Today I giving orders to corporate CFOs (Chief Financial Officers).
I know you may be sitting on top of a mountain of cash per today's WSJ article: "U.S. companies are holding more cash in the bank than at any point on record, underscoring persistent worries about financial markets and about the sustainability of the economic recovery. The Federal Reserve reported Thursday that non financial companies had socked away $1.84 trillion in cash and other liquid assets as of the end of March, up 26% from a year earlier and the largest-ever increase in records going back to 1952. Cash made up about 7% of all company assets, including factories and financial investments, the highest level since 1963."
And some of you have sold notes & bonds to raise cheap money. BUT most are making a fundamental error. When long term money is cheap, GET IT AND GET AS MUCH AS POSSIBLE.
Sell long term bonds - lock in low rates for 30 year bonds. Fund all your foreseeable and unforeseeable funding needs for the next ten years with fixed rate debt with terms at maturities of at least 10 years, preferably 30 years. Prefund any maturities coming with the next five years. DO IT !!!
Stay away from floating rate debt and short and intermediate term maturities. If you want lower floating rates for awhile, do a short term interest rate swap against the long term bonds.
Give the CEO a war chest to use to build and grow the company NOW as record low fixed rates. This will increase the value of your company immeasurably over time.
Now for investors ... wait, don't buy that long term debt. Let the pension funds and insurance companies and mutual funds who have to buy do the buying. Wait. Soon the US economy will start to perk up - maybe late this year, and then rates will start to rise. If you buy now, you can easily lose one or two year's of interest in price declines. Wait.
I'm tempted to buy some BP, but will wait. IF the oil spill hits the beaches on the west coast of Florida, I think BP will go to zero as the damages will be incalculable.
Word of the Day
"Homeostasis" - noun [$10]
Homeostasis means a tendency towards relatively stable equilibrium between interdependent elements, esp. as maintained by physiological processes.
Sentence: I doubt the markets will achieve homeostasis until hedge funds are regulated heavily and have much less money. Until then, asset allocation trades will rule: buy low, sell high AND sell high, buy low. You must do BOTH.