Weekend Miscellany
A few items I thought noteworthy for weekend perusal:
Corporations are issuing debt on record terms (and in the junk market in record volume). IBM recently issued three year paper at a meager 1 percent. And JNJ just set the record for longer paper — “around 3.10% for the 10-year maturity and 4.5% for the 30-year paper if market conditions hold.” In a nutshell, while there are many variables at play, front and center is investors’ desire for safety and income. It also partially explains why junk paper is being issued at a record clip. Need I say that this dovetails nicely into the demographic theme I’ve been harping on?
The Journal floats a story — I haven’t seen this one in a while — about the “Hindenberg Omen.” Now, I’m open to all manner of data analysis. But when you tell me (toward the end of your story) that (emphasis mine): “The Omen was behind every market crash since 1987, but also has occurred many other times without an ensuing significant downturn. Market analysts said only about 25% of Omen appearances have led to stock-market declines that can be considered crashes,” you have pretty much wasted my time. Wake me up when you find something with an actual correlation — last I checked, 25% isn’t even in coin-flip territory. And where was this indicator prior to the flash crash, or does that not count?
Third, the Journal’s Kelly Evans did a great one-on-one interview with the inimitable David Rosenberg. This is not sound-bite, dodeca-box TV. It’s good stuff, and absolutely worth 26 minutes of your time.
Last, but not least, Economics of Contempt has some of the truly priceless, must-read research that the sell side was pumping out on Lehman Brothers just before the firm went under. EOC is, in my opinion, one of the blogosphere’s best kept secrets.
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August 14th, 2010 at 5:21 pm
Last, but not least, Economics of Contempt has some of the truly priceless, must-read research that the sell side was pumping out on Lehman Brothers just before the firm went under…..
and the AAA ratings on LEH ahead of the collapse
http://www.moneymarketing.co.uk/regulation/news/how-lehman-brothers-hid-its-problems-from-the-world/1008362.article
August 14th, 2010 at 5:23 pm
I have the Economics of Contempt “must-read research” in the queue for the 2nd anniversary of the Lehman Brothers collapse …
August 14th, 2010 at 6:15 pm
One has to wonder what the consequences of the current Bond Buying Binge (BBB) will be. For corporations the access to CC (Cheap Capital) should benefit the bottom If used prudently. I know there must be some negatives to this as well, but can’t come up with any, Help!
August 14th, 2010 at 8:15 pm
“And where was this indicator prior to the flash crash, or does that not count?”
Invictis (don’t know if I spelled that right because a ‘Droid’ ad has dropped over your id stamp), if memory serves, BR posted he went to “all cash” the day before the flashpocalypse occurred.
August 14th, 2010 at 8:28 pm
Seems corporations are issuing debt and paying themselves off and/or sitting on he cash. The low rates are not increasing economic activity. It is buying time for over-leveraged firms, but many of them will fail. Hoenig is right. Rates need to rise.
August 14th, 2010 at 11:51 pm
Methinks the “must-read research” out be queued up more frequently than annually. Self-serving research
is what truth the people are ready to accept and is is always not the truth. This is second nature for the survivors.
August 15th, 2010 at 12:37 am
EOC really doesn’t seem to like Chris Whalen for some reason. Mind you he gets fired up over a number of commentators.
August 15th, 2010 at 2:43 am
Apropos of nothing,just saw one of those reality shows on TV here in Australia,Episode 2 of “The Fabulous Beekman Boys”. Could have sworn I saw Mr Ritholtz in one scene set in a restaurant in Sharon Springs NY. Can anyone confirm?
~~~
BR: Not that I know of !
August 15th, 2010 at 8:02 am
John Hussman and others have been commenting that corporations are not really long the tons of cash.
What’s fascinating about the “corporate cash” argument is that few observers recognize that a great deal of this cash is not retained earnings but new debt issuance. Brett Arends of MarketWatch puts present levels of corporate cash in perspective: “According to the Federal Reserve, nonfinancial firms borrowed another $289 billion in the first quarter, taking their total domestic debts to $7.2 trillion, the highest level ever. That’s up by $1.1 trillion since the first quarter of 2007; it’s twice the level seen in the late 1990s. Central bank and Commerce Department data reveal that gross domestic debts of nonfinancial corporations now amount to 50% of GDP.”
http://www.hussmanfunds.com/wmc/wmc100809.htm
August 15th, 2010 at 9:36 am
Sechel:
New bag-holders being created every day (funny thing is, there’s nothing in the bag).
Not to worry — no one but holders of common stock (1 share = 1 vote) ever loses in AmeriCo, Inc. Management and Preferred Shareholders (AAA+++/Double Plus Good Corporations), are covered under any and all scenarios.
August 15th, 2010 at 9:40 am
Actually we had 3 ‘Hindies’ before the crash but yeah – it’s probably pile of mush.
Think of it more like a gague as to the underlying health of the market with regards to volatility, selling into strength, correlation breakdown frequency etc.
August 15th, 2010 at 4:14 pm
Major quality corporate paper has been thrown a lifeline from the bond market for 5-10 years.
Of course corps are loading the boat. Any new issuance that under some freak circumstance couldn’t be serviced, could be paid for simply by cutting dividends. Issue bonds, buy back equity. Big corps might just be taking themselves private again…
Scared retail and boomers are giving up the upside, just for “money good”.