I am deeply uneasy about what’s happening in financial markets
The Coronavirus has completely turned the global economy on its head. It will create the most profound changes to the way we live and our future prospects – we are all beginning to realise that. There is not going to be a V-Shaped recovery. Many lives will be shattered and ruined in its wake.
Yes, what I saw yesterday confirms two terrible truths we’ve long denied:
What has made me so angry?
Boeing has launched an extremely successful multi-tranche $25 billion bond deal. The issue solves all its immediate funding needs. It enables the company to walk away from difficult bailout discussions. It claims its access to market capital demonstrates it’s soundness - which is utter bollchocks - and that it doesn’t need a government rescue. The issue of moral hazard for government is avoided. Boeing will survive – for time being – as is.
It’s a crock of s**t.
The bond deal was snapped up by investors. It does offer a small increase in yield if its downgraded to junk, and an 5.15% yield on the 10-year tranche. Buyers are unconcerned the company is haemorrhaging money, has been downgraded to the cusp of junk, faces massive lawsuits over the B-737 Max, has comprised on quality and safety, is laying staff off in droves, and is seeing orders cancelled around the globe.
Nope… Investors love it.
They wanted to buy – even though it looks to be priced very aggressively for a company with such obvious crisis emblazoned across it. The brutal reality is investors know Boeing is such a central part of the US Military-Industrial-Aerospace complex, with so many other contractors and jobs dependent upon it, that the US government has no choice but to backstop it. It’s the industrial equivalent of Too-Big-To-Fail.
The get-out-of-jail-card is there in plain sight – The Fed’s QE Infinity programme can buy as much toxic Boeing bonds as the market cares to lob at them. As we know from the Taper-Tantrum a few years back, bond holders have an infinite put back to the Fed. As long as it was investment grade back in March it qualifies for the Fed… No one cares about the economic reality facing the company.
It fills me with great sadness.
What happened to the concept of the free hand of markets ensuring the efficient allocation of capital to good companies? This deal screams MORAL HAZARD – yet the whole street has bought it.
So much for ESG and the importance of socially aware investment and good governance. The Street should hang our heads in shame...
Boeing illustrates everything that was once great but is now rotten about our Western economy:
This really is the end of Capitalism... The rolling raucus sound you hear from the hills in North London is the sound of Karl Marx laughing his head off in Highgate Cemetery.
Bill Blain is Strategist for Shard Capital, a leading investment firm.
Bill is a well known broadcaster and commentator, with over 30-years experience working for leading investment banks and brokerages at senior levels. He's been closely involved in the growth and development of the global fixed income markets, and pioneered complex financial products including capital, asset-backed securities and private placements. Increasingly, he's been involved in Real and Alternative Assets looking to explain their complexity and create liquidity in them.
Bill is a passionate sailor, talentless painter, plays guitar badly, is learning the bagpipes, and built a train-set in his attic.
He is a regular speaker on HoweStreet.com, and the FinancialSurvivorNetwork radio shows. Chris was also featured on the cover of AmalgaTrader Magazine, and contributes articles to several financial hubs like MoneyShow.com.
Send this article to a friend: