I was not even going to mention that the Dow, 21,796.33 points made another all-time high on Thursday, had it not been for the fact that as it went up, the S&P went down.
Slightly more to the point, the biggest loser on the docket was Apple while the gainers were old the old economy specials such as Verizon, Boeing, Merck, Disney, Proctor & Gamble and Walmart. I suppose a bit of catching up was overdue although in a world of passive investments, this would theoretically not be possible. Thank God there are still people out there with brains.
It was, however, in the bond market that the “good ol’ boys” made their biggest mark as AT&T appeared with the largest single transaction, year-to-date and, in passing, the third largest bond offering in history. It had been well signalled that a bond take-out was planned for AT&T’s US$84.5 billion takeover of Time Warner but the borrower was only supposed to be looking for US$15bn. In the event the company took down US$22.5bn ranging from a US$750m six-year FRN to a US$2.5bn 41-year fixed tranche.
The numbers were stunning and included two tranches of US$5bn maturing in 2027 and 2050, respectively, and a US$4.5bn tranche running until 2037 with spreads ranging from 100bp for the US$1.75bn for the short 2023 maturity to 240bp for the long US$2.5bn 2058 bond. Quite unusually for a deal this size the lead management group was the same for each and every tranche, which included Bank of America Merrill Lynch, Goldman Sachs, JP Morgan, Mizuho and Mitsubishi UFG. In terms of execution and pricing, all five of them deserve a gold star.
Although such monster transactions are not exactly the norm, much has been learnt from previous mega-deals and the shareholders weren’t skinned by give-away pricing as they were when Verizon issued the first such huge borrowing in February 2015. As it was, the books were still for US$65bn and once again there will be the usual complaints that the big guys got all the bonds and that the little guys will have been left with nothing but the crumbs. At least, with the pricing having been realistic, those who will be obliged to top up their holdings in the aftermarket will not be struggling quite as hard to match the performance of the investment world’s heavyweights who will have been filled in full and on the bid.
The fact is that AT&T didn’t really want nor need quite so much money but with a host of maturities to refinance before the end of the year, it would have been rude not to take the money now, so this should represent the company’s last excursion into the bond market for 2017.
Amazon
Meanwhile, the wires were humming yesterday with the news that Jeff Bezos, the principal of Amazon, had overtaken Bill Gates as the world’s richest man following the recent moon shot of its share price. The timing of the news was slightly rum given that the company was about to report a 77% drop in quarterly profits. That figure is perhaps slightly disingenuous given a further sharp rise in sales which were, however, offset by another spurt in investment. Tech behemoths live and die by being one step ahead of everybody else and Amazon is no different.
The rise and rise of Amazon has been news for some time although it was not until its recent acquisition of Whole Foods Market that many appreciated that there was so much more to it than just online shopping. The news of a fall in profits came just as the share price had hit US$1,083 and the question now is whether Bezos is still the world’s richest individual with the price having slipped back to the US$1,040. Frankly, my dear, I‘m pretty sure he doesn’t give a damn.
Italian job
I, meanwhile, am on one of my periodic trips to Italy where I have experienced first hand what is so right and so wrong about the country. There is no such thing as a work day here. It’s made up of two, largely unrelated and unconnected parts. There’s the bit in the morning from 8:30 to 12:30 and there’s the second bit in the afternoon from 4:30 until….whenever. If one acknowledges that everything has to be tooled up and tooled down not once but twice in a day, one begins to understand where the friction occurs and where the efficiency of an otherwise perfectly sound economy is lost.
I dined with an expat last night, one who loves this country to bits but who bemoaned that at 12:30 people down tools, walk away and don’t care, irrespective of what is on hand. Even if it would not take more than 15 minutes to finish the job, they don’t care and they’re off. One day, he hopes, the old farm he and his wife have bought to renovate may in fact be finished. Dream on, mate!
Don’t get me wrong; the deeper problem is not in the way it is done but in the unshakable belief that income and standards of living should match that of northern Europeans who work through the day in one go. There is an ongoing discussion in Spain in which the two-part day is even more pronounced but the Spaniards have at least acknowledged that they have to choose between one or the other ways of life. The Italians haven’t. The cast-iron belief that it is an Italian’s inalienable right to live in comfort is reflected in the miserable state of the nation’s banks’ loan books; it is not only the borrowers who believe in it but the lenders who quite obviously can see nothing wrong in it either. Bad loans at birth, if you like.
Alas, it is that time of the week again and all that remains is for me to wish you and yours a happy and peaceful weekend. Things are quietening down on the work front so there will be more than enough time to watch the cricket where England, having given South Africa a lesson in the first test and having been thrashed in the second, have to show what they are made of.