooks spoil the broth.

If you want to spot the next bubble, follow the money. Who is raising funds today? Need you ask? Banking crises are often followed by government crises. With Greece, we’re seeing one now.

Douglas R. Tengdin, CFA
Chief Investment Officer
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By | 2014-09-05T18:45:19+00:00 April 25th, 2010|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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