Olam International

[weijian]

OMG, FWIW and IMO, you are wrong on the "high leverage ratio doesn't matter as long as asset duration are matched with liability duration" thesis.

cashflow, earnings, quality of assets, ROA metric matters too. finally, increasing leverage ratio to deliver earnings growth is not a viable nor sustainable business model. no good can come from that.

High leverage is used by commodity traders for centuries.

Debt (the same for derivative) is a tool. It becomes dangerous under wrong hands, and used wrongly.  

as i've said, your analysis is too simplistic and superficial. a more holistic approach is warranted.

hi getrich,
After reading through your posts and the examples you given, it seems to me that like you ain't practicing what you preach too. I reckon you may not understand the difference between "All highly leveraged companies will fail" vs "All failed companies are highly leveraged". You are focusing on the latter. CF/Clement and Co. already know the latter and are expanding a discussion on the former.

2 cases in point below:
(1) Due to fractional banking system, banks are always highly leveraged. In times of bust, not all banks fail (with the exception of GFC2008 where it was a matter of confidence, not leverage for some of the bluest banks) almost only the ones which has mismatched asset-to-liability timeframes (short term liabilities vs long term/illiquid assets), actually has gone bust.
(2) Most sovereign nations are also highly leveraged. Japan and US haven't failed (yet) despite their high debt-GDP ratios by historical standards. But during AFC97, countries like Thailand/South Korea/Indonesia only took a few years to blow up and had to seek bailouts due to their huge foreign debt.

What I am trying to say is (just in case you haven't got it), is that a leveraged balance sheet is never (almost) the catalyst for failure. In our complicated world, it has to be more complicated than that.