Price Rigging in T-Bonds - the Next Wall Street Scandal?

     We can't wait to find out what this is all about:

http://nypost.com/2016/03/20/goldman-sachs-allegedly-rigged-prices-of-treasury-bonds/?utm_medium=email&utm_campaign=NY%2520Post%2520Newsletter&utm_source=Sailthru

Stockman Tackles The Latest Chinese Misstep Head-on

     It's worth the free sign-up to Seeking Alpha (SA) just to devour this David Stockman piece, and the best SA buy-side contributors keep coming up with comparably spot-on slants that sell-siders seem, at best, systemically reluctant to share.

     Our informed subscribers are ready to delve into this cutting-edge material without comment from us:

http://seekingalpha.com/article/3957402-world-economy-wreckers-beijing?ifp=0&app=1

Negative Interest Rates v Coca-Cola's Floating Rate Bond

     Last November, The Coca-Cola Company (Coke) issued a bond maturing in 2019 with coupons paying 0.15% over something called the three month Euro Interbank Offered Rate (Euribor).  The June 9 coupon payment gets calculated today.  Were this money amount based on the 0.15% factor, as stipulated, with the Euribor yielding -0.221% now, bondholders would have to pay Coke .071% on June 9.  (We assume all rates to be annual, later reduced to interims in coming up with appropriate money amounts).

     Fortunately, Reuters tells us, Coke has placed a floor of 0.0% on said factor, removing their 2019 bond issue from negative interest rate status, so bondholders will simply receive nothing this time instead of having to make a payment to the company.

     Not all bonds, floating rate or otherwise, carry such protection, however, and we get the impression that fixed income markets are getting weirder and weirder out there as more central banks force negative interest rates on captive investors and existing negative rates keep heading deeper and deeper into depravity, but other than suggesting subscribers exercise extreme caution when entering bizarroland, we don't know what to tell you.

     There's no road map for what's going on out there or where we're headed in it.

Corporate Welfare in a NIRP World, Part II

     (This thing called Negative Interest Rate Policy (NIRP) looms in front of a beleaguered investment community as an alternate universe, some strange and alien wasteland where failed central bankers go to play out their final days in ignominy and defeat.  It is bereft of anything resembling accomplishment or feted deed.  Near as we can tell, no one who's ever been there has come back alive through any actions other than those effecting the total obliteration of their tragic days trapped inside the damnable place. We have nothing in hand to guide us in searching out any possible future today's investors may have in this forbidden netherworld, and are hesitant to turn an adventurous eye downward, not knowing what one could possibly find amidst the horrors of monetary purgatory. Do not take the following to be our final word on the matter, or our current word, for that matter, starting maybe ten minutes after this particular conjecture gets published.

     The only thing we can say for sure, is that Keynesian economics has proven once and for all - and with absolute certainty - that parallel universes do exist, though one doesn't expect Academia to concur - or even acknowledge that Keynesian economics itself ever existed at all once that formerly erudite wordage has been seen to have finally hit the proverbial fan.)

     Exxon Mobil, Microsoft, and Johnson & Johnson have better credit ratings than the United States of America.  What happens with them when the central bank of the United States of America pushes interest rates on Treasury securities into negative territory through NIRP?  Will Exxon Mobil bondholders have to pay that company for the privilege of parking huge piles of dough in Exxon Mobil bonds?

     Theoretically, one surmises, it should become so.

     And thus, with bondholders paying Exxon Mobil interest instead of the other way around, one has to beg the question, why would a gilt edge NIRP corporation need to keep an equity balance on the books?  Any equity balance at all.  They'd still need shares, or a single share at least, because stock represents ownership and somebody has to own the business even if, after all the buybacks one would anticipate in the NIRP universe, it's just the CEO.

     Complicating that issue further, with Big Government subsidizing Big Business to the point where Big Business' interest expense has become interest income, would Exxon Mobil not become one of those state-owned enterprises like we see today in Commie China inside the extant parallel universe?

     In the world we know, some corporations function just fine without any long term debt at all.  Under NIRP would state-owned enterprises operate just as swimmingly without a dollar balance in the Equity section of the balance sheet?  Owners of a going concern need to put up money to stave off insolvency and bankruptcy.  Basically there's no other reason.  It's hard to see financial failure as even remotely possible when 1) the state has some weird kind of ownership interest in the enterprise and 2) you can always get people to pay you for lending you more dough whenever you need any.  No longer is there a wolf at the Big Business door.

     Talk about too-big-to-fail.  Under NIRP every gilt-edged enterprise would be too-state-owned-to-fail.

     Therefore, and admittedly the jump to our ultimate conclusion crosses bothersome unseeable terrain, in the NIRP universe, massive stock buybacks funded by staggering issues of new corporate debt will drive stock prices to unfathomable heights, and the bastards will find some way to screw us out of participating in it with them, leaving a tormented nation of people groveling for food at the feet of the trillionaires who used to be our business and political leaders in the soon-to-be cruelly forgotten alternate universe of today.

     Our condolences to you all.

Corporate Welfare in a NIRP World

     In saner times,  investment grade corporate bonds would carry a double digit coupon during the kind of unabashedly reckless deficit spending we're getting from the Administration blemishing Washington these days.  It made financial leverage expensive, at best.

     Then this thing called Zero Interest Rate Policy (ZIRP) came along, or, as we like to think of it here, Corporate Welfare.  ZIRP made financial leverage crazy.  No longer was it enough to sprinkle a blend of debt onto your balance sheet and juice up the bottom line, now corporate borrowings became kind of monetized, cost of capital calculations compelling suits to retire company stock with it.

     Math disadvantaged investors wondered why boards didn't use debt to grow revenues through capital investment, but the numbers screamed otherwise, plus "build it and they will come" was no longer viable in the ZIRP free money outsourced job economy anyway.

     And now one finds Negative Interest Rate Policy (NIRP) sitting on the doorstep.

     News about Exxon Mobil Corp's recent $12 billion bond issue hit us while we were pondering a possible future under that alternative universe.   Hit us like a ton of bricks, so maybe we figured out just what our Looney Tunes Fed is threatening America with.  NIRP is the one where you have to pay your bank a little something on the savings account every month instead of them paying you.  More than one country already has it and in Japan the central bank is buying common stocks for itself too, presumably for the day when banks have all our money and can just go ahead and retire on it.

     Way back when, interest rates on that Exxon Mobil issue would be, say, 10% to 15% .  On $12 billion that would come to $1.2 to $1.8 billion a year.  For simplicity's sake, lets call it $1.5 billion.  Over 20 years, a common maturity in those days, total interest would amount to $30 billion (without bothering ourselves with the present value thing as in the Looney Tunes Universe numbers don't seem to mean squat anyway).

     You see, in the Looney Tunes Universe of NIRP, the corporation pays nothing.  NOTHING.  N...O...T...H...I...N...G.  It's a free stuff for the freaking suits world.

     Meaning income investors get taken to the cleaners once again while the growth crowd has another gravy train to catch, albeit on those flagitious roller coaster tracks crime families install to victimize their prey with terrifying cons.

     Corporate Welfare in the Looney Tunes Universe certainly means that enlightened managers running our investments will continue to go out and borrow every last cent they can wrap their greedy little fingers around and in all probability actually accelerate those stock buyback programs.  There was a fine line between debt and equity in the sanest of times, and CFO's were always coming up with blends - like convertible preferred stock, for example.  In the zaniest of times, as we see it anyway, the Looney Tunes Fed will be granting companies a kind of perverse equity through NIRP. Bad equity, controlled by them as opposed to good equity owned by us.  Whatever, the cash that managers won't be using to pay interest on the debt that they'll still be issuing, though now with negative interest coupons attached, that is, interest bondholders will now pay them for the privilege of holding those bonds, will go straight into retiring shares.  Huge amounts of shares.

     Under ZIRP, which has gone on for the past 8 years or so, we're partway there already.

How Women Are Dooming Western Civilization

     A lot of work has been done in this field, and we're passing the below along as a starter video link for subscribers who may find themselves interested in looking further into the subversive role women keep playing to align society's Liberal infestation with our enemies:

https://www.youtube.com/watch?v=UxpVwBzFAkw

Gratuitous Pope One Pronouncement Short of Asking for an Ass-Whupping

     (Your Post staff would be remiss if we failed to thank our new Minnesota stringer for bringing poignancy and unbridled enthusiasm to the party.  Keep on keeping on, socioeconomic political warrior.)  

How's this for starters:

http://www.investors.com/the-pope-gets-medieval-on-capitalism/

(We have no idea where our aforementioned intrepid stringer snagged the next one from, and could care less; it's gilt-edged, festooned omphalos:)

Trump, the Pope, and the Wall

     Building a wall for the safety and security of citizens cannot possibly be, in and of itself, an ungodly thing to do. If it is, we need to rip the entire book of Nehemiah out of the Bible.

     The Pope created a controversy by going to our southern border and making the building of a border wall the litmus test of Christian faith. "A person who thinks only about building walls, wherever they may be, and not building bridges, is not Christian. This is not the gospel."

     Setting aside the plain truth that the litmus test of Christian faith is what a man does with Christ, not what he thinks about a wall, the Pope has hoisted himself on his own petard here. The Vatican is surrounded by the mother of all walls, and has the stingiest citizenship and immigration policy of any sovereign state in the world.

     The low-information media and the Vatican itself have scrambled to the Pope's defense. The Vatican reminds us that the Pope did not build the Vatican wall. True. But he's making no effort to take it down either.

     The wall was originally built in the 800s for the same reason we need to build a wall along our southern border: to protect from invasion. Building a wall to keep people out is much different than building a wall to keep people in. One European country after another today is either building a border security fence or thinking about it because the tsunami of unvetted illegal Muslim aliens is threatening their safety and cultural identity.

     According to the Vatican press office, as of December 31st, 2011 the Vatican had granted citizenship to just 594 people: 71 Cardinals, 359 members of the clergy, 109 members of the Pontifical Swiss Guard, and 55 lay persons. In other words, outside of the Swiss guard, the Vatican uses a strict religious test for citizenship. The Pontiff would hardly be in a position to complain if the U.S. did the same.

     The Vatican is very stingy about granting refugee status to anyone. Its total contribution to solving the refugee crisis is to admit two - count 'em, two - refugee families inside its walls, both of them Catholic.

     Building a wall for the safety and security of citizens cannot possibly be, in and of itself, an ungodly thing to do. If it is, we need to rip the entire book of Nehemiah out of the Bible. I'm quite sure that's not something the Pontiff is prepared to do.

     CNN just this week did a feature piece on what it would take to build a wall along our entire 2000 mile southern border. Using pre-cast concrete panels, CNN's experts estimated it would take about $10.5 billion - that's chump change in DC - and take less than four years. In other words, it's perfectly doable.

Trump is also right about one other thing: Mexico can easily be made to pay for it. Right now, the single largest component of the Mexican economy (bigger even than oil) is remittances - the $24.8 billion that is transferred by Mexicans in the US to their relatives across the border every year. The bulk of it - 97% - is handled electronically. A 4% surcharge on each transaction would generate $1 billion a year. In 10 years, the wall would be paid for. By Mexico.

     Building a wall is the most Christian and compassionate thing a government can do for its own citizens. It protects them and their families from drug dealers, gangs, human traffickers, sex traffickers, rapists, and jihadis, as well as from those who come to America to take rather than contribute.

     The Pope understands this. That's why he maintains a wall around his own sovereign state. Perhaps he can be persuaded to let us do the same.