Thursday, March 5, 2009

Deleveraging

There are a number of reasons we can expect stocks to fall and the multiple placed on TTM (Trailing Twelve Months) earnings to shrink, and among them is a general deleveraging by institutions and individuals. DealBook posted today about the hedge fund industry shrinking at a rate of $1 trillion per six months, with this resulting not just from stock losses but from investors withdrawing money (from the rare few firms who allow them to do so).

When I continuously mention the recessionary earnings multiple averaging just ten (as in the market will trade for ten times earnings), this is one of the reasons why.

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