Or as we say in Texas, ‘Guten Tag, y’all!”
Month: October 2012
Afghanistan
Chicagoboyz community member Death 6 has some thoughts:
Some of you might be wondering what is really going on in Afghanistan given
the official statements, news coverage (or lack of) and some recent
significant engagements. As someone who networks in the intell and military
affairs communities, I found this recent article an accurate and concise
summary of where things stand and a good guide to where it is likely to be
going from here. The following summary with link was extracted from an email I received:
“Afghanistan is the War that is covered in 1/2 inch articles in the back of
your newspaper. It is hardly covered on TV. The last of Obama’s surge troops
have been withdrawn, the remaining troops are no longer training the
Afghanis [sic], opium farming and sales are up… only the remaining troops
must remain for more than a year and a half. This short article tells a sad
tale.
http://cb75948.wordpress.com/2012/09/27/obamas-war/
The media only skimmed over the recent military slaughter and equipment
destruction in Afghanistan…. C Brewer”
(The article that Death 6 refers to appears here.)
Market Timing on Debt
The historical “rule of thumb” is that markets are rational. This is likely true over some period of time, but not in the short run.
A recent article in the WSJ (more like a blurb, on the back page) called “The Big Number” described the current situation with junk bonds.
Yield hungry investors are making the bond market a welcoming place for even the lowest rated borrowers. The average yield paid by new triple-C rated issuers (i.e. “junk”) of corporate bonds in the third quarter hit a record low.
The current yield on new CCC bonds is 9.05%, down from 10.65% in the second quarter of last year. This is a decline of 18% in about a year, which is a giant decrease for a company considering re-financing.
In addition to being able to sell debt at the lowest rates in years, these highly leveraged firms are also able to find buyers for their debt (i.e. the market is liquid).
When the market freezes up, as it did in 2008, there are two main impacts – 1) the rates that everyone pays for financing in the short term move up sharply 2) there is little financing available for those that don’t have the strongest credit. In practical terms, #2 means that if you need money, it will cost you very dearly such as when Goldman Sachs had to borrow from Warren Buffet at a 10% preferred stock issuance.
While it is very difficult to determine the right time to buy and sell, there is no doubt that “market timing” is of incredible importance. If you have a highly leveraged company, these low rates and many yield hungry buyers willing to lend to you means that you can retire very high cost debt, load up on lower cost debt, and roll out maturities for many years, buying your company valuable time in case there is a recession or business downturn.
Today is literally the opposite point of time in terms of market timing from when Goldman Sachs was forced to pay 10% rates to Buffett; today even the lousiest company (in terms of credit ratings) can get funding cheaper than that (9.05%, per this article). This doesn’t mean that rates won’t still fall – if I could predict that I’d be on an island somewhere – but it does show the amazing difference in market conditions that just a few years made, without the economy itself changing in any substantive manner.
Who is buying all of this? Right now your bank account and CD’s effectively pay almost zero, and US government debt 10 years out is 1.6%. Thus for someone who wants income, an investment that pays 9.05% LOOKS a lot better than under 2%.
The flip side of loaning to the most highly leveraged, lowest rated companies, is risk. Risk can be business risk or their continued ability to find low rate financing (liquidity).
On a market timing basis, this is the best time for these sorts of companies.
Cross posted at Trust Funds for Kids
Death of a Communist crime denier
The political and academic historical world of the British Isles seems to have been plunged into mourning at the death of Professor Eric Hobsbawm CH (Companion of Honour), author of many hefty tomes and a life-long Marxist and Communist. People who would rightly excoriate any Holocaust denier weep copious tears over a man who has spent decades denying the crimes of Communism, supporting the most horrible totalitarian system in history, skating over such matters as collectivization, the show trials and the forcible take-over of Eastern Europe after the war and writing history that is pure Marxism. Well, not me, if I may use such an ungrammatical expression. Here is my take on the man.
The French Aviators and the Slave
The discussion of Islamic slavery in the discussion thread here reminded me of a great piece of writing by Antoine de Saint-Exupery. St-Ex was a pioneering airmail pilot who spend much time in North Africa. The events described date from the late 1920s or early 1930s.
“Hide me in the Marrakech plane!”
Night after night, at Cape Juby, this slave would make his prayer to me. After which, satisfied that he had done what he could for his salvation, he would sit down upon crossed legs and brew my tea. Having put himself in the hands of the only doctor (as he believed) who could cure him, having prayed to the only god who might save him, he was at peace for another twenty-four hours.
Squatting over his kettle, he would summon up the simple vision of his past-the black earth of Marrakech, the pink houses, the rudimentary possessions of which he had been despoiled. He bore me no ill-will for my silence, nor for my delay in restoring him to life. I was not a man like himself but a power to be invoked, something like a favorable wind which one of these days might smile upon his destiny.
I, for my part, did not labor under these delusions concerning my power. What was I but a simple pilot, serving my few months as chief of the airport at Cape Juby and living in a wooden hut built over against the Spanish fort, where my worldly goods consisted of a basin, a jug of brackish water, and a cot too short for me?
“We shall see, Bark.”
All slaves are called Bark, so Bark was his name. But despite four years of captivity he could not resign himself to it and remembered constantly that he had been a king.
“What did you do at Marrakech, Bark?”
At Marrakech, where his wife and three children were doubtless still living, he had plied a wonderful trade.
“I was a drover, and my name was Mohammed!”