Wednesday, April 1, 2009

When will this (the credit crunch) end?

When will this end?

The credit crunch has virtually stopped station trading. The "When will this end?" question comes up daily. The short answer: When liquidity returns to the credit markets. And clearly, no one, not even the administration, knows the answer.

However, perhaps we can learn something from history. The last major credit freeze took place in the early 1990's. You may remember the "Highly Leveraged Transaction ('HLT')" fiasco. Banks quit lending to broadcasters, and many called their existing loans. Station trading, other than distress sales, ground to a halt. Prices plummeted on those few trades that did occur.

That debacle lasted some 18 months. If you define the "start" of the current freeze at the time banks started pulling back, we have already exceed the 18 months. If you define the "start" as the beginning of the recession (two negative growth GDP quarters), we have a while to go.

But here is a guideline: watch the stock market. Unfortunately, it is best viewed from a rear view mirror. But the market tends to be a leading indicator. Once it appears to have put in a bottom, look for things to improve in the subsequent six months. Market watchers might suggest watching the 200 day moving average of the Dow; once the moving average begins to move north, we could be on our way to recovery.

Those are my thoughts? What are yours?

George