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Comment by onlyrealcuzzo | Hacker News Reader

I was under the impression most if SoftBank's loans are denominated in JPY and have almost 0% interest. If you have $143Bn in interesting bearing debt at like 0.1% interest -- as long as you buy anything that will inflate at the normal rate of inflation -- you should make a killing, right?

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Yeah, that would be the case for almost any big company whose finances are in order, but afaik SoftBank is not that open when it comes to how it really does stuff, so there’s a lot of guessing going on, and generally speaking guessing is not that good for investors when a recession hits, you want to know the real numbers and especially the real money flow, so to speak.

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.

Japanese banks have a habit of extending additional financing in order to avoid having to write down their assets even when borrowers are effectively insolvent. Extend and pretend, kick the can down the road.

The entire country is insolvent. If they had a 2% interest rate on their bonds (normal), their entire tax revenue wouldn't even cover debt service.

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?

Because funding costs for hedging cross currency trades have gone up ever since the Fed has started raising rates and largely reduced returns or in some cases even caused negative returns. Funding costs have exceeded rate hikes 1:1 and this has caused the foreign buyer base to drop sharply for UST.

This is why Apple took (takes) out billions of dollars in loans despite having nearly a $1 trillion market cap of which a significant portion is cash.

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.

Buffett and Munger have said that they are having difficulty investing cash because they have so much of it. In this case it seems irresponsible to take loans. I don't see the point unless it's a tax dodge.

For apple it was a tax dodge. A lot of the cash they had on hand was owned by offshore subsidiaries and if they moved it to U.S. company to pay out dividends or do a buyback that would trigger corporate taxation. So instead they borrowed against that cash hoping that the corporate tax rate would drop in the future and they could move the money and pay off the debt then.

I hear everyone saying this. It seems like 12-years of global QE is gonna cause a massive spike in inflation. Everyone's valuing things as if there's been hardly any inflation since 2007.

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.

Well the main issue is all of this money is going to the wealthy. And while I don't have hard data to back this up, it feels like 'inflation' is rampant in the things that wealthy people throw money at, e.g. stock market, real estate, art, etc...

High end real estate in greater NYC area is deflating.

"Too Much Money" means that promises have been made that can't be kept.

A strong burst of inflation could (somewhat) reconcile these promises with reality.

Everything except securities? Been a bull market for a long time now - that money is going somewhere!

Buffett's subsidiaries still borrow money to build things like power stations and railways. He prefers to keep some cash so he can put it in high return ventures if they come up.

It's fiscally irresponsible for a company to not take advantage of a legal tax-dodge, unfortunate as it may be.

Like I posted below, 40% of SOFTBK's debt is in USD and they have been doing most of their larger issuance in USD recently. Bloomberg is showing that they have a weighted average coupon of 4.4% so they're not exactly paying 0%. Additionally, most of their debt is front loaded with a weighted average maturity of 2025. None of this points to them having a lot of time to sort things out or room for error.

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