Macquarie Bank: Cheap Credit Makes Asset Valuation Difficult

And speaking of asset quality, what is it exactly Jim Chanos said about Macquarie Bank’s (ASX:MBL) assets? According to a Bloomberg story published today, “Chanos said buying assets at high prices and transferring them into entities funded by other investors will only work for Macquarie while credit is cheap and assets are increasing in value.”

Again it comes down to asset valuations. Macquarie’s boss Allan Moss is confident Macquarie hasn’t overpaid for its global infrastructure assets. And as long as the bank’s assets continue to rise in value, he’s correct.

These days, nearly everything is rising in value-except property developments that were overvalued to begin with. Hmm. Were infrastructure assets and their ability to produce future revenue overvalued to begin with, too? It’s possible.

The trouble with assets is that they change in value, while liabilities do not. Ask this to any former homeowners who’ve been foreclosed on. No one is going to foreclose on any Macquarie funds, of course. But the issue of asset quality and valuations is always important. It’s obscured when the availability of cheap credit means that…money is no object.

In this context, it’s worth mentioning that China’s CSI 300 Index was up 2.3% yesterday. Over US$50 billion in shares traded hands in Shanghai and Shenzhen. The government tried to cool the market again by raising the stamp tax on shares from 0.1% to 0.3%. But 455,111 new trading accounts were opened to trade mainland shares…yesterday.

According to the China Securities Depository & Clearing Corp., there are now 100 million people trading stocks in China. There are 436 days to go until the Olympics. It’s unlikely the market will go up at 2% compounded every day until then, but if it keeps it up, we might even have to take a punt. Everybody loves a parade!

How do you value an asset anyway? Ay, there’s the rub, dear reader. It’s the same question, whether you’re in Shanghai, Sydney, or New York. The answer appears to be the same everywhere, too. You don’t! Buy now, flip later. More on asset valuation later…

Dan Denning
Markets and Money

Dan Denning

Dan Denning examines the geopolitical and economic events that can affect your investments domestically. He raises the questions you need to answer, in order to survive financially in these turbulent times.

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