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 The Simple Facts On Equities And Debt
Edward.fish 333 posts, incept 2021-12-17
2022-09-16 14:07:39

Whitehat wrote..
Just speculation, however the pressure on profits and borrowing in general might finally break that method where cheap money allowed corporations to run at a loss and take over numerous independent industries and small businesses.
Would love to see that scam, which is illegal btw, curtailed.

@Whitehat -- Exactly so; significant portion of our economy problems boil down to cheapness, whether it's cheap money (driven by debt) or cheap labor (driven by illegal immigration and "H1B" fraud), the distortions on true valuation keep compounding and need to be corrected.

Tickerguy wrote..
@Trappedinca - No, because liquid cash has to be in short term paper and time is never free.
Well, it isn't in the real world. In Clown World IT HAS BEEN for the last couple of decades. THAT is a huge part of the problem.

@Tickerguy -- I suspect that enough time has passed, the "couple of decades" you mention, where corporate management have never suffered because of these assumptions that they simply have forgotten that they are assumptions. And, much like certain sectors finding out that "we can always hire [pre-]trained people from our competitors!" (and thus don't need to train new people) it only works while the assumption holds: i.e. there ARE people to take the work.*

The big-corporations and integral/"essential" industries have been taught, since 9/11, that they can't fail:
a) The airlines immediately post-9/11;
b) The 2008/2009 Banking crisis bailouts;
c) The automotive (e.g. GM) bankruptcy/bailout;
d) The 2020 Shutdowns, redirecting the market from small-/medium-size businesses to the Wal-marts and Amazons.

At this point I suspect that the assumptions have become so ingrained and taken for granted that the leadership and management simply don't know how to manage things w/o those assumptions holding.**

* -- E.G. The financial-sector shitting bricks about experienced COBOL programmers ageing out as a population... while simultaneously refusing the obvious solution(a) of (a) training and (b) increasing salaries. (They've fallen into the trap of wanting "senior level experience at junior[/intern] level pay".)
** -- Our military is in a similar situation relying on bad assumptions: they are utterly untrained to operate in an environment where there is no air-superiority. (I've been out for a bit more than a dozen years, and we still had a bit of training on how to run operations in the absence of quick/easy comms, but that was dying out; I wonder if they'd be able to operate in a theater where there's active interference.)

Dingleberry wrote..
Great post, succinct so even those of us who are maff-challenged in the commentariat can understand.

@Dingleberry -- The problem is that here in clown-world the math doesn't matter. Instead, it's all the "math" of computer-models, which rely on assumptions and nobody looking at the "magic number" the computer spit out against reality. This non-critical reliance on "well, the computer said" is one of the reasons that the hype in "AI" is catching-on/being-pushed as "the solution" to our corporate problems, despite actually being an over-glorified fuzzy pattern-matching (think "statistical regex").

And the funny thing? When the underlying model buts up against reality, showing some sort of uncomfortable association, the model is altered to rid that association rather than investigation the WHY that was underlying it. (E.G. The story of the Amazon resume-AI kicking out resumes of black people, which was subsequently altered because it was racist.***)

All this is summed up in that one saying: "You can ignore reality for as long as you want, but you cannot escape the consequences of ignoring reality."

*** -- This one has an actually arguable need to be discontinued, considering the law prohibiting racial discrimination.
Edward.fish 333 posts, incept 2021-12-17
2022-09-16 14:36:22

Abelardlindsey wrote..

Tickerguy wrote..

Joedirt11 wrote..
Off topic, what do you make of senator Grahm (I despise the guy) deliberately sabotaging the party with his stupid abortion bill?
Oh its definitely intentional - but it points out that BOTH SIDES are perfectly happy shooting themselves in the head and believe they can get away with it without being eaten.

But why? How does Graham benefit by damaging his own party?

@Abelardlindsey, @Joedirt11 -- Because, as we have seen from the past 20 years, the Republican party is "all hat, no cattle" --look at the [non-]progress on any party plank: fiscal-responsibility, government-accountability, abortion, Constitutionalism & Rule of Law-- who are the epitome of controlled opposition* and, as @Tickerguy says, because they think they will never be held to account.

The Republican Party (at least at the national level) IS the Texas of Politics. Remember the "Border Crisis" of a decade/decade-and-a-half ago, when Ted Cruze and (IIRC) Glenn Beck went to the border to give children illegals teddy-bears and soccer balls? Remember the TX gov calling up the National Guard to secure the border? Remember the TX general in charge of the Guard declining to answer the question of if the soldiers would be armed because of operational security? (Despite the fact that SOLDIERS ARE ARMED!) Literally violating operational security because to say 'Yes' would give ZERO information away, whereas refusing to say yes indicated that they would be either disarmed or have ammo/bolts "under lock and key". -- Remember the idle threat of the TX governor declaring an invasion and demanding federal assistance via Art 4 just this year? (https://www.nytimes.com/2022/04/30/us/te....)
Yep, just more posing and nothing of substance.

* On this note, consider how often something comes up that would be a "win" for Republican-branded ideals and "Oh no! We lost by three votes! VOTE HARDER NEXT TIME SO WE CAN WIN!!!"
Stoic 199 posts, incept 2021-09-12
2022-09-16 14:36:56

Quote:
4/18/08 When Men Had Balls That Clanked
https://market-ticker.org/akcs-www?post=....

Not much has changed since 2008 except for the players names and the exponential growth of the dollar amounts. What few changes there have been have been made to the left side of the origin.
As I reread my comment my shoulders involuntarily shrug. While only a member of this forum since 2021 I have done everything that TG noted back in 2008. I am one of the few apparently. As I am not particularly special I wonder why that is and how our society as whole can continue to allow itself to be abused. smiley

Stoic

Reason: Format
Mannfm11 8k posts, incept 2009-02-28
2022-09-16 14:47:32

There is more than just bonds right now. Pay is lagging prices. Every business has a fixed cost. Each unit provides revenue to cover those costs. Fixed costs are fixed until they have to rise due to more business, meaning you need more fixed costs, if you are planning for more business. It might be a facility, staffing. If a hotel is open, but it is suddenly empty, you still pay electric and other costs. There probably isn't much difference, if the place is 50% or 55% full. Some businesses are definitely missing customers, because their customers cannot afford as much of their product.

In general, interest hasn't been the only thing going down the past 40 years. Food and energy have both been relatively cheap in the period between 1980-2020. There have been spikes, but both were problems in the 1970's. I remember the sign in front of the Safeway store across from where I lived in the late 1960's, milk 99 cents. The politicians in Europe and the US are killing these items and they affect everyone. BLS has a special category for energy and food, because they are volitile, but I think they are headed in a one way direction, up. Home energy is going to shock people.

Corporations have been swapping debt for equity for decades now. It is just finance, until it becomes a trap. If the stock is earing 6% and you can borrow for 3%, why not? Hell is coming later, but right now lets party.

The USA is $30 trillion in debt. That's the bad news. The real bad news is most countries are in worse shape. Trump brought up issuing 100 year debt. Puts it off for a long time. But the debt isn't that long term. The next $10 trillion, which will get here quick, is going to cost an extra $200 billion a year at present and we don't know where this stops. By that time, 50% or more of the other $30 trillion will roll, another $300 billion. These figures are assuming we stop at 3.5%. Put on top the base $150 billion on the extra $10 trillion not in that figure I posted (I just put in the increase), that is $650 billion in extra interest paid and half the debt hasn't been paid. If nothing is done with taxes or spending, a $1 trillion deficit becomes $1.65 trillion. Rates should be closer to 5% than 3.5%, meaning we are looking at closer to a $1 trillion figure.

To transpose from public to private, assume corporate America, in sum is the US government. They are at $30 billion. Can they even afford to go to $40 billion. They don't have the magic mirror the Feds do. At what point does interest get low enough warrant buying stock? The SPX is worth just short of $40 trillion and they claim a 16 PE. Infers around $2.5 trillion in earnings. 2% on the $30 trillion is $600 billion, taking earnings to $1.9 trillion. There goes 20%. Higher interest also reprices everything, thus the discount on perceived future profits also has to rise. Higher inflation goes into that formula. 16 PE indicates a 6% net cap minus growth.

Being a finance guy, I played a lot of rates over time. What I realized is at a certain level, there is no long term financing. PV of the instruments repayment is moved forward. If I can borrow $1 million at 2%, and plan on rolling that every 10 years at the same rate, after 19 years, I have only paid back less than 40% of the debt in interest. Take that same loan at 8%, even with discounts, I have to come up with the same value in about 6 years. This shortens investment perspective. If inflation is matching each instrument, I have no real loss, just a much faster effective repayment. The values of the 2 corpus will follow the discount.

I recall a story where Trammel Crow and John Stemmons were partners. When financing topped 6%, Stemmons sold to Crow. Stemmons was a smart guy. Crow went on to become the biggest commercial developer in the US and maybe the word, in the 1980's, then almost went broke. On the way up, 6% is probably an important figure. Currently, you can't float a rental on a 6% loan and I wouldn't bet on rent bailing you out as it has become punative. Those financing through lines of credit or mortgages will become desperate to keep properties rented as the debt clock doesn't stop.

What has been hidden is inflation. Multinationals have gotten fat with inflation. That is what moved the market from 1000 in 1980 to nearly 36K this year. It has been hidden by the supplies of goods and labor. The excess has flowed into equities. The Dow spent a decade trying to get through 1000, stopped by rising rates and tight supplies of resources. The free ride is over. That inflation cycle started around 1966 and didn't begin to show its horns until the early 1970's. Home prices are reflecting more like 1977 and 1978, meaning it is actually been raging longer than most believe.

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The only function of economic forecasting is to make astrology look respectable.---John Kenneth Galbraith
Abelardlindsey 1k posts, incept 2021-03-26
2022-09-16 15:05:11

Quote:
Because, as we have seen from the past 20 years, the Republican party is "all hat, no cattle" --look at the [non-]progress on any party plank: fiscal-responsibility, government-accountability, abortion, Constitutionalism & Rule of Law...


I hear what you are saying. But if there is a large and growing contingency (which I believe there is) that does care about these things, it would make sense for at least some of the political animals to follow their instincts and to cater to it. Could it be that the GOP establishment is so deep in bed with various special interest groups (mainly pharmaceuticals, big business in general, and especially the military industrial complex) that their only interests are to simply receive as much graft from these people as much as possible? The gravy train argument makes perfect sense to me.

But was does not make sense to me is why someone like Graham would be willing to damage his own party in order to keep his personal gravy train going. After all, the threat of loosing access to the gravy train by loosing the next election to a democrat must surely be greater than the risk to the gravy train by endorsing SOME of the planks that we are interested in. This is the part of the picture that does not make sense to me.

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It's all in the mitochondria.

"It's the future, and...you're not."
Tickerguy 188k posts, incept 2007-06-26
2022-09-16 15:05:41

If you win you have to actually govern....

----------
NASA faked out a computer instead of running the test.
Then tried to launch and aborted instead of going "BOOOM!"
Did they abort the JABS after faking THOSE tests?
Invisiblesun 577 posts, incept 2020-04-08
2022-09-16 15:29:17

I figure all indices will trade to 2019 levels or lower. Then I see the SMH is still 100% higher than its 2019 level. Yes, Intel has been slammed. But Nvda and Qcom are still 2x and 1x higher respectively.

I suppose we will see more stocks get the 25% off flash sale like we have seen lately with FedEx, NetFlix and Adobe.
Jw. 559 posts, incept 2019-10-10
2022-09-16 15:29:29

@Abelardlindsey

I guess it may be, but it sounds more like sop for big businesses these days... Unfortunately.

When all those over leveraged business fail due to debt when interest rates rise, will that not prove this scenario out to a tee? Will any ULM be held financially responsible for all that money they borrowed essentially to pay them for over leveraging the businesses they were hired to "run"?

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The spending must continue, until it can't.
Shouldhave 9 posts, incept 2011-02-16
2022-09-16 16:04:14

Fdmt wrote, "So if one sells off equities, where does all of that cash go? Into a mattress?"

Me too. I been following Karl since 2008 and learned a lot and lot of good information from his contributors'. Wish I could follow his very good diet advice.

I'm no where near as smart as a lot of the folks on this board. But I did just retire at age 63, wife retired two years ago at 59. No bills, no pension (Cashed-Out) and waiting until 70 for SS.

And no investments. I have all of my funds in Cash and short term treasuries, T-Bills.
Jw. 559 posts, incept 2019-10-10
2022-09-16 16:04:23

Or maybe Graham is trying to bend voters to align with special interests and distance themselves from the far right ideal...fits nicely with current events too. Fox News did it when Trump lost by not running with the stolen election story and confirming that Biden won the night of the election.

Are we seeing the beginning of the unification push for the Uni-Party?? Those that have will be sacrificed for those next in line at the gravy trough.

One of the favorite things for Trumpers to call out is that most the DC republicans are being replaced, so things will (supposedly) be different this time when they win in November.... The appearance of change when there is no historical basis to believe that change will happen.

The con is strong...

The gravy must continue to flow!! smiley

Graham will be back out in a week or two to completely contradict himself... It's what he does.

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The spending must continue, until it can't.
Traz 197 posts, incept 2009-08-14
2022-09-16 16:04:35

Who ever is in control when this goes "BOOM" is going to get the smiley. 55 Members of Congress are not running for re-election to Congress. I suspect more than 1 of them don't want to be around for the smiley that's coming.


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____________________________________________________________

You can't win, you can't break even, and you can't get out of the game. Vote them all out 2022
Edward.fish 333 posts, incept 2021-12-17
2022-09-16 16:04:42

Abelardlindsey wrote..
I hear what you are saying. But if there is a large and growing contingency (which I believe there is) that does care about these things, it would make sense for at least some of the political animals to follow their instincts and to cater to it. Could it be that the GOP establishment is so deep in bed with various special interest groups (mainly pharmaceuticals, big business in general, and especially the military industrial complex) that their only interests are to simply receive as much graft from these people as much as possible? The gravy train argument makes perfect sense to me.

@Abelardlindsey -- I think this is a "good enough" explanation for what we see, even if I think it "goes deeper" and it would be more correct to view things through the "Elite vs Common-man" lenses where, no matter how much the "Republicans" 'hate' "Democrats" they both hat you and I infinitely more, a real and actual hate where they would relish seeing us destitute and our families sold into slavery perpetually.

Abelardlindsey wrote..
But was does not make sense to me is why someone like Graham would be willing to damage his own party in order to keep his personal gravy train going. After all, the threat of loosing access to the gravy train by loosing the next election to a democrat must surely be greater than the risk to the gravy train by endorsing SOME of the planks that we are interested in. This is the part of the picture that does not make sense to me.

@Abelardlindsey -- Well, functionally there are two parts to the "Republican" party: (1) The elite, who use the party-planks as branding placards and have no intention of actually upholding or pursuing them; and (2) the people that actually believe in those party-planks.

Interestingly, the Democrat party is split into three groups: (1) the same sort of elite; (2) those who actually believe the "radical left" points; and (3) those who believe(d) in the 'traditional' Democrat-party planks like being for the working-man. (It's from group #3 that Trump was pulling, due to group #1 caving to #2 and dive-bombing the party-policies into radical clown-world.)

The end-result here is that the Democrat and Republican parties (at the national level) act like what a foreign-power ruling over a conquered people would look like: imposing policies deleterious to the Citizen that are advantageous to themselves. (This is also reflected, also, in the legal-prosecutions/non-prosecutions, e.g. Hillary.)

So, back to your observation/question ("why someone like Graham would be willing to damage his own party") we get the answer: the "party" is not about you, or I, or "the people" but is a functional construct to guide the political apparatus on the policies that enrich/profit the elite -- underneath the (R)/(D) "split" is the Bureaucratic State... the "Burearchy", if you will, which has as its goal to expand to meet the needs of the expanding Burearchy. (i.e. the Burearchy has as its philosophy that of cancer: growth for the sake of growth... with the added perk that "bigger" = "more power" which tyranny it can turn back to cementing its own position, power, and growth.)

As a thought-experiment, consider that the NSA was created via Executive Order... what would happen if there was a President who rescinded that Executive Order? What would happen to a President who rescinded all prior Executive Orders and all declarations of emergency?

Tickerguy wrote..
If you win you have to actually govern....

@Tickerguy -- Given how the Republican party acts, I would be unsurprised if this is the Terror that keeps them up at night.

Though I suppose you can make a good case that Biden is proof that the Burearchy has all the control you would ever need and the Executive, Legislature, and Judiciary are all ancient relics of the Republic, vestigial organs who only serve to lend the veneer of legitimacy to their grand designs and [almost] unlimited power.
Abelardlindsey 1k posts, incept 2021-03-26
2022-09-16 16:04:51

Quote:
If you win you have to actually govern....


Of course.

But if you loose, you loose a lot of access to the gravy train. Sure, you can sit on a (corporate) board somewhere or get some kind of consulting (influence pedaling) gig. But you still have lost influence and access to the gravy train.

There is one guy (I can't remember his name), a prominent Republican who lost an election or retired and became a lobbyist for Chinese interests.

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It's all in the mitochondria.

"It's the future, and...you're not."
Eleua 20k posts, incept 2007-07-05
2022-09-16 16:11:55

Quote:
Take a firm that is regard as very well-managed -- Berkshire. They have $119 billion in debt outstanding, and are certainly a AAA credit. Let's assume that $119 billion currently carries a 2% coupon, so $2.38 billion in interest expense a year. The firm's net income is $11.7 billion so what happens if the cost of carrying that debt doubles (say much less triples.)

That's a 20% whack off the earnings; if the cost triples its a massive 40%.


This also presumes a firm can maintain net income in a rising rate (monetary tightening) environment.

They will get it in both holes. Interest expenses going up while income declining...

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Diversity + proximity = WAR
We are governed by sexual degenerates, Satanists, traitors, retards, cowards, sociopaths, and megalomaniacs - CHANGE MY MIND
That kind of sums up the
Susanlauren 1k posts, incept 2021-05-01
2022-09-16 16:18:06

It seems to me that what happens with corporate debt will not happen in a vacuum. All of these systems are interdependent and interrelated. One domino falls and the rest follow.

My question: what is the placement or arrangement of the dominos?

Corporate bankruptcy
Rising unemployment due to layoffs
Small business closures
Rising prices
Worsening supply chain issues
Housing market in serious trouble
Stock market with significant losses
Increasing home foreclosures
And on it goes ...

Or will these things happen nearly simultaneously? Will nothing be left untouched except for what you have in goods (i.e., tools and land), marketable skills and community connections?

My tag line seems to fit our times - this will not end well.




Twainfan2 996 posts, incept 2018-12-04
2022-09-16 17:07:58

@Abard Trump lost and look at how much he has managed to rake in. Just because the Republicans don't hold power does not mean they do not have access to the gravy. They are making millions left and right. They just like to whine about the Democrats but have no real desire to govern. Look at the 4 years under Trump. What good thing did they do? Nothing. They could not even repeal Obummercare.
Edward.fish 333 posts, incept 2021-12-17
2022-09-16 17:08:02

Abelardlindsey wrote..
But if you loose, you loose a lot of access to the gravy train.
[...]
There is one guy (I can't remember his name), a prominent Republican who lost an election or retired and became a lobbyist for Chinese interests.

@Abelardlindsey -- But, as you illustrate, they don't lose when they "lose".
Tsherry 10k posts, incept 2008-12-09
2022-09-16 17:08:07

I could be a very rich man courtesy of borrowed money, but instead, I have no debt.

Neither does our company.

We do OK.

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Fuck Joe Biden with a GIANT RUSTY CHAINSAW.
Daedwards 100 posts, incept 2010-06-10
2022-09-16 17:08:15

Off topic - I'm sorry... But I need some advice.
My AC thermostat seems to have died an untimely death, and needs to be replaced.
What is a good make/model? I'm looking for a simple non-programmable one - set the temp and be done.
Thanks much!

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Half-stupid is still stupid. (TickerGuy)
Crossdefaults 435 posts, incept 2007-06-27
2022-09-16 17:08:26

Great stuff Karl. Question for you, Karl, and for everybody here. I was a frequent poster here in 2007 and 2008 (I can't remember when you started and when I discovered Market-Ticker-were you here in 2006?). People then were discussing (before it happened) the collapse of Countrywide and MTG, and the fall of Fannie Mae stock and the home builders. Where are such discussions today? I've recently closed my small business due to the rising rate environment, and while I like tennis, I'd rather be making money shorting equities, ETFs, or anything else (in a sane and measured way, of course). All kidding aside, are there forums or break off groups or somewhere for people trying to protect themselves/profit?

Thanks, CD
Madabuu 5 posts, incept 2018-03-29
2022-09-16 17:08:42

10 year Treasury yields have peaked.
Tickerguy 188k posts, incept 2007-06-26
2022-09-16 17:08:49

@Madabuu - smiley

----------
NASA faked out a computer instead of running the test.
Then tried to launch and aborted instead of going "BOOOM!"
Did they abort the JABS after faking THOSE tests?
Eleua 20k posts, incept 2007-07-05
2022-09-16 17:24:57

Quote:
10 year Treasury yields have peaked.


Subprime is contained.

----------
Diversity + proximity = WAR
We are governed by sexual degenerates, Satanists, traitors, retards, cowards, sociopaths, and megalomaniacs - CHANGE MY MIND
That kind of sums up the
Dennisglover 1k posts, incept 2012-12-05
2022-09-16 17:25:16

@Smokintoad --
re: Anchor Drop/Loss
Losing an anchor can be a fairly dramatic and spectacular thing! Thankfully I was not on the forecastle when it occurred, because I saw the huge dents left in the bulkheads (0.5" steel) afterwards. Well, if you have a 60,000 pound anchor with 1080 feet of chain (maybe two thousand 360 pound links) running uncontrolled downward from the starboard hawsepipe in 240 feet of water, and the last link in the chain locker lets go, then something or other might receive an impact of sorts. USS Opportune (ARS-41) retrieved all the chain and the anchor a week after the loss, on 8 June 1973, from Cannes Harbor, France.

As noted, I was not on the forecastle with the maneuvering detail when this happened, but was about 500 feet aft on the port side of the forward hangar bay, O2 level of USS John F. Kennedy (CVA-67)--I was in the ship's movie booth, where movies were stored and from which they were distributed to the 14-15 viewing locations around the ship and retrieved from same. I will never forget the way the 90,000+ ton ship moved and made strange sounds as the chain ran out.

I also will never forget the scuttlebutt going around claiming that we had to recover and reattach the anchor before we could maneuver through the Straits of Gibraltar so that we could return to Norfolk. True or not, the requirement alleged was that a ship as big as Kennedy had to have two functioning anchors to traverse between the Atlantic and the Mediterranean. It did give us a few extra days in Cannes because Opportune had to come from Naples to retrieve the dropped chain and anchor.

Thanks for a nice stroll down memory lane!

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TANSTAAFL
Bakerv 855 posts, incept 2021-04-21
2022-09-16 17:51:59

I am the most interesting man in the world.
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