From Bill Bonner, Chairman, Bonner & Partners:
Today, we plunge into the sublime.
That’s right: We are leaving the ridiculous behind. Instead, it’s headfirst into the dark pool of things we will never understand and probably never should try to.
The European Central Bank president has made borrowing so cheap in the region that foreign corporations are selling record amounts of debt. Forget the deeper, bigger US corporate-bond market. Borrowing in euro is all the rage these days because it’s about 2 percentage points less expensive to do so.
About 65% of the record 60 billion euro of investment-grade bonds sold in March came from overseas companies, according to a March 27 Bank of America report. And a lot of those sellers are based in the U.S. […]
The trend comes down to basic math.
Yields on investment-grade bonds in Europe have fallen to 0.99%, compared with 2.9% on those in the U.S., according to Bank of America Merrill Lynch index data.
Like all borrowing binges, this one is likely to end badly…
Poor Bankruptcy Lawyers!
Last week, we looked at the glass half-empty – at the fall off in new start-up businesses in America.
Today, we look at the glass bone dry!
Yes, for every business
image: http://images.intellitxt.com/ast/adTypes/icon1.png
not started in America, there is at least one that also doesn’t go
broke. In 2014, the number of U.S. corporate bankruptcies dropped to
less than half the number in 2009.
But whence comes this big drop in bankruptcy rates? Why can’t businesses go broke like they used to? And how come there are so few new business
image: http://images.intellitxt.com/ast/adTypes/icon1.png
start-ups?
Look no further than Yellen, Draghi, et al. Thanks to them, borrowers
can score money at less than 1% interest from apparently compos mentis
lenders.
Or even more into the realm of the sublime, imagine you are borrowing at negative interest rates. JP Morgan says there is as much as $3.7 trillion worth of debt outstanding for which the lender gets no more than a poke in the eye.
Dead Wood
We pose the question not as a financial matter, but as a philosophical one.
The world works (the financial world certainly and maybe the rest of the world, too) by rewarding effort, self-discipline, and forbearance… while punishing error, sloth, and impatience.
These verities are written down somewhere:
The person who works steals a march on the layabout.
The person who takes the time to study and learn is able to do what the ignoramus cannot.
The person who saves his money can lend it out, thus earning more money.
Imagine a restaurateur whose cuisine is so repulsive and whose kitchen is so dirty that diners regularly need to be rushed to the hospital
image: http://images.intellitxt.com/ast/adTypes/icon1.png
to have their stomachs pumped.
He might borrow money to set up his restaurant, but in a normal world
he would soon be unable to pay the interest on his loan. He would
default and be out of business. Diners would be spared.
But imagine if he could borrow below the rate of inflation?
The worse his business did the more he’d need to borrow. And the more he borrowed, the more money he’d make!
When would he default on his loan? When would he be forced out of business?
Hell would close for business before he does.
In what universe does this work?
“Creative destruction” was the term used by Austrian-American economist Joseph Schumpeter to describe how a healthy
image: http://images.intellitxt.com/ast/adTypes/icon1.png
capitalist system works.
It clears out the deadwood from time to time by destroying businesses
image: http://images.intellitxt.com/ast/adTypes/icon1.png
that can’t make a profit.
Now, thanks to Mario Draghi, the wood just gets deader.
Bill
Today, we plunge into the sublime.
That’s right: We are leaving the ridiculous behind. Instead, it’s headfirst into the dark pool of things we will never understand and probably never should try to.
First, we pause to take note of the latest debt binge. Reports Bloomberg:
Just when debt-addicted American companies were starting to worry
that Federal Reserve Chair Janet Yellen was going to take their
proverbial punch bowl away, along came Mario Draghi.The European Central Bank president has made borrowing so cheap in the region that foreign corporations are selling record amounts of debt. Forget the deeper, bigger US corporate-bond market. Borrowing in euro is all the rage these days because it’s about 2 percentage points less expensive to do so.
About 65% of the record 60 billion euro of investment-grade bonds sold in March came from overseas companies, according to a March 27 Bank of America report. And a lot of those sellers are based in the U.S. […]
The trend comes down to basic math.
Yields on investment-grade bonds in Europe have fallen to 0.99%, compared with 2.9% on those in the U.S., according to Bank of America Merrill Lynch index data.
Like all borrowing binges, this one is likely to end badly…
Poor Bankruptcy Lawyers!
Last week, we looked at the glass half-empty – at the fall off in new start-up businesses in America.
Today, we look at the glass bone dry!
Yes, for every business
image: http://images.intellitxt.com/ast/adTypes/icon1.png
not started in America, there is at least one that also doesn’t go
broke. In 2014, the number of U.S. corporate bankruptcies dropped to
less than half the number in 2009.
The poor bankruptcy lawyers!
Imagine them sitting in their offices, with spiders spinning cobwebs in their doorways. Lonely, bored… on edge of desperation.But whence comes this big drop in bankruptcy rates? Why can’t businesses go broke like they used to? And how come there are so few new business
image: http://images.intellitxt.com/ast/adTypes/icon1.png
start-ups?
Look no further than Yellen, Draghi, et al. Thanks to them, borrowers
can score money at less than 1% interest from apparently compos mentis
lenders.Or even more into the realm of the sublime, imagine you are borrowing at negative interest rates. JP Morgan says there is as much as $3.7 trillion worth of debt outstanding for which the lender gets no more than a poke in the eye.
Dead Wood
We pose the question not as a financial matter, but as a philosophical one.
The world works (the financial world certainly and maybe the rest of the world, too) by rewarding effort, self-discipline, and forbearance… while punishing error, sloth, and impatience.
These verities are written down somewhere:
The person who works steals a march on the layabout.
The person who takes the time to study and learn is able to do what the ignoramus cannot.
The person who saves his money can lend it out, thus earning more money.
But what if the saver is punished… what if, for his trouble, he earns a negative yield?
Or look at the other side… look at the borrower.Imagine a restaurateur whose cuisine is so repulsive and whose kitchen is so dirty that diners regularly need to be rushed to the hospital
image: http://images.intellitxt.com/ast/adTypes/icon1.png
to have their stomachs pumped.
He might borrow money to set up his restaurant, but in a normal world
he would soon be unable to pay the interest on his loan. He would
default and be out of business. Diners would be spared.But imagine if he could borrow below the rate of inflation?
The worse his business did the more he’d need to borrow. And the more he borrowed, the more money he’d make!
When would he default on his loan? When would he be forced out of business?
Hell would close for business before he does.
In what universe does this work?
“Creative destruction” was the term used by Austrian-American economist Joseph Schumpeter to describe how a healthy
image: http://images.intellitxt.com/ast/adTypes/icon1.png
capitalist system works.
It clears out the deadwood from time to time by destroying businessesimage: http://images.intellitxt.com/ast/adTypes/icon1.png
that can’t make a profit.
Now, thanks to Mario Draghi, the wood just gets deader.
Regards,
image: http://www.bonnerandpartners.com/wp-content/uploads/2013/09/Bill-Bonner_sig.png
Bill
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