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Bernanke: "I Want to Bring Back Irrational Exuberance"
On January 25th we got word from the Fed that ZIRP would be extended until at least 2014. Bernanke's guarantee of another two years of cheap-cheap money has lifted the market's animal spirits. Since the Fed announcement (33 trading days), the S&P got a 7% lift. But that's not the measure of Ben’s success. I’m seeing it in deal flow:
*There have been 29 IPO's that raised $3.3B
*Another 35 deals got inked for secondary issuance of common, preferred and/or convertible stock totaling $3.7B
*The visible calendar for both IPOs and secondaries is big. $4.3B is registered for sale; another boatload of paper wants to get sold on top of that.
*The High Yield market blew out $70B of paper.
*Leveraged loan activity has totaled $75B.
I want to focus on six deals (of the 22 that got completed) from last week that I find troubling. These are referred to as Dividend Deals. The borrower takes on new debt in order to pay a stock dividend to common shareholders. (I prefer to see dividends paid from cash flow from operations, not new debt.)
Note: Grede Holdings was bought by Wayzata Investment Partners LLC in February of 2011. GE capital provided a portion of the financing. The 2012 Grede deal arranged by GE will result in GE receiving dividend income. This is lining up at the trough for these financial players.
On balance, I think that Bernanke is delighted with these results. He wants the Fed's cheap money to fund this type of financial activity. When debt is used to pay dividends, it creates equity from debt. When the likes of GE and Wayzata have more (paper) equity, they can borrow more, and do more deals. Ben loves it when financial players do deals. He believes that creating financial wealth for GE ends up creating jobs. But there is also a cost:
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Another credit bubble is forming. Credit quality is deteriorating, while financial engineering is back in vogue. The Fed keeps making the same mistake of fueling these bubbles. It is celebrating this process as a “success” while at the same time it is sowing the seeds for another bust. Does the Fed really think Americans are better off if Blackstone receives another $500 million dividend?
The problem is, that is exactly what it believes.
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HT:sc

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Great find, Bruce.
Karl D. must be going hyper too.
It's not 2003 any more. Crude @ $125/barrel means the real deal is elsewhere.
It is good, however, to see the Bernanke Money Laundry back in full cry. It looked for awhile that the Chairman had lost his touch ...
If companies cannot fund dividends from operations, they do not have the ability to pay the debt back either.
The next economic downturn will turn that into hard truth. While things are pretty good, the debt payments seem manageable. However, a small bit of simple math can show that the payments get harder when revenues and cash from operations drops. The economy has always worked in cycles, and it seems at the top (or near the tops) of cycles the piling on of debt to do stupid things is easiest - only to find out 1 or 2 years later it was a stupid idea.
No matter - those at the top will get paid their bonuses and additional stock options for their efforts - even if it bankrupts the company in a few years.
damn,
this is one of the better comments written at ZH
living in an Ivory Tower tends to do this
further to BK's comments above
Blackstone extracts another dividend from SeaWorldand of course all of the ususal suspects are at the trough
SeaWorld accused of keeping whales as SLAVES by animal rights campaigners http://www.dailymail.co.uk/news/article-2053540/SeaWorld-accused-keeping-whales-SLAVES-animal-rights-campaigners.html#ixzz1pZiQ56z1It's only irrational exuberance if you're on the outside looking in. If you're on the inside, these deals make all the sense in the world.
debt to pay dividends - this is the unkindest cut of all - it is bizarre, what next - debt to make revenue projections ?
oh wait it has - is there nothing debt cannot do?
"word from the Fed that ZIRP would be extended until at least 2014. Bernanke's guarantee of another two years of cheap-cheap money..."
Fascism
Corporate owned governance...
Administered by the Finance Capital ruling oligarchy...
They win and we all lose every day...
And tomorrow AM brings a hangover and a OH NOES what did I do?
Perhaps the best way to view debt funded dividends is as a removal of equity from the company. Post divident date, in a free market, the stock price would drop commensurately with the equity reduction, unless being an ongoing concern becomes an issue.
Bernanke won. You lost.
Ben is caught in a trap, cant get out, hooked on printing credit until the song ends.
Zimbabwenomics.
bruce I like you, but this comment is stupid:
Does the Fed really think American’s are better off if Blackstone receives another $500 million dividend?
The worst thing you pundits keep thinking is that these psychopaths are actually doing what they think is best for america and not best for their cronies and themselves. it drives me insane. These people are sociopaths and you have to analyze them as such!!
You don't get it. It's like all the quacks - doomsday prophets, those calling for an authoritarian state, preachers, scientists wanting a "rational, regulated" society, politicians - all are true believers.
They are not purposely engaging in a scam (politicians and the debt excluded). They are earnest. The dollar/world/market/Europe WILL collapse next week. An invisible being knows if you're being naughty. The government MUST force you to eat, buy, read, say and act "good" for your sake. They're all believers.
$5 gas. End of story.
Don't worry Bruce, should these deals go bad, all that private debt will be piled onto the backs of the taxpayer, again. Same as it ever was.
Just more of what is going on all over the world (see Greece) in banking circles right now. It never ends.
"The borrower takes on new debt in order to pay a stock dividend to common shareholders. (I prefer to see dividends paid from cash flow from operations, not new debt.)"
We're clearly into the insane, taking on debt to pay dividends.
DavidC
they're paying off (big) shareholders, the last dip at the well, before the sack of debt that is the company implodes
This is precisely what is happening. It's developing on the LBO front, as well, though I haven't taken the time or effort to compile a detailed list (as Bruce K has) of the shit pile of LBOs (is that redundant?) that have been done lately.
I have to agree. This thing is going to get taken down, just like a side show at the carnival when the show is over. (Or)Kind of like the movie Point Break, when the criminals jump out of the airplane, only here it's with golden parachutes.
Or the "wire house" at the end the movie "The Sting". They are just a bunch of greedy grifters.
Irrational Exhuburance is already back. Dow 13,000 in the mist of a depression that has been masked by false goverment numbers, lies and a courtrpt banking cartel is the essence of craziness.
Let's face it Blowjob Ben is 'solving' the problems/bubbles caused by his equally idiotic forbear, Alan 'am I senile yet?' Greenspan
The Fed like every meddling Dept of that toilet called Govt mis-directs money and mal-invests
instead of a normal churning free market economy the politicians and bankers sold their souls to bubble blowing fake wealth, dating back to the 70's, and fanning it toward the unproductive spaces of finance, housing and consumer credit
the productive economy gets sidelined, real wealth gets sucked into the 'easy-ride' of mis-directed investment flows and a huge sack of frothy puss develops across the country (Greshams Law)
"Another credit bubble is forming. Credit quality is deteriorating, while financial engineering is back in vogue."
Bubble blowing and mis-directing capital never went out of vogue at the Fed.. it's a dog chasing its tail (solving problems/bubbles it previously created)
the 'Money Industry' has been usurped by Robber Barons and academic village idiots
Ben has far too many spinning plates. He has to maintain zirp, hold off bond vigilantes, hold up the S&P, keep the dollar down, stop the primary dealers from imploding, buy all the T-bills China and Russia are dumping and hold inflation at bay - all while growth and jobs are stagnant (at best).
Add the fact that the general public is actually starting to pay attention to the Fed - and slowly making the connection between money printing and food and gas prices...
Ben has his work cut out for him.
Don't forget Bennie's newest responsibility...fending off the tidalwave of vigilantes from his boss...Goldman Sachs.
Start the compressor's! Let's see how big this thing can get!
I still have friends in the markets, gambling on how high this can go of course. I ask them if they're sure they can time the pop. Because the ride up is nice, it's when the hot air's gone and gravity takes over that things get scary and I'm pretty sure they're not the ones with the parachutes...
Don't forget the biggest "multiplier" of them all...AAPL rumors of a dividend payment. CNBS is only talking about it every 5 minutes. Fuctards.
IRRATIONAL EXUBERANCE!
Or
"I made them an offer they couldn't refuse ..."
BK, last sentence, second to last paragraph, meant to read "Blackstone"?
Blackstone is extremely adept at the payout.
OOOPs. Thanks. I fixed it. It's all my editors fault.........
b
Similar to more borrowing to meet payroll..etc etc etc. quadruple down on government currency units.
Thanks for all the great work Bruce
Mission accomplished ... Dow 13000 is as irrational as 20000 would be. Bernanke is the biggest fool to ever hold the position of Fed chairmen.
You can install any cue-bald moron at the Fed...
The Bernank, Crazy Chester Greenspan, on and on...
They are just Useful Idiot front men (e.g. Obama Bin Lyin') who take their marching orders from the real rulers of our society...
Sir, I take great umbrage on behalf of all "cue-bald morons"! The expression you were looking for was "cue-balled", though it is true we do aspire to being "Useful Idiot Front Men" for the vampire squids.
Unless it's all part of a master plan...
Ponzi machine needs more grease, Mighty Ben the Oiler, Oh, and you are the grease.
Bernake's ring tone:
http://www.youtube.com/watch?v=XgreyZR-KNk
If Bernanke wants to "Bring Back Irrational Exuberance", all he has to do for me is revert to gold backed currency. I cannot see how more of what created a crisis can do anything other than create short term irrational exhuberance in banking circles over bonuses.
So Bruce, what you are saying to me is DOW 20,000. No?
That would be Bernanke's objective. Markets always overshoot.
I'm not so sure. This "house" is sitting on sand.
are you saying the stock markets are sitting on sand?
Bruce, take a walk on the beach in the Hamptons, those houses all sit on sand. So what the banksters do is excavate and drop a few hundred piles so when Hugo comes ashore as it surely will Casa Dinero will remain unscathed and to hell with the rest of us.
This is true. 2 years ago I was visiting a friend in South Hampton. His house was right next to Stephen Schwarzmans, speaking of Blackstone. Schwarzman was either digging piles or something because there was heavy equipment running constantly for months. Quite annoying when you are trying to relax by the pool.
I don't think you folks have much to bitch about between the roar of the CAT or the Whine of the Lears.