SoftBank’s debt obsession

I sense there may be a clear point here somewhere but you've failed to state it.

It's a risky structure but Softbank continues to hit it out of the park with bets at a size that nobody else can match. Also the positions can be liquidated it just takes time

They want it on better terms, and have access to companies not on stock markets including all those pets.coms

Supply and Demand. More demand is better terms for stock sellers, i.e. companies. And their investing would probably completely skew the market. So it's hard. Investing directly might put them at risk of some kind of oversight as well.

And they already have a lot tied up in those kinds of investments anyhow. They own a lot of real estate around the world as well.

It's hard to find places to park that amount of money esp. if there are political considerations. Nobody is worried about taking money from the Norwegians ...

Sinking more money in the stock market is the same as getting a worse deal or concession in any fund.

Stocks are already bought up to levels that don't make a meaningful theoretical return if the individual companies started returning capital via dividends.

Bonds are in the same situation, they have been bought up beyond sane levels (theoretical return based on coupon and yield curve) pushing their yield to lower rates than risk and inflation would warrant. Basically, with bonds you have to accept that some issuers will go bankrupt and you get a 100% loss on that portion of the portfolio, therefore the whole portfolio of bonds has to account for that risk and it can't right now, if you keep buying more of them at higher prices

Getting out of the public markets you go into the private equity markets. There are plenty of investments to fund which nobody else is funding due to the way the deal looks or the way the team looks. You go further out on the risk curve, and also accomplish the goal of keeping money flowing in the economy.

This is what the central banks wanted to happen: assets prices and yields of everything passive is so unattractive that people are forced to make their capital more productive in the economy. Sure they didn't expect people to plow into crypto, but risk is risk and yield is yield.

It is more likely that Softbank functions as an economic stimulus backed by the Bank of Japan's economic policy decisions.

Saudi Arabia could already do LBOs in Western countries, well you think they can take out more leverage because of the restrictions on debt in Islamic culture?

I would say the Softbank entity shields them in case things go down, like after the things that went down.

Even the 10 year rate of return has variance. The risk-free rate of return for 10 years should pretty much be 10 year TIPS bonds.

I think you are ignoring a lot of factors that come into play when you are managing assets on the scale of 70B$. It is easy to sink 1000$ in a minute into an index fund using Robinhood. It is not as easy when you are talking numbers on this scale.

Depending on how you define a "serious economic downturn". The one thing funds that invest in private companies has it that they can mark-to-model rather than mark-to-market. If it's not a prolonged downturn, private funds can much more easily ride out downturns than funds that invest in public securities and have to actually mark things in a realistic manner. Given the longer lockups of most PE funds, investors are also along for the ride.

How would an answer based on fundamentals even look like? Nobody can predict the future.

Sure there are; valuations are considerably inflated now compared to the average (or starting point) of the last 90 years. Percentage earnings and dividend rate are both considerably lower. The long term expected return for the market is therefore also lower.

Well, over the last 90 years the USA moved from important regional power to the economic and military hegemon of the world. That's quite the wave to be riding as a US stock market investor. It's also quite a hard act to repeat.

To maintain the historical growth rate, you have to believe one of the following two things, or some combination of them:

1. The US will continue to amass a larger share of the world's wealth, indefinitely.

2. The economy of the world at large will begin to also grow ~10% a year, a number far in excess of the historical average or any well-informed estimate.

Personally, I wouldn't make that bet.

That is demonstrably not true. 1968 was a positive year!

1968: +11%.

1969: -8.6%.

1970: +3.6%.

1971: +14.5%.

1972: +19.2%.

$1 of S&P500 in 1968 would be worth $1.23 in 1978, 10 years later.

There are large drops in some of the years, but they are usually followed by outsized rallies in the years afterwards.

Source: Moneychimp’s CAGR of the Stock Market calculator. http://www.moneychimp.com/features/market_cagr.htm

The key is consistently.

The S&P 500 returns are wildly variant, and the 9~ % only comes from averaging a century of growth. Whole decades might see a loss.

From that article:

"While 10% might be the average, the returns in any given year are far from average. In fact, between 1926 and 2014, returns were in that “average” band of 8% to 12% only six times."

So if you are investing on borrowed money with a guaranteed payout of 7% a year, that is not good for you.

The Nikkei 225 is still down from 20 years ago. Its fate is a very plausible alternative history for the S&P.

No, but variance causes risk when you're borrowing to invest and need a certain level of return to continue servicing that debt.

I was talking about taking $100 (at 01/01/99 or 01/01/00), investing them in the S&P500 (with dividends reinvested), and paying out $7 every Dec 31. You would run out of money eventually.

Of course if you add cheap additional leverage at certain moments and time the market successfully you can do better. But that’s not the original proposal.

Sure, that's possible but then you're just dealing with relatively blind speculation. I would assume there's no issues on the investment side unless there's strong reason to believe there is.

My guess would be generous liquidation preference and possibility to force IPO or liquidation event.