Daily Doom

[threaded]

Looks like a Monte Carlo fallacy to me. He's saying, basically, that the next five cards will be red because there´s been a long line of red ones.

Not quite, I think what he's saying is it's more like you've got this pack of cards, and 26 red ones have been pulled so far, so even if the pack is loaded, then then it's a fairly certain bet there'll be lots of blacks coming up in the future.

[BlasterBates]

Well hang on....

So if you own shares in Shell (BP being a bad example), for their shares to drop by 90%, would imply that demand drops by 90% or that the price of oil does.

I'm not sure I buy that!

[threaded]

Well hang on....

So if you own shares in Shell (BP being a bad example), for their shares to drop by 90%, would imply that demand drops by 90% or that the price of oil does.

I'm not sure I buy that!

He's not saying demand for oil will drop, he's saying demand for the shares will drop.

[Gonzo]

He's not saying demand for oil will drop, he's saying demand for the shares will drop.

Companies like Shell generate a lot of cash which is returned to the shareholders. There has to be a point where the share price goes so low that the yield becomes irresistible and the demand returns.

Why does he think this won't happen?

OK, I'll read the article now in case it is obvious.

[threaded]

Companies like Shell generate a lot of cash which is returned to the shareholders. There has to be a point where the share price goes so low that the yield becomes irresistible and the demand returns.

Why does he think this won't happen?

OK, I'll read the article now in case it is obvious.

Many companies have a low or even zero yield, insisting that the increasing value of their shares is sufficient return to their inverstors. M$ is a prime example.

When these shares stop rising in value, then the investors will want to see their dividends rise.

Now, if the companies don't have any cash to give them, there'll be a disparity.

Much like the South Seas Bubble, he gives as an example.

[The_Equalizer]

There would be complete social melt down long before it dropped 90% from current levels.

[threaded]

There would be complete social melt down long before it dropped 90% from current levels.

Yes, and how would that prevent values dropping lower?

[BlasterBates]

Many companies have a low or even zero yield, insisting that the increasing value of their shares is sufficient return to their inverstors. M$ is a prime example.

When these shares stop rising in value, then the investors will want to see their dividends rise.

Now, if the companies don't have any cash to give them, there'll be a disparity.

Much like the South Seas Bubble, he gives as an example.

Yes but not companies like Shell, all big co's pay good divi's at the moment div yields around 2%, that's what I get on average in my portfolio, so can't see dividend yields going up to 20%, which implies then that their profit will have drop by 90%.

[doodab]

Yes but not companies like Shell, all big co's pay good divi's at the moment div yields around 2%, that's what I get on average in my portfolio, so can't see dividend yields going up to 20%, which implies then that their profit will have drop by 90%.

Surely profit will need to go up if dividends are going up?

Alternatively, if share prices drop 90% and dividends stay the same, yield increases to 20% although profit and dividends remain exactly the same.

[threaded]

Yes but not companies like Shell, all big co's pay good divi's at the moment div yields around 2%, that's what I get on average in my portfolio, so can't see dividend yields going up to 20%, which implies then that their profit will have drop by 90%.

But 2% is lower than the rate of inflation 3.5%, so you're relying on share value to increase to make up the shortfall.

When inflation proper kicks in to make up for all the money they've given the banks, then the yield will have to go up to compensate, and if a company can't pay out then it's game over.