Futures are popping this morning after the European Central Bank offered an extension plan to Greece in an effort to keep them from making deals with the likes of China and Russia. From a stock side of things the only real issue worth discussing is whether the news can finally break the S&P 500 (^GSPC) out of that 2000 to 2050 range.
For a change, and please note this may be the first time I'm ever saying this, the bond market is where the real action is. In the last ten days two of the most liquid companies in the history of the earth have raised about $20 billion in debt.
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Microsoft (MSFT), with about $90 billion on its balance sheet, sold $10.8 billion yesterday. The 10-year portion of that offering yields 2.7%. That's less than the dividend yield on Microsoft shares.
Apple (AAPL) is pricing Swiss bonds today. Since Swiss franc denominated debt has a negative yield Apple is expected to pay buyers of its corporate bond less than .5 percentage points a year for 10 or 15 year paper. This is astonishingly low.
The companies are telling us they think yields may go higher from here. Apple famously nailed the absolute low for corporate debt yields in 2013 issuing $17 billion at the rock bottom. If you look at the long term for the 10-year rates you can see they didn't get as low as they were in 2013 until last week when, yes, Apple hit the offer again.
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Two takeaways. First, if you can get personal financing at these low rates the folks at Apple and Microsoft think you should. Of course, they have a total of nearly $300 billion in cash sitting on their balance sheets so that may not apply to you.
The real message from Apple and Microsoft is that artificially low rates have perverted the markets in weird ways that will take generations to unlock. Issuing debt to buy back equity doesn't actually create value. It's just restructuring. It's like moving your wallet from your right pocket to your left. You feel heavier on one side and lighter on the other, but on the whole you weigh the same.
It's not stimulative to make it easier for the rich to stock pile cash, but that's what we're continuing to do six years into the financial crisis. The bankers are getting paid, and you can too, as long as you're willing to take .4% a year denominated in Swiss francs.
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