Carl from Chicago

Business executive interested in history, economics, taxation and energy policy.

Debt Frontiers – Amazon and Australia

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Amazon, the giant online retailer, recently issued debt at absurdly low rates. Per this Bloomberg article:

Amazon, which had no bonds outstanding, sold $750 million of 0.65 percent three-year notes that yield 38 basis points more than similar-maturity Treasuries, $1 billion of 1.2 percent five-year debt with a 63 basis-point spread and $1.25 billion of 2.5 percent securities maturing in 10 years that yield 93 basis points more than benchmarks

Let’s look at those yields again. Amazon is able to issue 10 year bonds with a yield of 2.5%. That is an amazingly low rate for a company that barely makes a profit, albeit one with a giant market cap.

Nowadays you don’t even have to have a REASON to issue debt. Amazon issued this debt partially to pay for their new corporate campus and partially for “general corporate activities”.

When corporations can issue debt at these sorts of low, low rates you really need to think about the rate of return that you are expecting for your portfolio. These sorts of low rates either point to a “bubble” in corporate debt (it doesn’t look like a bubble to the less sophisticated because they associate high prices for stocks or real estate with a bubble, but in terms of bonds, a low interest rate on a longer term maturity means that you essentially got a lot without paying much to investors in return) or just a long term re-setting of expectations among bond investors, a capitulation of sorts.

On the other side of the world, Australia is having a wild ride. The Australian Dollar is coveted because it is a “commodity economy” and is independent of the typical reserve currencies such as the US dollar, the Euro, and the Yen. Australia also offers higher (relatively) yields on their government debt. When I was in Australia many years ago the Australian Dollar was 60 cents on the US dollar; the Australian dollar is now stronger than the woeful US dollar (or US peso). As a result of these strengths, 63% of Australian debt is now held by foreigners (per the article). Recently some government officials are calling for a more formal registry into who is buying their bonds; the government is attempting to reduce the value of the Australian dollar because it is hurting tourism, exports and their international competitiveness and reduced interest rates significantly as a result. But all is to no avail as the value of the Australian dollar stays high, buoyed in part by the robust demand by foreigners for Australian denominated assets such as government debt.

It is a strange world where a company that doesn’t have much of an actual profit can raise debt at rates not much higher than the US government and a country like Australia has giant demand for their currency and government debt due in part to its diversification from the typical currency basket components.

Cross posted at Trust Funds for Kids

India Electricity

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Since I spent a lot of time in the power generation business I am always interested in electricity systems. India is probably the first country I’ve ever been to where you can regularly witness electricity theft from the system on a large scale.

The electrical systems seemed to be reliable during the time I was there, although it was likely “low season” since it wasn’t very hot out (November) which I assume sets the peak demand for India.

The power routinely turned on and off in one of the hotels I stayed at. The lights would go out completely for a moment until the “hum” of the backup generator kicked in. Likely the inclusion of backup power is an absolute requirement for the type of higher level tourist hotels that I stayed in.

High quality hotels in India had the European model where you had to put your key card in the slot when you entered the room in order to turn the power on or keep it running for more than a few minutes. This model power down the room when you are out.

The newer office parks where the IT service industry was located had what appeared to be modern electrical systems with many of the lines buried underground. The transmission lines along the highway often appeared new, even if they ran right by huts and houses that obviously had no power since they weren’t connected to the local distribution system.

India also appeared to be air conditioned in the major tourist areas for hotels and shopping as well as the newer office parks. The buildings were designed as if to rely on central air conditioning and the backup power was there to provide electricity when the power goes out (although I don’t think they could run A/C indefinitely).

Cross posted at LITGM

Indian Armed Police

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While in India I was struck by the myriad number of police and security personnel that I encountered armed with a wide varied of weapons from a large bamboo stick (a lathi) to an old shotgun to myriad variants of the AK-47 (since the Indians have long relied on Soviet weapons).

I have a general policy of not taking photos of people with guns and I thought this was a doubly wise policy to follow in India. The above security forces were at the Taj Mahal where everyone was taking photographs anyways so I thought that would be harmless.

The number of police forces and security forces you encounter on a regular visit can be staggering. There were armed soldiers (actually paramilitary forces, although apparently they don’t like the term in India) with AK-47’s checking your ticket at the major airports. I always wonder why you’d arm someone with an MG like this in a crowded situation since it would be hell on civilians but I guess they are likely preparing for a heavily armed terrorist attack more than a typical criminal encounter.

At the famous facilities like the Taj Mahal and the Amber Fort many of the security forces were unarmed but in uniform. The uniforms generally seemed clean and organized at the main tourist attractions.

This wikipedia site details the various security forces within India, which don’t include the main branches of the armed services. Malls and stores also had armed guards, particularly those dealing with gold and jewelry, although one old shotgun I’d bet hadn’t been fired in a decade or more.

Cross posted at LITGM

India Pollution

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In the US we hear frequently about the environment and how we are doing so much damage to our environment. It would be good for people to visit India to see actual pollution in action on a large scale.

As we drove around Delhi, the smog was amazing, even with all the vehicles that converted to CNG from diesel (in this picture you can see a tuk tuk in “CNG” yellow and green colors). In this photo there are a couple of huge office buildings right off the road but you can’t even make them out in the smog. We asked our guide if the CNG over diesel made any difference and he said that in the days before the conversion “if you wore a white shirt outside it would be colored grey from all the soot in one day”.

This photo shows a jet flying over a famous minaret in Delhi. You can see the smog there, too.

I felt like one of those cartoon characters where when you cough “dust” flies out of your mouth. One of my close travel mates blew her nose and it just came out black. And we were in a tour bus much of the time that was just from being outside seeing the monuments (and then getting herded back in the bus).

With the CNG and investments in public transport it seems that India is trying but the current state seems unimaginable to a Westerner. I really don’t think that I’d be able to survive in Delhi for an extended period of time since I have allergies unless I never left the house.

Cross posted at LITGM

India Driving

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I recently was in five major cities in India. I was struck by driving in India and how different it was than driving in the western countries.

Photos And Observations

They have vehicles in India that I haven’t seen before. This is a “tuk tuk” or auto rickshaw as they are formally called. They are 3 wheelers with a motorcycle in the front and a seat in the back for passengers. Note that the streets are empty because this is a secured area – the India Parliament is in the background – you cannot linger here – and this was about the only light traffic area I saw in India except on some of the major tollways (briefly).

The tuk tuk is yellow and green because that is the color of vehicles that have been converted from regular fuel to Compressed Natural Gas (CNG). This was done in order to make the air cleaner in major Indian cities such as Delhi.

One item that makes Indian driving so much more complex than in first world countries is the bewildering array of vehicles on the road from horse and camel drawn carts to bicycles to rickshaws to tuk tuks to scooters and everything else. There are vehicles barreling down the road as fast as they can and those that can’t move hardly at all, sharing the same space.

Scooters and motorcycles were everywhere, mixed in with the cars. We saw a family of five on one scooter, with a child in front, the male driver (with a helmet), another child, his wife (sitting sideways), and then another child on the very back.

In India they don’t use lanes, they just crowd together and cut each other off, honking their horns to signal all the while. To Westerners it looks like chaos but it obviously works in that an entire country is getting where they want to go. I heard of a campaign called “Lane Driving is Sane Driving” trying to change behavior but I could see no evidence of it at hand.

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