SoftBank could bring down the house?
capitalistexploits.at
capitalistexploits.at
Can someone more experienced than I am on financial matters check if they're in deep shit as the article suggests?
[1]https://cdn.group.softbank/en/corp/set/data/irinfo/financial...
Edit: spelling mistakes /facepalm
I'm no financial expert but "¥15.7tn ($143bn) of interest-bearing debt" is a lot of money, in case shit will end up hitting the proverbial fan (meaning a recession that will make refinancing a lot harder) then I don't see an easy way out for them. I also don't know what "¥27tn of total liabilities" really stands for, but that doesn't sound good either.
Adding those two numbers up gives you about $300 billion that is owed by SoftBank in one way or another (debt + liabilities), that is a lot of money that cannot easily be covered by SoftBank's current assets in case they'll become hungry for liquidity. And I don't think the biggest part of that sum has a long maturity (think 10, 20 even 30 years), probably most of it it's due in the next few years (even though I may be wrong on this one, I admit).
If you're a large corporation and have low-interest money offered to you, it's almost fiscally irresponsible not to take the loans.
Depends of the tax laws of your home country, of course, and I don't know anything about Japan. But in the US, if you were to get offered a 0.1% interest loan, take the money now and figure out what to do with it later.
The reality is, there's 120% MORE narrow money (M1) today than there was in 2007. There's also 74% more board money (M3).
Has there ever been a long period (12 years, in this case) where we've had only ~25% inflation with ~120% growth in the money supply?
Naively, it seems like there's either too much money (not sure how you solve that) or everything is too cheap.
A strong burst of inflation could (somewhat) reconcile these promises with reality.
To go back to the available numbers: what would happen in case SoftBank needs to re-finance half of its loans in the next 5 years? What would happen if that need for re-financing is coupled with a recession that will most probably drive many of SoftBank’s assets’ value down? Will the Japanese banks be willing to roll that debt over in the midst of great need for liquidity? Debt which will stand against a lower value of SoftBank’s assets? We don’t really know.
In any case, what SoftBank is doing looks to me like “conglomerate financial engineering”, i.e. doing a lot of financial fuzzy stuff while apparently being backed up by solid assets, assets which are managed in a very Byzantine way. That works very well until it doesn’t, the latest such example being General Electric, which went from being among the 3 biggest companies in the world to one step from financial insolvency, all this in a matter of couple of weeks/one month, all this because of GE Capital.
I guess the next recession will show who was really right and who wasn’t.
Why anyone is willing to PAY Japanese treasures with a negative yield is beyond me. Why not just buy US Treasuries and get a better yield?
> Zero or even negative interest rates will distort valuations and capital allocation.
interest rates policy ( monetary ) has little to do with capital efficiency.
Central banks have rightly figured out a few things :
- Their respective countries have taken on too much debt, and we need to do something to reduce it.
- Market forces ( globalization + technology ) are having tremendous deflationary effects that is pushing down interest rates, their job is to find out that number.
BoJ's money printing is on the same level as ECB and Fed. Most recent data I could find is here: https://www.valuewalk.com/2019/05/gundlach-g4-central-banks-... Both ECB and BoJ hold around $5trn in assets, Fed is third with around $4trn.
> interest rates policy ( monetary ) has little to do with capital efficiency.
I don't know what you mean by capital efficiency. The BoJ corporate bond purchasing program lowers interest rates for all issuers on the Yen bond market, including the ones issued by SoftBank. Because SoftBank itself invests into the fund (around $28bn) and raised capital with bond issuance the link between BoJ open market interventions and startup valuations should be clear.
> Central banks have rightly figured out a few things :
> Their respective countries have taken on too much debt, and we need to do something to reduce it.
In the case of the ECB and the Fed (don't know about BoJ) the reason is actually the opposite. Fiscal expansion has been very unpopular politically in both the US and the EU (there mainly due to the fiscal austerity demanded by Germany). Because there was no political will to increase national debts, the central banks stepped in and started to directly purchase bonds (both governmental and private) in order to rekindle growth after the financial crisis. If governments started massive infrastructure projects or otherwise expanded their balance sheets, then this central bank intervention would have been much smaller. As a result of central bank interventions - which has reduced interest rates for gov. bonds - countries have started to issue more debt once again.
> Market forces ( globalization + technology ) are having tremendous deflationary effects that is pushing down interest rates, their job is to find out that number.
As far as I know there isn't a consensus for an explanation why the current low inflation environment persists (the "New Normal"). Globalization and technology might well be an explanation but global demographic shifts could also be an important factor (ageing populations and declining birth rates in most industrialized countries).
https://www.zerohedge.com/sites/default/files/images/user330...
You are right, since 2013 BoJ has bee busy with the printing press.
> I don't know what you mean by capital efficiency. The BoJ corporate bond purchasing program lowers interest rates for all issuers on the Yen bond market, including the ones issued by SoftBank. Because SoftBank itself invests into the fund (around $28bn) and raised capital with bond issuance the link between BoJ open market interventions and startup valuations should be clear.
Soft Bank has assets that allows them to borrow, if Soft Bank didn't exist, somebody else would have taken advantage of the lower interest rate.
My point is that even when a lot of money is printed, capital goes to who is able to convince the bank the most. BoJ, Fed does not have much control in where the money is allocated.
> ... Because there was no political will to increase national debts, the central banks stepped in and started to directly purchase bonds ...
The problem here is that those bonds were about to lose a large amount of its value - as private debt repayment was not possible. So yes, private debt was high. CB's had no choice but to buy them , or else face a severe contraction in the money supply.
Just before it all went off that time, these icelandic banks were buying up everything in sight, and I was thinking "where are these banks from a small country getting this kind of money"
Softbank seems similar, in that the scale of its funds is absolutely massive for a single company (vision fund one at $100b and suggestions of a second $100b vision fund in the offing). If there's a lot of fancy debt going on, it's the kind of that seems like it could blow up in spectacular fashion (as the icelandic banks did last time)
https://www.nytimes.com/2018/11/05/business/softbank-son-sau...
Maybe overall they're far more grounded than I see but I swear I only hear about them publicly when they're taking some risky chances that most probabbly won't pay off...
If they're borrowing I wonder who goes down with them?
Can anyone help me understand the real reason Softbank does this and whether investors of VF are okay with it? One case I know of is Coupang [1], a Korean E-commerce company, recently "priced" by VF at $9B. Last year, Softbank sold its 20% shares in Coupang to VF at a 30% loss (down-valuation) and then VF poured in an additional $2B to Coupang. It appears Masa did double down on Coupang but why bother to sell its long position at a loss? Not a domain expert on this, so I wonder what is really going on...
https://www.bloomberg.com/news/articles/2018-11-20/softbank-...
I feel he's projecting his own experience setting up and flipping a small VC firm ("Between July 2012 and April 2016 led the investment of $35M into 32 early stage venture...") onto SoftBank.
Mr Son "invented an electronic translator that he sold to Sharp Corporation for about $1 million" when he was 19, around and has a pretty good record of tech investment over the 42 or so years since, with Softbank started in 1981, and plans to be around a while ("... SoftBank Group, which aims to keep growing for the next 300 years") https://group.softbank/en/corp/about/philosophy/value/ https://www.nytimes.com/1995/02/19/business/a-japanese-gambl...
I don't think they got here as a response to QE.
https://www.bloomberg.com/news/articles/2019-06-06/how-son-m...
Problem #2: Morgan Stanley shorting Uber for its IPO is more FUD. This is routine in the investment banking world. Underwriter knows they will have to do this to provide liquidity. Haven't seen a popular IPO in the last decade where the underwriter doesn't hedge.
Problem #3: Softbank having a large corporate debt load isn't that big of a deal since interest rates are so low (sometimes negative) in Japan. You're going to PAY me millions to borrow billions? Yes, I'll take that deal every day of the week. SoftBank makes enough in revenue to more than make up for their debt load.
Problem #4: I think everybody and their dog knows Uber, Lyft, WeWork, etc. are all overvalued and will struggle to find a path to profitability in the near term. However, we could still see a 30-50% drop in public valuations on those companies. But they make up a very tiny slicer of the overall venture capital in tech right now. The largest companies are tech and they're making money hand-over-fist. Microsoft is at a trillion dollar valuation but they make $35bn a year in profits and still have $130bn in cash in the bank. It's not systemic risk as in the GFC of 2008.
TLDR: SoftBank is starting to unwind their positions and you may see a dip in the valuations for Uber, Lyft, WeWork, Tesla, and other non-profitable tech companies.
Since we can assume many VCs got a lot of cash back in a relatively short time I guess they will either double down and reinvest even more in tech/startups - or they will stay out of tech for the foreseeable future.
Or is it too early to tell because new funds would have to be set up first?
Softbank backed Lemonade is about to IPO in 6 months with a 2 billion dollar valuation. Neither their valuation nor an IPO makes sense to anyone in the industry. Lemonade is 99% marketing hype. Both the insurance book and the tech at the company are suspect at best.
The other one that's hit my radar recently is Compass, another Softbank backed company looking to IPO in the next 2 years at a stupid high (I've heard $5b) valuation. But they're cash flow negative with no path to profitability and they're increasing their spend rate instead of lowering it. So why would your average investor buy the stock?
Neither of those are mentioned in the article but it does seem like companies backed by Softbank are behaving pretty strangely.
I worked as a quant at a portfolio analytics firm and had access to the portfolio data of thousands of different funds: hedge funds, fund of funds, endowment funds, and sovereign wealth funds. Many of our clients were in the Middle East, probably due to the founder being Palestinian (I am also half Palestinian if it matters).
These national investment authorities have massive amounts of capital, larger than any hedge fund or endowment. We’re talking about trillions of dollars in a single fund invested all over the Western world.
With that kind of money, you need to pretty much invest in anything and everything. Billions in T-notes, corporate bonds, commodities, equities, whatever.
The amount that needs to be invested is so large that you need to invest in things no sane person with 50m would invest in. This is the purpose of the SoftBank Vision fund: to provide capacity for seemingly infinite Middle Eastern oil money. They desperately need to diversify out of their incredibly volatile oil cash flows.
This pressure results in a glut of arab money into VC and everything, because all they want is to create a true market portfolio. And by market portfolio, I mean allocations into everything: VC, PE, REITs, bonds, equities.
I find that hard to believe. The Government Pension Fund of Norway is said to be the world’s largest sovereign wealth fund with just over US$1 trillion in assets.
Saudis have three separate funds that are bigger combined. UAE has multiple wealth funds that are > $1 trillion together.
https://qz.com/1565699/the-complete-guide-to-sovereign-wealt...
Something like the situation of the unusually high wages Henry Ford paid his workers back in the day: https://www.npr.org/2014/01/27/267145552/the-middle-class-to...
I'm not sure I get this simile. Is he saying that the company is actually not particularly opaque, but rather as transparent as a ghost?
Or is Casper the ghost known for being unusually opaque for a ghost?
Or is he talking about Casper the mattress company?
Another one is "the term “corporate governance” is as foreign as that thing that came out of Sigourney Weaver’s stomach." The alien came out of Executive Officer Kane's stomach (John Hurt).
Perhaps he is aiming this screed at arch conservatives who prefer the later films in the alien franchise.
Casper is not transparent.
I hit this and immediately stopped reading the article. First, it's the "Green New Deal". Second, it's not solely AOC's work (though she is probably its most prominent proponent). Third, it's not nutty; it's, if anything, a down-payment on the work we need to do to address the climate crisis. Not to mention the rest of the article (up to that point) has nothing to do with the GND, so the author had to go out of their way to make themself look like an idiot.
It doesn't matter whether we agree with the Green New Deal or not, the author is just outing themself as someone uninterested in looking beyond personal opinion and their political bandwagon.
That’s a nice simile.
- If SoftBank goes down, every coder loses his/her rice bowl. The pain inflicted on Son, Tim Cook and MBS is minimal, compared to your average tech worker.
- Valuation are not isolated beasts, the nominal value looks high because of the extraordinary financial alchemy that is going on the Fed. Large pool of capitals are betting the Fed is going to continue with QE4, QE5, .... QEn.
Imagine how it feels to be a sovereign wealth fund, watching the Fed print almost a trillion dollars / yearly in good times ! You must be terrified of what happens when the ball stops rolling.
- Owning growth stocks is an amazing way to hedge against many possible future outcome, both good and bad.
Unless you can time the crunch exactly, put options are a mug's game. They bleed value over time (negative theta in industry parliance).
If you really want to protect yourself, just plan your finances as if your high income was temporary rather than permanent.
It's been a while since I've done the maths, but I'm pretty sure it'd be cheaper to buy shorter dated puts and roll them over on expiry. Which would still be very expensive.
This is the best advice I've heard all week. I wish someone had told me this when I was 21 (even though I wouldn't have listened)
A better idea would be to go long short, 30% short, and 100% long has always been popular. The leverage from the shorts lets you juice the long side while also giving you the 30% short protection. This should allow you to achieve a better Sharpe ratio than the market.
If you can’t get the leverage, consider buying a S&P ETF that has downside protection in exchange for capped returns.
Risk parity is probably a better idea and should give you recent returns with some downside protection. The problem is that rebalancing could be costly, you probably would only want to on a yearly basis.
But if you have access to leverage via shorts, I still think that’s the better play.
My personal investments do nothing of the sort though: I just go with a 3x leveraged S&P ETF. Annualized returns of around 20% year over year. Of course, I have massive exposure to volatility and market crashes. But in the five years of investing all of my money in this strategy, I’ve outperformed the S&P by over 80% :)
Maybe for silicon valley and money burning enterprises like uber.
>Imagine how it feels to be a sovereign wealth fund, watching the Fed print almost a trillion dollars / yearly in good times ! You must be terrified of what happens when the ball stops rolling
They are likely well diversified. They are anything but dumb money.
I never said SWF are dumb money, in fact my argument is exactly the opposite. They are watching the Fed reduce their purchasing power through money printing and are rightly buying up growth stock as a way to maintain the value of their wealth.
Instead of getting a small slice of the pie, we get a small slice plus a few percentage points (that perhaps we should already get). That's huge for most people that aren't financially independent or even close to it.
With both houses prices inflating, and huge sums of money going into automation startups and investments, the future looks scary, for regular people.
Yes, automation will happen anyway. But why accelerate this very disruptive process(Although one that transfer a lot of power to the already powerful) ? Isn't it better to slow it and have it in a more controlled fashion ?
Without QE many people's retirement saving would have been wiped out, along with jobs.
You would have a period of large scale joblessness and homelessness.
In early part of this decade Ben Bernanke said that he would continue QE until unemployment rate dropped below 6.5% or inflation rose above 2%.
I agree that the easiest solution would have been a jobs guarantee or better yet print money and send everybody a cheque.
But that would have been outside the Fed's mandate.
It's not clear how the situation resolves, currently inflation is low and joblessness is also low ; so the fed seem to have done their job.
The questions you raise can only be solved through a political process, not monetary policy.
The ECB continues QE because Europe's economy never really recovered.
The Bank of England restarted QE when Brexit was announced.
That's... just economic growth in capitalism
Capitalism as typically practiced works like a Ponzi scheme. It's not sustainable without someone, like a government or a standards body, setting boundaries. For example: Banks destroy economies without a government saying "you need to have x cash for y loans" and "you need to pay into this fund to insure you against bank runs."
If regulation truly worked we would not be so fucked with regards to our rape of the Earth.