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Cheap Money (Them That Has Gets)

|Includes:LQD, McDonald's Corporation (MCD)
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