Blue-Chip Supply, Debt Demand, And $105 Billion In Cash Off The Sidelines
As expected, this week saw a deluge of new high-grade supply, with the US investment grade primary market buzzing to the tune of nearly $50 billion post-Labor Day.
That takes the total for 2020 even further into record territory, as the Fed's unprecedented backstop for the US corporate bond market continues to stoke demand, which in turn translates to ever lower borrowing costs, in a virtuous loop.
Of course, that depends on your definition of "virtuous". Record supply also means an already ov
It’d be nice if some of the money, like maybe 5% of it, a laughably low figure, I know, but you get the point, that these companies are issuing would go to R&D, product development, and other capital expenditures. We are going to need at least one new industry, preferably two or more, in order to spur productivity and job growth. My SS later in life is depending on it.
Once this COVID thing passes, we are going to need to figure out how to create tens of millions of jobs over the next decade. We need innovation and investment. If we don’t get it, there are only going to be so many dishwasher jobs at Taco Bell to go around.
Here’s one growth opportunity:
Undercover (old factories rehabbed) Production Agriculture. 35 X’s the annual yield, organic, 80% water use reduction, nearly closed-loop nutrient capture, on-site energy supplement (rooftop wind/solar), stable workforce.
There are more people living on this planet than have died over the timespan of recorded history.
And they all need ~2K in calories everyday.
It doesn’t take a genius to solve a problem.
Like this idea, but probably not large enough scale to weigh on the growth side.
I know it’s an increase in the ratios, but does anybody know how much of this deluge is to cover calls of bonds that were issued at higher rates?
I would also like to know how much went to buying back stock. Difficult to tease that information out quickly but over time some good analyst should be able to make a reasonable estimate.
buybacks have plunged.
Although data is not the plural of anecdote, a lot of the REITs and MLPs I follow are just issuing / buying bonds to stretch out their maturity schedules.
I suspect corp credit issues down the road (2-5yrs) will make the resi real estate issues of the GFC look tame. The money was raised prior to Covid to buy back stock to a large degree and sustain declining businesses. NOT productivity enhancing or innovation enhancing (Eco growth). Resi real estate was also an unproductive asset that did not create productivity or innovation.
Now we have an over levered corp that hires, gives raises, buys equipment, facilities, etc. as cash flow is slow to recover corps will have to shift those resources to dealing with their debt burden.
The Fed checked in to the Hotel California and can’t ever leave.
It will probably be the cause of the next crisis and will again be deeper than the priors as we never deal with our issues only paper over them.