Mercenary Trader's  Instablog

Mercenary Trader
Send Message
Mercenary Trader (www.mercenarytrader.com) was created by traders, for traders. We are aggressive swing traders who routinely combine fundamentals, technicals and sentiment with deep awareness of global macro and rigorous analysis of individual equities. See all of our content, including free... More
My blog:
Mercenary Trader
  • Cheap Money (Them That Has Gets) 0 comments
    Jul 30, 2010 10:30 AM | about stocks: MCD, LQD
    McDonald's this week raised $450 million in 10-year debt at 3.5%, a record low yield for a large batch of debt issued by a U.S. corporate borrower.
    — WSJ, Global Corporate-Bond Boom Gains Pace

    As the old saying goes, "Them that has gets."

    Yield-hungry investors, desperate for a place to put cash to work, have hit upon the strategy of lending to corporations that don't need the money.

    This hunger for corporate bond issuance -- amid the clear absence of better alternatives -- has led blue chip players like McDonald's to finance while the financing is good. Because hey, why not?

    The trouble is that this cheap money is not being put back to work as productive capital investment. As the WSJ reports, corporations are either using the cash to pay down debt, or simply letting it pile up on the balance sheet as a bulwark against lean times ahead.

    This dynamic is a clear example of the classic liquidity trap at work. Lending to blue chip corporations that sit on the cash (or use it to deleverage) is essentially one step removed from stagnant pools of capital in non-lending bank vaults.The Federal Reserve can direct a firehose of money at the economy, but it can't control where the money ultimately goes.

    So far, Washington and Wall Street have been utterly clueless in respect to the problems of the "real" economy, i.e. struggling consumers and small businesses. Because consumer spending is 70% of US GDP and small business accounts for roughly 50% of GDP, this is a deadly serious issue... and Bernanke the master plumber is all thumbs.

    Disclosure: no positions in stocks mentioned
    Stocks: MCD, LQD
Back To Mercenary Trader's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (0)
Track new comments
Be the first to comment
Full index of posts »
Latest Followers

StockTalks

More »
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.