The concentration of corporate debt: The top 48.
The US Justice Department today approved the merger of T-Mobile, the third largest wireless carrier and Sprint Corp., the fourth largest wireless carrier. For the merger to go forward, they will have to sell Sprint’s prepaid brands to Dish. As for the rest, whatever this does to competition and rates for wireless services, one thing is for sure: It creates another US debt monster.
T-Mobile has $37.4 billion in short-term and long-term debt; Sprint has $39.8 billion. Combined they will have $77.2 billion in debt.
This includes only debt, not other liabilities, such as accounts payable, income tax payable, accrued payroll, or the catch-all “other liabilities.” Short-term debt is due within one year and includes long-term debt that matures within one year; long-term debt is due in over one year. “Capitalized leases” – this is a big item with Amazon – are long-term debt.
After the merger, the combined T-Mobile and Sprint, with $77 billion in debts, would move up to the 9th most indebted company in the US, just ahead of Walmart and behind CVS.
This is just the latest product of the concentration of debt in the US. Telecom mergers & acquisitions have created these behemoths:
- AT&T, Number 1 most indebted company in America, with a fabulous $191 billion in short-term and long-term debt.
- Verizon, Number 3 most indebted company in America, with a still fabulous $136 billion in debt.
- Comcast, Number 4 most indebted company in America, with $113.78 billion in debt.
- And Charter Communications, the Number 10 most indebted outfit in America, with $75.3 billion in debt.
I’m counting only non-financial companies. This excludes financial companies such as banks that borrow money to lend money. But there are some gray areas in this distinction. This gray area includes the Number 2 most indebted US company, Ford with $159.7 billion in debt. Its wholly-owned subsidiary Ford Credit is its financial arm and captive auto lender that borrows money to lend money. So be it. Several companies in this group have financial subsidiaries.
Apple is Number 5 with $112.6 billion in debt, a result of its all-time record-breaking share buybacks with which it blew past GE, another share buyback queen before its house of cards threatened to collapse, with $111.7 billion in Debt.
Those are the six non-financial publicly traded companies, each with more than $100 billion in debt.
In fact, the top 10 most indebted companies combined have a breath-taking $1.2 trillion in debt. These days we throw “trillions” around to stay fit on a daily basis, but it’s still “real money,” so to speak. This is the outgrowth of the massive concentration of debt in the US corporate world.
Corporate debt has ballooned in many countries. In terms of magnitude – in terms of trillions of dollars – and in terms of how fast this debt has ballooned, no country can hold a candle to China’s corporations, though they now have to deleverage, forced or otherwise. On that global scale, and as a percent of GDP, the US corporate debt is only in 24th place (here are the countries with the most corporate debt).
An interesting thing happened on Amazon’s balance sheet: Its long-term debt, which includes capital leases, jumped by 77% in six months, from $33.1 billion at the end of 2018 to $58.5 billion at the end of June. This moved Amazon up to the Number 12 most indebted company in America.
So I did some manual digging, and below are the 48 most indebted, publicly traded non-financial companies in the US. Each has at least $20 billion in short-term and long-term debt. Combined, they have $2.6 trillion in debt. This list is not a measure of “credit risk” — there are various ratios and credit ratings that track credit risk — but it is a measure of the concentration of debt in Corporate America.
To get a feel for how much $2.6 trillion in debt is: This is equal to the total debt of the government of France and more than the debt of Germany’s government.
The data is based on recent quarterly reports. Let me know if I left out some of your favorites (the minimum qualifier is $20 billion), and I will update the table. “ST Debt” denotes “short-term debt” and “LT Debt” denoted “Long-term Debt.” If your smartphone clips the table on the right and the “Total” column is missing, hold your device in landscape position. You can search the table via the search function in your browser. All amounts in billion dollars.
|Company||Symbol||ST Debt||LT Debt||Total|
|26||NextEra Energy Inc.||[NEE]||10.3||29.9||40.2|
|40||Procter & Gamble||[PG]||8.9||21.4||30.3|
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Shouldn’t this list be normalized for earnings? Growth? Sales?
It would be interesting to a list of zombie companies.
I second this. Size matters.
So does flaccidity. I don’t see how they can continue to keep it up much longer !
‘Fake it till you make’, right ? Who can deny the Feds’ uh, ‘$timulation’ ..
You don’t see how they can keep this up much longer?
When the cost of money is almost free and you can continue to roll old debt into new debt and make the interest payments with more borrowed money and central banks have implemented a scheme that will allow borrowers to default via inflation well… it can go on forever.
None of that money ever needs to be paid back in real terms and stock investors know this and so they don’t care (and they should not care).
they are acquiring this debt to buy up stock, to prompt up their stock prices. this allows insiders who have options to sale at higher price. it also increases earning per share. however. it leaves no breathing room to deal with a downturn, recession.
Also, total non-financial corporate debt against share of GDP which has been marching higher because of lower rates …. total non-financial corporate debt service against share of GDP removes the rate factor and is valuable.
I doubt the validity of those projections. Just take ATT’s baby bonds they used for the Time Warner merger. They go all the way to 2066 and 67. You think you or ATT will be alive by then?
The assumption also means ATT does not become junk.
Aye – let your children’s children pay for it – ATT and Corporations are just figments of imagination created via “IN”corporation on paper – all well and good since it provides livelihoods to so MANY households –
But WISDOM has to be attached to it:
“Corporation is a “person” ” and so can be jailed and hanged too (at least its “collective HEAD” in the head offices – because it is the law codified as “Corporation is a Parson” – most simple follow on ‘Natural Logic’ and ‘Natural Justice’)!
The point of showing total debt per se is not to do an analysis of “credit risk.” This is what you’re alluding to. There are many credit-risk measures out there, including various ratios and of course credit ratings by Moody’s, S&P, and Fitch. The whole entire point of this is to show the concentration of debt in Corporate America — where it is and how much there is.
It would be interesting to know what share of the corporate debt is held by the top 46, 50 or whatever, and what share of the non financial corporate debt is owed by the remaining 3000+ publicly traded corporations. The related data for market cap and earnings is also quite informative.
Do you have accurate data on number of remaining public companies? Would sure appreciate link.
Let me pose a related series of question at a tangent to this.
What happens when:
Facebook and Co “create” a new ‘cryptic’ WORLD CURRENCY … to me is foundation to a Armageddon … no-body/country/people/resources/real-earth/ ….. none responsible … Facebook Owners, etc will be dead and gone in a few years …
So any Anomaly … tsunamis worldwide!
Any perturbations for any reason … tsunamis worldwide!
WORST PART IS:
Is it NOT ILLEGAL (ABSOLUTELY – non-negotiable – NON-LEGISLATE’able) to pay ANYONE (in or outside USA – especially bits-and-bites “PROGRAMMERS”) in the beautiful USofA DOLLARS (including all those ephemerally to the HARDCORE-Sore-Thumbs visible-GREEDY involved from the Company Janitor to Programmer to CEO to Share Holders – using ‘homey’ USofA currency to create a SUBTERFUGE rival viral-hole-poking CURRENCY? That is tantamount to USofA GLEEFULLY committing HARAKIRI!!! …
Now join that to all these COMMUNICATIONS-MEDIA BEHEMOTHS – ALREADY Trillionized DEBTEES!!!
ARMAGEDON !!! Without a Doubt!
I will be supporting you with all the beer money I can afford soon … very sincerely … waiting on digging my self out of a hole … looks like sooner than later!
Wolf you missed bud. I believe over 100B as well.
BUD = Anheuser-Busch InBev SA/NV, based in Belgium and Brazil, but traded on the NYSE. This list is only for US companies.
I am such a stupid ass. I could have gotten indebted with my company but paid cash for every machine tool in the last twenty years. I have no debt of any kind other than buying gasoline once every seven weeks on a CC.
I am a true deadbeat and should be removed.
The solution is simple:
Raise the Fed Funds rate to 3.00% next Fed meeting.
Kill the parasites. Problem solved.
The Debt Queens and Vampire Buy Backs might then die, and provide financial fertilizer that can spur real growth that actually benefits man.
You can clearly see the 5G agenda in Queens. Wolf, such a clever man.
If mobile carriers are junk or near junk now, think about what and where they will be with the extreme capital expenses required for 5G.
No wonder all the push back against Huwaei. Get the connection?
Kill the parasites. Problem solved.
It would help. Probably little else would. Interest rates are so low they invite and enable capital misallocation generally and finance gaming specifically.
It’s easy to surmise that this is why interest rates are kept so low, and explains the calls for rate cuts besides: that’s what the shady players want, and the industry is loaded with them.
You are asking for Trouble Mister! next week will be interesting for sure,will Mr Powell be a Can Kicker or a Hero? my Bet is on the former,the Fed is trapped,it has no Choice. Gold is sensing the Desperation but the VIX is still in a Novocain induced Coma. Will all this Debt be Serviced at higher Rates? Unless the Economy grows at Super Speed,no.way.in.hell.
If you factor in the budget deficits the GDP is barely positive at this time of “The Best Economy” garbage.
3%, with future guidance raised five basis points anytime “someone” tweets something that threatens Central Bank independence.
HaHaHa! Was very funny until I thought about reality. Would be like spitting on biggest crack monster in Oakland in front of his homies.
Thanks for short laugh, though.
Using low interest rates to boost the economy is such an insidious way of doing so. If debt, broadly speaking, causes many of the issues that leave the economy susceptible to shocks and subsequent recessions, you wouldn’t want to be encouraging more systemic leverage. Give more poison to cure the patient type of thinking (not that debt necessarily is the only explanation for low growth rates however, as I believe low wage growth due to labor market issues are the other main problem). If you want to stimulate the economy by fighting deflation and reducing systemic debt leverage, the more sensible way of doing so is through inflation. This is why I believe going forward whenever the next shock hits, they will actually try more direct forms of helicopter money. Basically don’t be a creditor going forward, you will be the biggest sacrifice. None of this would be a problem though if economically useless debt was not issued and obtained in the first place. That, however, would probably require government regulations to prevent. Good luck getting that solution out of one particular party, but otherwise you can expect this clown show to result in negative interest rates or inflation.
The money from the last tax cut instead used as helicopter money would have got a lot more bang for the buck.
Truly wish it were that simple. But I fear the financial and legal engineers would merely adjust things, to match the agenda they have always had. i.e, Put as many people between themselves and homelessness/starvation as they can using human “money” invention….playing hardball now.
What irks me is these companies bulldoze privacy and respect for human rights aka planetary destruction ( A new human right is the right to live on a planet free from idiots trying to destroy it ) while making up their imaginary assets to fund the idiotic and loveless games / activities.
A new human right is the right to live on a planet free from idiots trying to destroy it
Your ‘rights’ end where the ambitions of the powerful begin. They know they can’t it with them when they go, but they can certainly crash and burn some of it in a grand egocentric finale.
Don’t put it past them. Solid descriptions of the destructive spitefulness of the wealthy greatly outnumber those of their philanthropies and some famous ones go back to the first Athenian empire.
Can’t take it with them. Sorry, my editor is off today.
And hence, this comment :
“People of privilege will always risk their complete destruction,
rather than surrender any material portion of their advantage.”
John Kenneth Galbraith
Substitute ‘Countries’ for ‘People’…also true?
J K Galbraith, if still breathing, would probably echo Chomsky’s line about the most dangerous organization in history*, eh?
*and is with us today
Substitute “Power” for advantage.
The only reason top vertebrates could do well, even with more and more very extreme neoteny, is that they are hard wired to care about their young’uns.
Knowledge transfer is a super advantage…..except maybe us hominids took it too far, or more likely, in some “bad” directions in places along the way. Or possibly too many bad apples at wrong time, for whatever reason.
But even given your historical exceptions, it’s still there, and dynasties (and boobs, bless them all) prove it.
“Road to hell is paved with good intentions” -Blake
@Wisoot – You mean by producing the very products and services you’re using to type out that message? You do realize there’s a massive amount of toxic waste that’s generated by making electronics devices, right?
See, it’s always someone else who is supposed to live with less, not the person doing the preaching.
Yep. Guilty as charged. It’s hard (or impossible) not to be a hypocrite today, especially in USA. Just a matter of degrees.
Guess everyone just does “what they can” till planet “throws” us all off of it?
When we used to care about staying out of debt, companies would issue capital and pay dividends to control their debt obligations in good time and bad.
Today executive pay is rated on stock price, so the use of stock issuance to pay down debt is taboo. The drive to see everything in terms of stock price has missed the point. Companies should be going concerns. Financially, few of these organizations are. To see if they are, could the stock float pay off the debt? If not, if we hit a headwall of high short term interest rates, some of these zombies could be headed for the incinerator.
Ford and GM could find themselves with hot feet. It is the short term debt loads that send a lot of retail companies to bankruptcy in high interest rate environments. Companies that pay for stock buybacks with debt instead of cash are loading up cheap current debt to pay stockholders with capital.
The only thing I see that might start to drive up interest rates, (and the knowledgeble…please correct me as I want to know your opinion) is if the US bites off too much and other countries implement a credible alternative to SWIFT. And the chomping all around is deafening right now.
Trump muses about lowering the value of the US dollar as a means to further weaponize his economic policies and to further dominate other countries, but in reality when the value of any currency falls too low the said country has to raise rates to attract investment. If SWIFT loses it’s dominance, so does the Dollar and the Country imho…Then, these zombie companies will lose their nearly free source of finance/shenanigans. If a trading system survives at all, rates will one day rise.
Further, and just my opinion, this demonizing of Iran (and China) and the forcing of countries into different camps may be seen as really really dumb if it actually threatens the Dollar exchange. And now Turkey? Russia just offered Turkey replacements for the 100 Boeing ac order they recently canceled. Even little Canada opted out of the F-35 program and refused to buy more F-18s, instead replaced tired ac with used ac from Australia. My guess is Canada might retool and go with a Euro product if they still have the means for a military. :-)
One slip in the Straits of Hormuz, or with Iran, and all these indebted companies go down. The calls for a coalition to join the US campaign in the Gulf is being met with deafening silence. And while Britain is sending a destroyer to escort her flagged shipping, they are also quietly negotiating with Iran to get out of the pickle they slipped on with the Gibraltor Iranian tanker seizure.
Possible scenario: An increasingly desperate Iran pushes back further, and a mistake or over-reaction occurs. The Straits oil transit system is disrupted and energy costs skyrocket. The whole economic debt situation changes from teetering to crashing down. The result? Countries find a new way to do trade after the resulting wars and upheaval; sans US dominance. I think we are close, very close, because there are no obvious and visible cool heads to prevail.
Idiom: “The lunatics are running the asylum
The people least capable of running a group or organization are now in charge. Said especially when the result is total chaos or calamity.”
People and organizations with NO DEBT have at least a chance to ride this out. Everyone jokes about “too big to fail”, but in reality….nothing is too big to fail. The system is too entwined and complex to survive a real calamity.
Swift is insignificant in terms of influence. There are other ways to transfer fast liquidity, including WU wire transfers and gold vault receipts.
What really matters is the repo market and whether the debt sold into it is repayable. You could not for example sell Turkish bonds into the repo market. The only debt that can be sold into the repo market are those debts which are based on viable tax systems. That is why Chinese debt, Turkish debt can be repoed.
So to answer your question, unless the US embarks on gross spending, ignoring the ability to retrieve a reasonable amount in taxes to pay the interest, US currency will dominate.
It is the taxes.
Modern Day Vandals!
The amount of stored energy in this ( Fake Market) is passed the point of return!
Every now and then Farmers and hunter gatherers did what is called controlled burning to get rid of excess Fuel.
Looking at our case above this is Not Humanely possible . You’ll need to be working in the realm of the creator to achieve that possibility.
The Fires though will provide us earthly creatures a whole lot of entertainment If we keep a very very very clear distance! :)
HaHa. Good analogy. Good laugh. Good luck to ya at keeping clear distance.
RE: Hunter/gatherers…and we are still same critter.
Many Anthro guys guess grassland E Africa hominids took advantage of natural fires first, later learned to set them. Strictly for the (yucky) calories. Could care less about “leaf raking”. Also, many think it had very big part in our physical evolution, too. Farming at 10-13 BC. Neolithic Revolution. Even if done small time c 50K BC, or so, still drop in bucket of bio-time. Don’t know much about America’s migrants, but also very bio-recent.
In BC (last I saw) they just clear cut land and use high line yarders. (Yarder is same idea as old steam donkey, drag all logs to one place), but much improved, safer, fewer roads, and much easier to move, has wheels…plus runs on fossil fuel). A whole lot less eco-damage than our dragging logs up many skid roads with many cats to many landings and many log roads. It’s always on hills now, ever since Paul Bunyan days, I guess, so rain run-off really trashes soil, if all torn up.
Just an old one time choker setter’s two cents, no arguments with your excellent analogy post.
Are there corporate debt measurements over the entire market – when total debt and debt spread reaches some level – that helps predict when the Fed is more likely to raise rates?
When damage to corporate America will be minimised or at least acceptable?
FRBNY has this take on it: https://libertystreeteconomics.newyorkfed.org/2019/05/is-there-too-much-business-debt.html
TL;DR: There is a lot of corporate debt, but it is offset by high profits to service that debt. They look at aggregate as well as 75 percentile of Debt / Ebitda.
What they gloss over is that profit margins — though dropping — are still near all time highs, and according to Warren Buffett will have to drop 40% to reach sustainable levels. When those sustainable levels are reached, it seems likely that many corporations will have problems.
Amazon was mentioned on Radio 4 a few days ago. Seems they think long term (and don’t really give a fig what the stock market thinks), they think in terms of decades. They have a saying within the company that relates to this thinking but unfortunately I can’t remember it (so much for my short term memory)! If I find , or recall, it I’ll tag it to this post.
BTW, Radio 4 is a morning Radio news programme here in the UK.
People used to say much the same thing about the Japanese Kieretsu back in the day. Much like Amazon now they had access to large amounts of virtually free money, which among other things allowed them to produce top quality products at fairly low prices so they could undercut their competition. Fast forward to post bubble Japan from the mid 90’s on they virtually all lost their competitiveness. For example, in 1990 6 out of the top 10, including the top 3, of the largest semiconductor companies in terms of sales were Japanese. Today just 2 out of the top 10 are Japanese and both are towards the bottom.
The point is that free money can make anyone look far sighted and some kind of strategic genius, but when the tide of cheap money goes out will Amazon continue to look like a bright star, or share the same fate as Sony and other industry now also rans?
Have machinist friend who went to Japan, along with other much bigger players in the company, somewhere in early-mid ’80’s, to talk, sell, teach, (forgot exactly what $$ purpose was) their first time CO2 laser use in engraving technology of expensive desktop/home gift store widgets, and custom wall plaques, etc. Anyway he told me there was a whole “underclass” of mom and pop simple and very minor part makers in yet bigger companies supply chains, and so on, up to OEM outfits, e.g., cars.
Don’t know if anecdote was true?, but makes me think about how China may operate today?
A couple of predictions for next week.
1. I think the FED will raise interest rates by a quarter of a point due to a somewhat hot economy.
2. At least three of these companies will go into Chapter 7 Bankrupecy by the end of the year.
3. The protesting in Hong Kong will come to a halt with Hong Kong being invaded by China, at least the Army.
4. Regardless of what happens in Hong Kong, China will see its economy collapse while a new scandal will erupt for the elites.
Hong Kong is a “ CHINESE TERRITORY “, China doesn’t need to invade it.
That was just a reminder.
and another thing is the Chinese Economy will Not collapse. That is something that can’t be said about the US Economy though!
The US Economy is hurtling towards a catastrophic end that will cause massive unsettling in the southern US in particular.
1. Hong Kong is part of China, but it has special administrative rights that could end at any time. That will most likely be due to an invasion from the army.
2. China’s economy is at a crossroads. They love their debt and it will cause massive problems. For the record, there are banks on the edge of failure and this is where the first recession will hit.
3. I agree completely on the US economy. In the short run, the President wants interest rates raised so some of the zombie companies can go into liquidation. In the long term, the FED is dead and there is a gold backed dollar with no inflation and no debt.
Why the southern US in particular?k. Gg
Too much doom and gloom. China will continue marching forward. US will go into recession, DEMS will win big in 460 odd days. The world will continue spinning.
“DEMS will win big in 460 odd days.”
Um, well good luck to that ! .. when all they ever do is snatch defeat from the jaws of victory ..
You know, I used to think that if I looked around a poker table and couldn’t see who the sucker was in the first ten minutes, then it’s obvious that I am the sucker.
But thing have changed in a very bad way in political, now, even if it is plainly obvious who the sucker or the fool is, one needs to take a closer look at one’s self to ensure that there isn’t a bigger fool staring back at you I. The mirror.
Thanks for summarizing.
Though you’ve just focused on ST and LT debt, there are a couple other items that investors should also keep an eye on.
2) Accounts payable
Corporate pension plans have been allowed to low-ball future liabilities thanks to the prior Administration’s Highway Spending bill, MAP-21, back in the summer of 2012. When calculating future pension liabilities, pension plan administrators previously had to use average interest rates for the preceding three years. With the Fed dropping rates to near zero, this had the effect of drastically increasing future pension liabilities. MAP-21 saved the day by allowing pensions to use average interest rates for the prior TWENTY-FIVE YEARS!
As for the accounts payable issue, here there may be hidden debt for those firms that offer reverse factoring to suppliers. As an example, suppose AT&T has received $50,000 in product from a supplier that is much smaller in size and has a much lower credit rating than AT&T. The supplier can borrow from a third-party financier to get paid the $50,000 today at an interest rate based on AT&T’s credit rating, rather than wait the 90 days or 120 days to be paid by AT&T. However, if for any reason the supplier defaults on the loan, AT&T is on the hook for the $50,000. This is shadow debt. Fitch came out with a piece on this last year with concerns about the practice. Telecom is one of the industries that uses this financing tool extensively. AT&T shows $42B in accounts payable in its most recent financial statements (up $15B in six months) but there is no requirement to divulge how much is reverse factored.
Fun With Numbers.
Factoring AT&T’s invoice liability means that the supplier has transferred ‘ownership’ of their AT&T collateral-invoice to the lender. If the supplier runs away to Brazil with the $50K he got from the lender the invoice then becomes payable to the lender, so all the lender has lost is the interest. AT&T pays the lender the 50K and AT&T’s obligation is settled, and they already have the goods they bought.
The supplier has the $50K, and he’s in Brazil.
Question: Where did the extra $50K come from?
Who uses “reverse” anymore! LOL! It’s “forward, forward, forward in high gear!”
A nice little piece of info. Thx for that!
The “financial salami” being sliced just a bit “thinner”!
Was interesting WR article here already about newer accounts payable games. At our start-up, project engr made a lot of money buying them up at discount to keep our very fast moving ball rolling, as he knew the fact that a focused CO2 laser could vaporize wood was not patentable, ever.
2-10-net 30 was how it was in ’77, but seems long gone today, to me anyway.
As the Wolfman pointed out, huge debt is commonplace in huge telecom.
Here I’d like to focus on T-Mobile.
T-Mobile already has $37.4 billion debt and US regulators have just approved (albeit with the usual long list of mandatory divestments nobody really cares about) the purchase of Sprint.
This means $39.8 billion (Sprint) plus $37.4 billion (T-Mobile) in debt, or $77.2 billion. From these I’ll subtract $5 billion, which is what T-Mobile will receive from the sales of some assets to Dish, which is being spun off as independent company to appease the Department of Justice. That makes $72.2 billion.
The T-Mobile-Sprint deal will be pretty complicated but is estimated to be worth about $26.5 billion,of which $21 billion is estimated to be new debt… $72.2 billion + $21 billion = $93.2 billion when all is said and done. Move on Apple.
If we want to make things really interesting, T-Mobile is controlled by Deutsche Telekom. Always DID (deep in debt), Deutsche Telekom saw its debt soar to €46.6 billion in Q2 2019. That’s on top of all the debt subsidiaries like T-Mobile carry.
But wait, there’s more! Sprint is presently controlled by Japan’s favorite junk-rated M&A queen, Softbank, which will receive a 27% stake in the new T-Mobile/Sprint behemoth. The last figure I could find for Softbank (31 March 2019, the end of the Japanese fiscal year) was a staggering ¥18 trillion (about $159 billion at the present going rate), again on top of all the debt owed by subsidiaries around the world.
Deutsche Telekom is a major beneficiary of the corporate asset purchase plan instituted by the ECB, but it still has about €40 billion of outstanding debt “out there”. And as fast as their pile of debt has grown, it pales compared to Softbank’s. Here I’d like to remind readers that since Softbank is a junk-rated company it only receives very limited direct help from the Bank of Japan, basically limited to the purchases of ETF linked to their stocks (Softbank is a TOPIX 30 component).
But both companies, and their subsidiaries, benefit immensely from financial repression which allow them to throw any caution in the wind.
Softbank’s executives even went as far as saying they are “perfectly comfortable” sitting on top that mountain of debt, basically mocking anybody who tries to turn a profit in this world like yours truly and many other readers here.
I take these guys are the corporate equivalent of bosozuko mocking people who go to work to earn a living and save their money instead of riding a beater with no silencer and a giant flag on it just to tick people off.
It’s fun while it lasts, but sooner or later the bosozuko either meets a violent end or the unthinkable happens: he grows old.
Can anyone provide an example of another time in history where the debt levels were this high and the interest rates were deliberately kept this low? Many folks here say that history repeats itself but I have yet to see a clear example of the potential for disaster except for the great depression…where many financial pundits are trying to draw a comparison today…tariffs, etc.
Many of my friends are seeing their 401K’s skyrocket and they believe this will last for a lot longer as long as interest rates remain this low (and going lower)…what will be the catalyst for potential drastic declines in the stock market with interest rates being kept this low? Outside of world war turbulence…?
This may or may not help!?
Negative real interest rates during 1945-1980 and again post-2008
Liberal capital-market regulations and international capital mobility reached their heyday prior to World War I under the gold standard. However, the Great Depression, followed by World War II, put the final nails in the coffin of laissez-faire banking. It was in this environment that the Bretton Woods arrangement of fixed exchange rates and tightly controlled domestic and international capital markets was conceived. The result was a combination of very low nominal interest rates and inflationary spurts of varying degrees across the advanced economies. The obvious results were real interest rates – whether on treasury bills (Figure 1), central bank discount rates, deposits or loans – that were markedly negative during 1945-6..[..]
One should note that:
Fed had NEVER bought MBSs in it’s entire history, until March ’09!
QE was/is a concept never researched with no prior record at Fed. Barnake was unable to explain ‘how it works’ but claimed ii works in practice!?
– I am not sure,if Fed had suspended (FASB 157) Mkt to Mkt accounting before or NOT
-Existence of Shadow banking ( Non-financial institutions) before was rare or at least not to the extent, now!. So is the pool of ‘Eurodollars’ (Loans issued in US $ in Europe). Both of these are NOT per-viewed or regulated by Fed!
In essence WE are in uncharted waters!
The companies at the top of the list are perfectly comfortable” sitting on top of that mountain of debt, basically mocking anybody who tries to turn a profit”. If accounting rules reward unprofitability, unchartered waters will be intentionally and continuously whipped up to allow that can to be continuously kicked down the road. This is their only protection. The game must appear to keep changing to protect the debt status quo. It must continue to be so complex in tax rules and regulations that doubt can be caste whenever and wherever it serves the purpose of those who can afford the most expensive legal support. Once you have doubt, you have an argument to do what you like. Fancy that! Oh la la! Until of course, investors and regulators stop playing this particular game.
What irks me about many comments is that there’s a lot of denial going on. And there’s a disregard for the actual context of some of these Fed maneuvers. And, there’s always a “conspiracy” behind things that aren’t liked or understood.
And the thing that pisses me off the most is the moral arrogance of many commentators, especially with regard to capitalism. For example, brokerages have set large bonuses for employees to develop unique financial instruments – exotic securities. In spite of the damage that may follow, this is capitalism (or it’s red-headed stepchild – financialization) but the moral high-grounders think this is somehow beneath the lofty tenets of what capitalism should be. Creating some new gizmo is saintly but creating a new security is demonic. If a bridge fails, how unfortunate. If MBS’s blow-up, it’s a conspiracy.
I’ve spent the last three days working alongside a genuine, died-in-the-wool redneck. If you think for a minute that he has any “aspirations” beyond getting a beer and watching something naked, you’re sorely mistaken. He has no regard for anything farther out than Sunday morning & his hangover. There are one hell of a lot of these people, yet snooty, high-moral-grounders completely ignore them and what they live for. It’s widespread denial and basic ignorance of the way things are. Wake up and smell the adolescence.
You know what else pisses me off: listening to others whine about why we should care about drunken rednecks.
Confused. I agree there is a disregard for others, red neck or not. There is also immoral behavior and a lust for greed, I got mine , f you! So yes, mister hotdog, you should care about everyone, you never know how this is going to end, hence the “conspiracy” theories . Capitalism is not the blame, it is us. It doesn’t matter what type of political or financial system you live by , it is the power people tha t counts. Having high morals is commendable, it’s the hypocrisy that’s the problem.
Q/E was actually used before by the FED in the early ’30’s I believe.
They did the devaluation thing too.
“… long-term debt is due in over one year. “Capitalized leases” – this is a big item with Amazon – are long-term debt.”
Is this the reason for Bezo’s admission that Amazon will go bankrupt someday? He knows the debt will be discharged that way?
So are these firms competitive, that is, generating returns on the borrowed money above the cost of borrowing, or are they non-competitive, that is, borrowing because they cannot function as desired otherwise?
Didn’t realize that Ford is #2 in debt with GM not too far behind. The Detroit media has been climbing off the booster podium lately and printing the automakers candid admissions that autonomous vehicles and widespread electrics may take much longer to implement. I know autos are Wolfs field of expertise and he should be as concerned.
First page of my finance book explained for every real asset there is a financial asset. The problem comes when financial assets inflate to where they don’t reflect reality. There is a Minsky moment. John Law has proved that it’s just temporary perceived wealth that will end in tears.
The winners will be those that sell the financial assets close to the top and bagholders will be crying. If central bankers are the new John Law all of their power will be taken away and they will be brought before a corrupt Congress to take the fall. It’s not so different than John Law as the French were bankrupt and he had a dishonest money solution that the ignorant king believed. By the way why the French bankrupt? All of their debt financed wars.
Law’s Say vs. Say’s Law
Mr. Market will have his work cut out for him.
BlackRock’s CEO Larry Fink primed the political-economic discourse for the ECB to purchase stock to stimulate the economy. I’d always assumed that the last method for the oligarchs to monetize “stock” was via Social Security, but I don’t think that stands a chance. Having central banks monetize the stock market directly is much more efficient without the political blowback. Lol.
This what bugs me about Congress and auto industry. Auto industry is cyclical, capital intensive, highly regulated and suffers from too much worldwide capacity. Yet Congress will put the death nail into the auto industry by causing auto makers to make cars the market doesn’t want and to borrow money for the resources to do it.
During the next recession if bad enough they will default on their debt and will be bailed out by taxpayer. This time Tesla will be the first to go, followed by Ford and FCA, maybe GM too.
Back in 1960, after the revolutionary de Havilland Comet airliner was grounded due to several deadly crashes thus effectively handing the market to Boeing, Convair and Douglas, the top three British exports by book value in ascending orders were motorcycles, spirits and cars.
Only one of those three industries remain today.
Back when I was studying in Britain and the scars were still fresh, most people tended to pile the blame on HM Government, with the most culpable cabinets being (according to whom was delivering an impromptu “J’accuse…!”) those headed by Harold Wilson, Edward Heath and Margaret Thatcher.
But doing a little digging turned out HM Government had done the impossible to keep the British automotive industry afloat, including brokering an absolutely suicidal merger between profitable industrial/agricultural vehicle manufacturer Leyland Motors and financial black hole British Motor Holding.
To win them over (BMH being known as a desperate case), the Leyland management had been assured by the Industrial Reorganisation Committee they’d be given “dictatorial powers” and “the full backing of the government during labour disputes” to make BMH profitable and that the BMH management would be quietly sent into retirement at first occasion. They were duped.
On top of this I have to ask… has anyone ever had to deal with classic British vehicles? No? Then consider yourself lucky. No small wonder that when the BSA-Triumph board was informed Honda was about to launch the CB750 Four “the room fell into a stunned silence” according to Bert Hopwood who was present at the meeting.
Modern automakers are behaving just like that because they expect governments to bail them out. They have been bailed out time and time again, just like British. Groups like Volkwagen AG, PSA and Renault have government agencies as their main shareholders. British Leyland was nationalized as well. Nothing can go wrong, right?
MC01, Nice mention of Bert Hopwood.
One of the best books around on a simple explanation of the demise was his “Whatever Happened to the British Motorcycle Industry?”
I was stupid enough to buy a 1974 Triumph Trident rather than paying $500 more for a Ducati 750SS which was essentially a race bike and hardly street legal. The Ducati would be worth more than 25k now but my Trident, not close.
Yep Erle & MCO1 (great post as usual, with good 750 laugh, too)
Saw what happened with Lightning Rockets, Bonnevilles, Victors, Vincents, Nortons, etc, etc. (Although they all make it as classic rides now). Owned lots of bikes since age 15, a few Ducatis, but mostly all “rice burners”.
RE: Brit cars
Still think Sir Alex Issagonis deserved to be knighted. Lucas should have been in the tower (or hung).
I’m retired so my only stock holdings are in a few utilities that pay about 4% in dividends annually. Now it used to be a company would could return money to shareholders only from the profits the company made. No profit no dividend.
I would have no problem with share buybacks IF the company doing it was using retained profits to buy back those shares. It would be a form of a reverse stock split. Instead of owning 1/1000th of the company I might now own 1/950th of the same company and not have to pay any tax on my increased equity.
What I don’t ‘get’ is how can a company borrow money to buy back its own shares? This serves no legitimate economic purpose. It isn’t building new plant or equipment, expanding operations into new markets or making an acquisition. Its just goosing the share price up to enrich current management and shareholders. That’s the charitable view. A cynic would call it Ponzi finance-using new money to pay off old investors.
A Citi analyst said some years back, we would reach a place where investors would take out loans and put the money in a savings account. Ignore that point that the spread might be slightly negative, you control a great deal of collateral.
AT&T borrowed money to do mergers and acquisitions. Am not sure if they will build 5G infrastructure or lease it from others.
The SEC requires companies to file an annual report containing an income statement and balance sheet. There is a line item on the corporate income statement showing company annual interest expense. An analyst may compare the annual interest expense to various measures of revenue and income to better assess a company’s financial condition. Accounting 101 might be a good start for someone looking for business acumen.
Normally we’d say we are at peak debt, but if debt can be incurred at negative rates I guess there is mathematically no limit
BTW: I believe Apple’s debt was incurred to avoid the US taxes it would have owed if it tapped its overseas stash to pay a dividend. (After accumulating about 1 percent, Icahn shook down Cook after they went for lunch. I doubt Jobs would have taken his call) and its positive net position is far greater than its debt.
This is basically the same case as Cisco.
What is interesting is that Tesla, who is trying to build a business, has less debt than the established companies just trying to maintain theirs. It’s interesting that companies on the way down are taking more debt than a company (trying to be) on the way up.
Tesla’s problem is not that it has some debt. The problem is that it has been cash-flow negative forever and can’t seem to get out it; That’s one problem. The other problem is its valuation.
Although by the same token, most of these companies listed above do not have a cash flow problem as described. Indeed, they seem to on paper have no trouble servicing their debts. Of course, I do not know if by servicing, they mean just paying the interest. So, there is a big lump sum on the principle due at the end.
All of this in service of Wall Street and their quest to manipulate earnings. I am waiting for the day when there is a company that has only a single share on the market, and that share yet has a daily volume in the millions because of high frequency trading. It would laughably have an earnings per share of … well, let’s just say a very large number.
Yes, I know this is patently impossible, but would be funny to see.
I am sorry if this sounds as stupid comment, but why would that really matter in a modern organization? As long as you can manage debt and it does not exceed ratio at which your operation become excessively risky, debt is just another instrument. I think it’s only when you start transferring the risk of default to someone else, that’s where it feels (to me) a problem is looming. I do want to understand this better, so please kindly explain where I get this wrong. Thank you.
It doesn’t matter. Nothing matters.
In the end debt does not matter. All of these companies that have a core which produces wealth will remain. That wealth will be harvested and taken private in case of default and of course the class c stock holders will be wiped out. CB/private or completely private does not matter . It is a sad fact that in the end game of fiat / neo-liberalism the people will only have what they always have had , their biological time value . The people will be on the Hayek’s Road to Serfdom. 1 oz of silver buys a week of food for a family of four in Venezuela. Of course that could never happen here ,we live in the magic land.
It might be useful to add one column to the table that shows the total $ amount spent by each company on stock buybacks during the last ten years.
Why am I recalling warren bufett and Kraft?
Buffett has also chronically touted a type of non-GAAP metric he calls “intrinsic value.”He defines it as the “discounted value of the cash that can be taken out of a business during its remaining life.”
Buffett and his partner Charlie Munger never disclose their estimates of Berkshire Hathaway’s intrinsic value, because, they say, it’s an estimate and very subjective.“What our annual reports do supply, though,” Buffett wrote for the 2017 annual report, “are the facts that we ourselves use to calculate this value.”
Deficits and debt don’t matter (Bawhahahahahw)
I’ve always understood that the debt-to-equity ratio was more important than the total debt. Per Investopedia:
“In general, a company with a high D/E ratio is viewed as a higher risk to lenders and investors because it suggests that the company has financed a larger amount of its growth through borrowing.”
As I mentioned above, the point of showing total debt per se is not to do an analysis of “credit risk.” There are many credit-risk measures out there, including various ratios and of course credit ratings by Moody’s, S&P, and Fitch. The whole entire point of this is to show the concentration of debt in Corporate America — where it is and how much there is.
Wolf, as always thank you for the great knowledge share! Inspired by the article, here is a haiku poem about the future. I did not mean to write this as a joke, but with sincerity about how I feel about now and tomorrow.
negative interest rates,
tariffs are useless,
the pot was broken
a long time ago.
tears in eyes,
cash on mind
heart of greed.
check has bounced,
now we pay.
1) US 10Y @ 2.074 // US 3M @ 2.123.
The spread (-) 0.049.
2) US middle is caving due to gravity with negative rates.
Europe front end under water, Druggie promise to do more : the German industrial & service sectors are trending down.
3) 3M : US & Switzerland spread : 2.123 + 0.900 = 3.023.
3M US & Germany spread : 2.123 + 0.522 = 2.645.
4) 3Y : US & Switzerland spread : 1.823 + 0.959 = 2.782.
3Y US & Germany spread : 1.823 + 0.774.
5) If the Fed reduce rates, the front end will turn down, reducing the spread and the long duration will popup.
6) We get a US swollen bottleneck. All rates gang on each other until the economy turn down.
7) Until the next “recession” ==> All global rates will lurch down, Germany might invert under water. When the destruction will be over, rate will move sharply up, in a sling shot, caused by INFLATION.
8) Either way, AT&T will die, killed by inflation, or during the recession.
And AT&T has a $31.4 billion lead on Ford in the debt department. It is very possible that the Justice department was trying to save the company by denying the merger with Time-Warner.
That is not to say that the other companies are worse off. The $88.4 billion Ford and GM owe is worth more than the debt of every company with the exception of the two automakers and the 6 other companies at the top of the list.
I am willing to bet my life that each and every one of these 46 companies supported and even funded Hillary Clinton’s campaign in 2016 as well as for the clowns running for President right now. There is no way on God’s green earth that each and every one of these companies will get bailed out by the Trump Administration. If they were all liquidated tomorrow, I am running to the ballot box so I can cast another vote for Donald Trump.
‘AT&T has the nation’s largest 4G network, covering close to 300 million people, and is also the largest Wi-Fi provider in the country. Regarded as one of the top corporate political donors, AT&T operates a PAC that regularly donates millions of dollars to candidates, most of whom are members of the Republican Party.’
It also gave 2 million to Trump’s Inaugural
Even a Canadian knows that corporate US donating has always tended GOP.
But most corporations tend to give money to both parties though there are the favorites in terms of who gets more. The Koch Brothers actually sat out the 2016 election and that meant that the Democrats actually got a bit more.
I like Canuk think….just my bias.
Jessy, the value of most humans lives has been heavily deflating for a long long time, how about we just bet your wheels?
Read somewhere today that on average all the corporate borrowing that has gone on this century has gone to buy back stock. That’s worth taking a couple of minutes to think about. Fed failure? Demand failure? Tax code failure?
I think Stockman calls it leveraged buyout of US equity? Maybe not that different than getting equity loan on your home. Problem with debt is you got to make the payment even if income drops. Plus companies freeze up at bottom and don’t buy stock when it is cheap. This might be a record year of purchased at s&p at 3000.
“Plus companies freeze up at bottom and don’t buy stock when it is cheap.”
This assumes that the company is buying back stock for the benefit of the company, and not for the big whale shareholders who need to monetize stock without depressing stock prices.
The former wants a lower buyback price. The latter wants a higher buyback price.
Am I correct in assuming that none of the figures in the table reflect unfunded defined benefit pension liabilities?
Wolf – A $75,000 investment in Charter Communications in 2010 at $30/share would not be worth around $1 million dollars at recent $400/share. Charter has a P/E around 76. Could someone explain how any one of us could have turned $75k into $1 million in less than 10 years by investing in one of the most leveraged, and recently huge subscriber lossing cable TV companies in America? Sure they provide Internet but who doesn’t, and won’t be including Tesla in the near future. Then explain to me how Waste Management (WM) has increased almost five fold in the same time period…a trash collection company with a 27 P/E ratio. Trash stock (pun intended) has gone exponential since 2016. Is this an ETF floats all boats sort of phenomenon? Something for nothing financial engineering? Why would anyone work a real job for 50 long years when the fed can make us all fake wealthy by holding trash stocks for only 10 years?
– Add BA @ 131.6B total liabilities and DIS @ 124.4B.
– Top 50 who support leaders that bend on their knees, bow
and pledge loyalty to a corrugated garbage can.
Alternative title for the article: “The 46 strongest companies in America”.
The talking heads claim that debt makes the US consumer “strong”, why not apply the same thinking to America’s Corporations?
The “talking heads” get just as worried when corporations don’t increase their collective debt. There are different measures they watch, such as bonds outstanding, commercial & industrial loans, leveraged loans, and the like.
But it’s getting touch. Regulators (mostly the Fed) begin to worry when companies borrow too much, which is right now, because of the risks. But then they really fret when companies deleverage.
If I have $1M in the bank and $20K debt and I worse off than having $0 in the bank and $15K debt? According to the list yes, because 20 > 15.
This ranking is kind of meaningless without any context like assets, revenue, profit, etc.
Just Some Random Guy,
How many times do I hafta repeat it? So this is the third time here (copy and past from above):
The point of showing total debt per se is not to do an analysis of “credit risk.” This is what you’re alluding to. There are many credit-risk measures out there, including various ratios and of course credit ratings by Moody’s, S&P, and Fitch. The whole entire point of this is to show the concentration of debt in Corporate America — where it is and how much there is.
Thanks, Wolf. Your articles keep getting better and timely. This is the real news.
Didn’t realize Apple and Walmart carried so much debt. Seems daytime business TV just fail to mention these (minor) tidbits.
$2.6 trillion – roughly what Trump will rack up in 4 years … or maybe he will exceed it … actually pretty sure he probably will exceed it.
Disney has about 57 billion in debt as well.
Thanks, ben. I just looked at it, and in terms of short-term debt ($2.8 billion) and long-term debt ($17.1 billion) combined, it has $19.9 billion in “debt.” It has a lot of “other current liabilities” and “other liabilities,” but they’re not classified as “debt.”
However, I just now put DIS on my watch list, because surely its debt will increase, and it only has to tick up a little to qualify by getting over the $20 billion minimum. So likely it will be included in my next update.
Southern Company (SO) has over $40B in debt.
Thanks. That’s a biggie! Now in 20th place, just above Exxon-Mobile!
hi an interesting but rather incomplete stat/picture. debt with out considering cash in hand ( and to a lesser extent wether company has track record of being cash flow positive but that goes deeper into issue and i would keep it out of argument ) is not very helpful. i am hesitant to use stronger term meaningless. even though i strongly think share buy back was a really bad idea ( with debt or from cash in hand ) Apple happens to have glob more of CAsH IN HAND than all the debt/liabilities combined. i wonder how many other companies in your list are like that.
As I said, this wasn’t an exposé on credit risk — which is what you’re alluding to — but an exposé about the concentration of debt in Corporate America. On this site, you will find numerous articles about credit risk, but this was a different angle of the debt story.
Your statement, “Apple happens to have glob more of CAsH IN HAND than all the debt/liabilities combined,” is patently wrong:
Cash & Short-term investments: $80 billion
Debt $100.7 billion
“All the debt/liabilities combined”: $236 billion
You see, Apple’s balance of cash & short-term investments is only about 1/3 of its total liabilities.
However, I agree with you that Apple has a relatively pristine balance sheet with a large amount of liquid assets.
Did you overlook Boeing wit debt in excess of $20 billion?
Boeing only classifies $19.2 billion of its ample liabilities as “debt.” So it misses the cutoff.
Does your list include public utility companies?
– Duke Energy has over $60 billion in debt.
– Pacific Gas & Electric has over $25 billion in debt.
PG&E is not included because it is restructuring its debts in bankruptcy court.
Duke is a biggie that I missed. Thanks!
Dow Chemical (Dow, Inc.) has over $20 billion in debt.
It’s now called DuPont (after merger) and is on the list #23
PepsiCo has over $33 billion in debt.
Yes, and it’s on the list, #36
Are US companies able to offset interest on debt against gross profits, ie tax relief? If so then the advantage of debt is to reduce taxable profit, thereby giving the impression that business isn’t doing as well as might be expected – in turn avoiding any suggestion of overcharging.
The other advantage is that the more money that can be borrowed to run the business the less money the business needs of its own.
Ps – I omitted to mention that well-run companies generate loads of excess cash which in theory belongs to the shareholders but in practice is whittled away by unnecessary expenditure.