Monday, August 17, 2015

Links

Malcolm Gladwell's latest: What Social Scientists Learned from Katrina (LINK)

The critical article on Amazon's working environment making the rounds (LINK), and Jeff Bezos' response (LINK)

Panel discussing Google's reorganization on Charlie Rose (video) (LINK)

Meet the New King of Subprime Lending (LINK)

Nassim Taleb: People rarely mean the same thing when they say "religion" (LINK)

Hussman Weekly Market Comment: Debt-Financed Buybacks Have Quietly Placed Investors On Margin (LINK)
“The way to wealth in a bull market is debt. The way to oblivion in a bear market is also debt, and nobody rings a bell.”  
- James Grant 
When corporations and even developing countries experience debt crises, one of the primary means of restructuring is the debt-equity swap. This sort of transaction involves canceling out debt of the company or government in return for equity of the company, or privatization of some of the assets of the country. Corporate debt-equity swaps typically result in severe dilution of the equity claims of existing shareholders, and in some cases, can wipe those claims out as creditors take control of the company. At a national level, debt-equity swaps can take a punitive form that forces countries to privatize and sell off their assets in satisfaction of their debts. Aside from austerity demands, one of the most severe outcomes of the ongoing saga in Greece is the demand for exactly that kind of debt restructuring. 
The opposite of a debt-equity swap, of course, is a debt-financed stock repurchase, which leverages up the claims of existing shareholders. One of the more troubling aspects of the Federal Reserve’s suppression of interest rates is the speculation it has encouraged, by giving companies access to enormously cheap funding on a 5-7 year horizon. Though nominal economic growth has been tepid, revenue growth has turned negative, and profits as a share of GDP have been falling for more than a year, companies have scampered to boost their per-share earnings by taking out debt to repurchase and reduce the number of shares outstanding. This leveraging has been done at market valuations that are near the highest levels in history on historically reliable measures.
Book of the day: Leonardo: The Artist and the Man