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"Ukraine wasn’t the only weak credit to benefit from the appetite for emerging debt. Sri Lanka, rated like Ukraine deep in junk territory, raised $1 billion in 10-year cash, paying 5.875 percent. Demand for the bond exceeded $10 billion."
Holy cow! Sri Lanka gets better rate than Spain? WTF?
Reply to @Old_Joe: Well, we have an environment where people are desperate for yield, to the point where they don't really care as much as they should about fundamentals. It will, I think, likely lead to problems down the road.
Reply to @scott: To the extent Fed policy has pushed investors into junk at home and abroad and also into near-zero percent investment grade bonds (oxymoron intended), it's possible Bernanke will be remembered for the bond bubble much in the way Greenspan is remembered for the housing bubble.
Reply to @hank: Absolutely, and I think stuff like this is also going to be an increasing issue.
http://www.zerohedge.com/news/why-corporate-balance-sheets-just-dont-matter-new-zirp-normal "By now everyone knows that Chesapeake is a slow motion trainwreck: whether it is internal management issues, which eventually will culminate with the long overdue termination of the company's head (something the company had much control over and could avoid, but didn't, and should result in the sacking of the entire board for gross negligence), or plunging gas prices (something it had far less control over, but could have hedged properly, yet didn't), what is absolutely certain is that the firm's cash flow just isn't what it used to be. In fact, according to some, it is quite, quite negative. ***What, however, people do not know is that under ZIRP, when every basis point of debt return over 0% is praised, and an epic scramble ensues among hedge for any yielding paper no matter how worthless, the balance sheets of companies just do not matter.*** In other words, for companies that have massive leverage, high interest rates, negative cash flow, which all were corporate death knells as recently as 2008, the capitalization structure is completely irrelevant. We said this a month ago when we cautioned, precisely about Chesapeake, that "to all those scrambling to short the company: beware. CHK has a history of being able to fund itself with HY bonds and other unsecured debt come hell or high water. If and when the stock tanks, the short interest will surge on expectations of a funding shortfall. Alas, courtesy of the Fed's malevolent capital misallocation enabling, we are more than confident that the firm will be able to issue as much HY debt (unsustainably at 10%+, but that is irrelevant for the short-term) as it needs, crushing all short theses. What this means, simply, is that anyone who believes traditional fundamental analysis will and should work in the CHK case is likely to get burned." Sure enough, we were again proven right: Chesapeake just announced, following today's epic drubbing, that it is refinancing its secured debt facility (with its numerous restrictive covenants) with $3 billion in brand new Libor+7.00% unsecured paper (courtesy of Goldman and Jefferies). In doing so, CHK just got at least a one year reprieve."
"Time for action: Our three-pronged strategy to investment income can help you dramatically ratchet up your returns – and help you ADD THOUSANDS OF DOLLARS OF INCOME to your bottom line, month in and month out."
John Mauldin, Chairman, Mauldin Economics
Washington is trampling all over your investment income and retirement prospects.
Here's how to get out from under it and add thousands of dollars of investment income to your bottom line, month in and month out.
Reply to @hank: Yep. And I think the thing becomes that this period of "quest for yield" could go on longer than anyone could imagine, making the end result even worse.
I think it's really tough, especially for those in retirement age. I kind of agree with what Mark Cuban wrote - "3. I always laugh at all the pundits /analysts who try to tell you what any non-dividend paying stock is worth. Its a function of supply and demand. Its never fundamentals. Read what I wrote a long time ago about the stock market. In the case of facebook they put an ENORMOUS number of shares into the market. Too much supply. Valuation has no relevance what so ever. Conventional wisdom says the buyers of stocks will try to determine the value of a stock before they buy or sell and make the appropriate rational decision. Not even in a Richie Rich cartoon does that happen." (http://blogmaverick.com/)
I think yield is really important, but it's difficult to find real *value + yield* when everyone and their cousin is desperate for any sort of yield whatsoever.
Comments
Holy cow! Sri Lanka gets better rate than Spain? WTF?
http://www.zerohedge.com/news/why-corporate-balance-sheets-just-dont-matter-new-zirp-normal
"By now everyone knows that Chesapeake is a slow motion trainwreck: whether it is internal management issues, which eventually will culminate with the long overdue termination of the company's head (something the company had much control over and could avoid, but didn't, and should result in the sacking of the entire board for gross negligence), or plunging gas prices (something it had far less control over, but could have hedged properly, yet didn't), what is absolutely certain is that the firm's cash flow just isn't what it used to be. In fact, according to some, it is quite, quite negative. ***What, however, people do not know is that under ZIRP, when every basis point of debt return over 0% is praised, and an epic scramble ensues among hedge for any yielding paper no matter how worthless, the balance sheets of companies just do not matter.*** In other words, for companies that have massive leverage, high interest rates, negative cash flow, which all were corporate death knells as recently as 2008, the capitalization structure is completely irrelevant. We said this a month ago when we cautioned, precisely about Chesapeake, that "to all those scrambling to short the company: beware. CHK has a history of being able to fund itself with HY bonds and other unsecured debt come hell or high water. If and when the stock tanks, the short interest will surge on expectations of a funding shortfall. Alas, courtesy of the Fed's malevolent capital misallocation enabling, we are more than confident that the firm will be able to issue as much HY debt (unsustainably at 10%+, but that is irrelevant for the short-term) as it needs, crushing all short theses. What this means, simply, is that anyone who believes traditional fundamental analysis will and should work in the CHK case is likely to get burned." Sure enough, we were again proven right: Chesapeake just announced, following today's epic drubbing, that it is refinancing its secured debt facility (with its numerous restrictive covenants) with $3 billion in brand new Libor+7.00% unsecured paper (courtesy of Goldman and Jefferies). In doing so, CHK just got at least a one year reprieve."
It looks like we have an answer:
http://www.mauldineconomics.com/landing/yield-shark-4/MEC005ES0712A
"Time for action: Our three-pronged strategy to investment income can help you dramatically ratchet up your returns – and help you ADD THOUSANDS OF DOLLARS OF INCOME to your bottom line, month in and month out."
John Mauldin, Chairman, Mauldin Economics
Washington is trampling all over
your investment income and
retirement prospects.
Here's how to get out from under it and add
thousands of dollars of investment income
to your bottom line, month in and month out.
I think it's really tough, especially for those in retirement age. I kind of agree with what Mark Cuban wrote - "3. I always laugh at all the pundits /analysts who try to tell you what any non-dividend paying stock is worth. Its a function of supply and demand. Its never fundamentals. Read what I wrote a long time ago about the stock market. In the case of facebook they put an ENORMOUS number of shares into the market. Too much supply. Valuation has no relevance what so ever. Conventional wisdom says the buyers of stocks will try to determine the value of a stock before they buy or sell and make the appropriate rational decision. Not even in a Richie Rich cartoon does that happen." (http://blogmaverick.com/)
I think yield is really important, but it's difficult to find real *value + yield* when everyone and their cousin is desperate for any sort of yield whatsoever.