Opinion

James Saft

Microsoft learns to love leverage

Sep 23, 2010 11:36 UTC

If you thought the era of better living through financial engineering died with Lehman Brothers, have a look at Microsoft.

The ubiquitous computer software company has decided to borrow as much as $6 billion at the same time as it is increasing its dividend by 23 percent, despite sitting on a $36.8 billion cash hoard and generating more every day.

It reminds me of the old Saturday Night Live skit about the “Bank of Change,” which existed only to turn dollars into quarters and pennies into dimes. “How do we do it?” their pitchman said, “Volume.”

Microsoft’s shares fell more than 2.5 percent on the news, but mostly because investors had hoped for a bigger return of cash, presumably financed by a bigger bond issue.

It looks as if Microsoft will pay out about $5.6 billion annually in dividends, quite close to the size of the bond issue and perhaps a quarter of the free cash the company is likely to generate in fiscal 2011.

Deleveraging a process, not an event

Sep 21, 2010 14:51 UTC

It may be about as fun as having a tooth pulled, but cutting very high levels of debt in an economy is more of a process than a short, sharp event.

That means that for economies like that of the United States, which has private debt equal to 268 percent of gross domestic product, the outlook is for a very long period of subdued growth and one in which there is no assurance that the tools of economic management, traditional or not, will be effective.

The Federal Reserve released its Flow of Funds report last week, detailing the state of the country’s various balance sheets and the news was good, in its own way, but not encouraging.

Speculators and China win big on yen move

Sep 15, 2010 22:27 UTC

What does $4 trillion a day in business, never sleeps and sees Japan’s Ministry of Finance as just one more patsy?

The foreign exchange market, of course, which is licking its collective lips as Japan embarks on another round of unilateral intervention to sell the yen in an effort to drive down its value and protect its export-oriented economy.

There are going to be two big winners in this, and neither begins with a “J.”

Looking for Keynes’ angels

Sep 14, 2010 11:40 UTC

Keynesian stimulus works perfectly, but only if you can find politicians who don’t care about re-election and central bankers who aren’t interested in being liked.

The Obama administration, confronted with staggeringly high unemployment and a struggling economy, has proposed another round of, well, stimulus, this time in the form of tax cuts and investment incentives, but such is the toxicity of the word in current debate they can barely bring themselves to utter the “S” word.

As envisioned by economist John Maynard Keynes, in order to successfully run an economy based on counter-cyclical spending during downturns, you need to also have a policy of counter-cyclical savings during fat times. Budget surpluses must be built up so that they can be run down during recessions

Irish plight about more than austerity

Sep 10, 2010 13:30 UTC

Ireland and its economic unraveling is not simply a test case of the stimulus versus austerity dispute, it is an illustration of the limits and pitfalls of the very popular strategy of keeping the banks ticking over, hiding under a desk and hoping for a strong recovery.

Previously praised for taking a tough fiscal stance which fans hoped would put it on a solid footing, Ireland now seems more vulnerable than ever. Concerns that the costs of the banking bailout will exceed the government’s ability to pay, even with European Union support, have battered Irish debt in financial markets.

The price of insuring Irish government debt against default hit a record on Wednesday, with markets extracting a premium of just over 4 percent of the amount being insured. Similarly the yield investors demand to hold 10-year Irish government bonds has increased greatly, hovering just around 6 percent, or 380 basis points more than German benchmark bonds.

Housing double-dip threatens banks

Sep 2, 2010 14:09 UTC

Another dip in U.S. housing looks likely, bringing with it difficulties for banks and for their government guarantors.

What is perhaps worse: having chucked money at supporting asset markets in order to support banks the past two years, the policy options for handling another housing downturn and banking crisis would be greatly circumscribed.

If you think the debate about more fiscal stimulus is heated, wait until you see the venom which the prospect of another housing and banking bailout brings.

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