Hey, Wall Street——-This Bud’s For You!
Plain and simple, the sum of Washington policy is to induce the business economy to eat it seed corn and bury itself in debt. Capitol Hill does its part with a tax code which provides a giant incentive for debt finance, and the Fed completes the job through massive intrusion in the money and capital markets. The result of systemic financial repression is deeply artificial, subsidized interest rates and free money for carry trade gamblers—–distortions which have turned the C-suites of corporate America into stock trading rooms.
As a case in point, the $46 billion of bonds sold by the owners of Budweiser last night where priced at a ten-year yield of 3.67%, which means that after taxes and inflation, the company’s borrowing cost was hardly 1%. Yet, as explained more fully below, the only point of this massive offering was to fund with nearly free long-term capital the huge payday for speculators in SABMiller stock that will result from the $120 billion Anheuser-Busch InBev (BUD) takeover transaction.
But consider the economic context. As astounding as it may seem, US net business investment in fixed assets last year was 10% below its turn of the century level. And that’s in nominal dollars—-in real terms its down by nearly one-fifth.
Moreover, net investment is the right measure, and its not at all comparable to the what Wall Street stock peddlers, who claim to be economists, are always bloviating about.
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