Death to Defaults ! A Farcical Farce !

30/01/2013 by

Singapore Car Stats 2012 (numbers sold) :
BMW 5,039
MERCEDES 4,323
TOYOTA 4,272
VW 3,567
AUDI 1,679
VOLVO 1,066
HYUNDAI 1,155
LAND ROVER 384
NISSAN 687
KIA 600
HONDA 515
PORSCHE 507
JAGUAR 383
MAZDA 348
MINI 285
SUBARU 135
BENTLEY 93
MASERATI 84
FERRARI 80
MITSUBISHI 61
LAMBORGHINI 56
PROTON 53
ROLLS ROYCE 49
DAIHATSU 37
ASTON MARTIN 22
LOTUS 9
CHERY 5

Happy days are back. We should thank Mr “Whatever It Takes” Draghi and Bernanke that everything has become Too Big To Fail. And even Cyprus will get a bailout because it is systemic.

Trillion dollar deficits are sustainable for now – unfortunately http://on.ft.com/XP3f9i

France is ‘totally bankrupt’, jobs minister admits as concerns grow over Hollande’s tax-and-spend policies

So why not a Rolls Royce over a Daihatsu ?

Because it has become Farcical ! That is the latest catch phrase Pimco’s Bill Gross used on Goldman Sachs’ Abby Cohen at the Barron’s Roundtable event and less recently, on US political parties during the elections last year.

Everyone knows its not real.

Now that central bankers have tied the fates of their countries to the fate of Greece and Cyprus and all the systemic banks and companies which has made Tata Communications a Miracle Story or a Global Laughing Stock in Singapore. In clear demonstration of ignorance and gullibility perhaps, the bond is now trading at 101.50 3.715% when it was issued at 4.25%, much lower than originally indicated coupon of 4.875% which was way way under the fair value for a coupon which some pegged at 6%. Reliance Perpetual, issued yesterday, is now heavy underwater at 97.50 re-offered.

Interest rates are higher yet I chanced upon the biggest scam job yesterday.

Banks are aggressively marketing investment grade papers on leverage. The returns certainly make Tata Comm look like pittance.

I will not publish the table to reveal the bank but will give some illustrations of what I see.

* Maybank Perpetual (callable 08/2018) is given 59% LOAN !! and will yield a leveraged Yield to Call of 8.32% for the next 5 years.
* Capital Malls Treasury 08/2022 will be given a loan of 74% and will yield 11.7% to 2022.
* SingPost Perp (call 03/2022) loan 57% and yield 7.29%.

This is insane too. Because every single bond on that list is marked up 2-3 cts higher than the actual price but still look good as a leveraged return. It is like selling D’Leedon at SGD1,600 psf when it is only 1,200.

Reasons why you should not be buying Investment Grade on Leverage right now.

* Yields are going up and when yields go up, investment grade papers are first to react and not the High Yields.
* The yield you see assumes that funding rates will be constant at current levels. I expect the bank to fund you on a monthly roll basis to achieve that rosy yield number that you see.
* When you leverage to the extent they recommend, there is a high chance of margin calls.

Let’s look at global yields since the start of 2013.

10Y YIELDS
UNITED STATES	1.97	+27
CANADA	1.96	+19
BRAZIL	2.76	+28
COLOMBIA	2.95	+9
MEXICO	2.47	-5.6
POLAND	3.71	+20.9
UNITED KINGDOM	2.09	+26.3
FRANCE	2.27	+28.7
GERMANY	1.68	+37.4
ITALY	4.22	-26.7
SPAIN	5.24	+4.7
BELGIUM	2.46	+42.4
PORTUGAL	6.08	-67
SWEDEN	1.88	+37.4
NETHERLANDS	1.84	+35.3
SWITZERLAND	0.73	+24.1
GREECE	9.94	-151.1
JAPAN	0.76	-2.5
AUSTRALIA	3.50	+18
NEW ZEALAND	3.64	+12
SOUTH KOREA	3.05	-11
INDONESIA	5.14	+2.4
THAILAND	3.68	+19.5
CHINA	3.57	+1.5
INDIA	7.84	-26.6
SOUTH AFRICA	6.93	+17.9
SINGAPORE	1.38	+7.2

Rates are going up and I have not come across a single professional recommendation that yields will crash to last year’s historic unprecedented lows again.

Granted its a FARCE and we are all throwing in our lot with the rest of the world and their economic fates. Because by doing “WHATEVER IT TAKES”, we have the weights of Germany, France, and the lot to make sure there is only 1 outcome that we have to accept is the Right and Good one.

If anyone pulls the plug and calls the bluff, the entire facade will come tumbling down like a house of cards. China loves it because if Germany collapses, China will have a field day buying up BMW, the company and not just the car ! They are going along and milking the world now issuing truckloads of HighYielders which should technically fall in the Toxic category.

Now lets look at the list of high yields and how they have performed, as of yesterday and it will look much worse today.