Weil's Views on Finance, Afternoon Edition
Welcome back to Weil's readings. And away we go.
Leveraged loans on pace to set record
Risk? What risk? Bloomberg News reports: "The riskiest U.S. companies are stepping up their borrowing in the market for leveraged loans, with the amount of financings completed this year already exceeding what they raised in all of 2012." At the current pace, the record of $386.6 billion in 2007 will be eclipsed before year-end. More than half the loans made this year have been used to reduce interest costs or extend maturities, rather than increase leverage. But that's still a lot of easy money sloshing around. How quickly investors forget.
Speaking of the old days, the credit-ratings game is back
That's according to an analysis for the New York Times by Commercial Mortgage Alert, which collects data on mortgage-backed securities. "Five years after inflated credit ratings helped touch off the financial crisis, the nation’s largest ratings agency, Standard & Poor's, is winning business again by offering more favorable ratings," the newspaper's Nathaniel Popper wrote. "S&P has been giving higher grades than its big rivals to certain mortgage-backed securities just as Wall Street is eagerly trying to revive the market for these investments." S&P called the methodology and conclusions "flawed," but declined to be more specific. Because after all, if it said what the flaws were, then the Times could have picked apart the flaws in S&P's criticism. And why would S&P want that?
What would Roman Hruska say about the Summers-Yellen saga?
Hruska was the former U.S. senator from Nebraska who urged colleagues in 1970 to confirm Judge Harrold Carswell to the Supreme Court by saying: "Even if he were mediocre, there are a lot of mediocre judges and people and lawyers. They are entitled to a little representation, aren't they, and a little chance?" (Carswell was defeated.) Matthew Yglesias of Slate has an article today about the race to become Federal Reserve chairman that reminded me of that line, except he put it much better: "I don't think we need someone who's particularly brilliant at the Federal Reserve. We need someone who knows that when unemployment is too high and inflation is below 2 percent, you want to do more monetary stimulus. Someone who knows that you need to do more monetary stimulus but has literally no idea on Earth how to do it would be fine as long as he or she were capable of using Google and asking around."
Does the location of corporate directors matter?
Ever get nervous about a company's stock when you see that most of the board members live on other continents? There may be something to that. Here's an excerpt from an academic study posted this week on the Harvard Law School Forum on Corporate Governance and Financial Regulation: "Our analysis reveals that when a firm’s assets are more intangible, and thus quantitative performance measures are less informative about managerial effort, the board tends to be located closer to headquarters (e.g., there is a larger fraction of unaffiliated directors who reside within 100 kilometers). We also find that more remote boards tie CEO dismissal decisions and CEO incentive compensation more strongly to stock price performance." So if a director of a company based in Kazakhstan lives in Utah, or vice versa, that person has to rely on the Internet just like you do to find out what's going on. And it makes a difference.
Man decides to live in kennel like dog, even gets microchipped.
Can't make this up. He wants to raise awareness about homeless dogs and raise money for a shelter. Investment angle: Buy Booz Allen Hamilton, where Edward Snowden used to work. If people are volunteering to have chips implanted in their arms, then the sky is the limit for national-security stocks.
(Jonathan Weil is a Bloomberg View columnist. Follow him on Twitter.)