Earlier this week, Google ($GOOGL parent Alphabet) announced that they are preparing to launch its first Australian debt issuance - a $5 Billion Kangaroo bond. The Australian transaction is part of a wider fundraising campaign. Earlier in August, Alphabet raised $25 billion (A$35 billion) in the US. It had previously sold bonds in Canada, Japan and Switzerland. In March, Alphabet issued a 100-year, £1 billion bond in the UK. They just can't borrow fast enough! 😰 Ask yourself, when does a company borrowing so much, so fast ........ see their stock price do well in the near future? 🤔 Ahhhh......but this TIME is different, Beskar. Google is a huge, safe, and impenetrable company that is winning the flag planting on the AI moon! 🤑🤑🤑 Well, it's true they are big. But the rest of what you say is up for debate. Here's why: While it's true that Google is bigger than most Governments spreading it's seed all over the Earth - debt issuance here, debt issuance there - the corporate bond market is exploding! 💥 The chart below shows the current bond yields. Note that corporate bonds in the highest rated (A,AA,AAA) companies all blow away the yield offered by the U.S. treasury at the same mid- to longer-dated maturity. I circled the 10-yr and 30-yr yields for U.S. Treasuries and (AAA,AA,A)-rated corporates. So for a 30-yr bond......do I go for a 6.63% annual yield from Google? ...... or do I go for a 5.29% annual yield from the U.S. Government? For Beskar Capital? The answer is neither! This spread between Alphabet Google's long bonds and the Government's long bonds will have the yield chasers going for Google. Especially as headline news on the expanding Debt-to-GDP in the U.S. In the near-term, at least, that's not good for the U.S. long bond market........ .......or the U.S. stock market. 😰 Why? Because China stopped buying treasuries. Japan stopped buying treasuries. And now your greedy Baby Boomers next door will too.........to chase these hyperscaler bonds instead. Unless.........the bond markets yields continue to climb. And they will have to 😨..........just to compete with these high yield, highly rated corporates that may be perceived as "safer" for the moment. Higher yields translates to higher inflation. Higher inflation translates to lower stock prices. And higher yields could very likely be the straw that breaks this credit cycle to bring affordability issues and the stock markets crashing to the ground 📉😱and relief to the young people 😀🥳 trying to gain home ownership (as long as they have cash stockpiled to make a downpayment) - just as Dr. Warsh ordered. 😉 Just know that if the U.S. bond yields don't naturally go higher......ain't nobody buying U.S. long-term debt. That's a formula to send the $TLT on a highway to hell in the short- to mid-term. 😈 Check out that 5-year chart and imagine more to come.😨 But markets have an uncanny way of correcting themselves. Adam Smith's invisible hand. If Kevin Warsh is going to sit and watch instead of intervene, then it will be up to the bond market to self-correct. A sharp sell off in long bonds would inversely send those yields higher. But what else could happen to tighten the spread between Google and the Government? 🤔 For that? Google would have to become less "safe". While Microsoft ($MSFT ) is a AAA-rated hyperscaler, Alphabet Google is not (AA+). And with the Pit Bull Worldwide tour 😂 of debt issuance that Google is engaging in ......it's getting a whole lot less "safe". Again - when have you seen a stock outperform when they are in the process of issuing massive amounts of debt? 🤔 And the late stages of the meltup phase of the real estate/banking crisis cycle is not the TIME to experiment with your hopes. So not only is Warren Buffett's Alphabet unappealing as a stock to invest in at the moment......but it's quickly becoming a delicious opportunity to short. It may have been better to wait for that blood on the street condition to buy like he writes about instead. But maybe this is Greg Abel now? 🤔 But back to our question. Is it going to be Google or the Government? These are crazy TIMES......and getting crazier. In your perception of a New Normal........for Beskar Capital, we see nothing different than the last cycle. For Beskar Capital, we are positioning accordingly. This is the Way! 🏄🌊🏄♂️🌊🏄♀️🌊
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23 Comments
Åll-ïz @shift4 · 1d
I get the message about misconception about google being safe, bond yields, ratings, China, Japan etc. started off being a good educational read. But you have no fundamental thesis about Google or Microsoft to back your claims. You value bonds much differently than stock. But here you're implying you value both of them the same way. There will be very short term price shocks that are correlative but I thought you invest for the long term? Bond prices and yields may change based on investor sentiment just on the basis of market inefficiency but it's still not a tell tail sign that the company cannot meet its obligations. I'm not a Google bull. I think good has a lot of fundamental risks that many aren't factoring in. I do think BRK investing into Google heavily is just a crazy move. Coming to a consensus that one should short Google based only on current bond yields and comparing them or government or market participants possible actions is not only short term thinking but very speculative. Which is why you need to around 300 positions. Btw I like how you created fear and put a plug on how your minions are well prepared for this.
Beskar Capital@beskar_capital · 1d
Mika @goldenfit · 1d
More than 17 000 holders on the platform for $GOOGL … they will learn the hard way 😔
ETF Go@etf.go · 1dEdited
Nice to see we are still aligned on our view of potential market risks 😉👍 https://link.blossomsocial.com/7uYa/ihb7n2e4 Probably also not a coincidence that many of blossom’s most perceptive members that I follow have all posted about bond market dynamics this past week. @lecorb @marketwatcher @pinnaclewealth @ian_s @beskar_capital It’s not for ‘clicks’ and ‘follows’. It’s because these are the trends that matter. 👍
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