Friday, June 01, 2007

Bond Sales At Record High

Bloomberg's article this morning confirms some of what I stated a handful of weeks ago when I said corporate balance sheets weren't as pristine as many are leading us to believe with such out-of-bounds profits.

A quote from the article: "What's driving corporate bond issuance has been the funding of acquisitions, stock buybacks and special dividends. That will continue as long as the cost of debt remains relatively low compared to the cost of equity. Earnings growth is allowing companies to borrow money to finance 'shareholder-centric policies' without significantly changing their ratio of debt to earnings before interest, tax, depreciation and amortization according to S&P"

Impressive. Did he go to college to learn that? I tend to believe it will go on until it no longer goes on as opposed to the comment above. Well, given earnings are at levels only seen a few times in the last one hundred years, I would venture to say that debt to EBITDA ratio is a little misleading and unsustainable. Maybe the author of that comment should be slicing the data using a more fundamental and less cyclical metric given that fact. Did they teach you that in college?

Record debt issuances, record low investment and record "shareholder-centric policies'? How is record low investment shareholder friendly? Or, how is issuing debt to buy back stock shareholder friendly? Do you feel more friendly when you issue personal debt to help your bank? Or, how about when you borrow money to pay a special dividend to your family in the form of a spending spree of their choice? Personally, I feel a great satisfaction when doing so. Is there any difference? By the way, if you are in Europe, don't think companies in your back yard are any different. The European bond market just surpassed the US bond market in overall size. We all get to play the same game. Isn't that fun? Who said the US and Europe weren't on the same wave length anymore? The comradery is back!
posted by TimingLogic at 9:53 AM

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