What'll ya do for a little cash?
2010-10-28 21:38:49.410173+00 by
Dan Lyke
9 comments
I've recently become aware of some business dealings that I can't go into detail on, where some companies are willing to piss off some vendors and jump through huge hoops to keep some cash for a few months.
And our garbage collection company just gave us a "Pay now for 2011, get December 2011 free" option.
Money seems to be fairly cheap right now, but anecdotally I'm seeing more than a trend of companies willing to pay a lot for some cash right now. The only thing I can see that makes sense to this pattern is that they're expecting some relatively large (> 10% inflation) in the next several months.
I understand the bet on inflation, I've made a few of those myself. I don't understand that they seem to be betting on that narrow a window.
Any insights?
[ related topics:
Currency Economics
]
comments in ascending chronological order (reverse):
#Comment Re: made: 2010-10-28 22:37:56.227283+00 by:
John Anderson
People making a bet on electoral outcomes and the consequences thereof?
#Comment Re: made: 2010-10-28 22:54:30.590882+00 by:
Dan Lyke
I dunno, at least two of the situations I'm involved in are willing to let the decision sit 'til the middle of next month.
#Comment Re: made: 2010-10-28 23:16:58.683432+00 by:
meuon
[edit history]
They can't get operating credit with reasonable terms.. Been there, done that.
ie: Need to buy new (or fix) garbage trucks.. They won't loan us the money.. and leases are 25%... Borrow it from the customer base.. or vendors.
#Comment Re: made: 2010-10-29 11:00:30.057239+00 by:
John Anderson
FWIW, it doesn't look like the lame duck sessions in Congress will start until the middle of November, and
of course, newly elected critters won't be seated until next year.
#Comment Re: made: 2010-10-29 11:58:13.702089+00 by:
DaveP
There were, as I recall, some similar bets on the economy happening in 1980. Much hedging
going on before the election in case Carter was re-elected, and then a 50% increase in the value
of the dollar vs. the Austrian Schilling (I was in Austria at the time) when Reagan got elected
president. The dollar went from 13 and change to 21 and change (Austrian Schillings) overnight.
Markets in general get nervous just before elections, and it wouldn't surprise me to find that the
cost of borrowing short-term cash has already risen as uncertainty about the election outcome
(and what the lame-duck Congress might try to do before leaving office) has kicked in.
I've been reading Panic recently, and one of the things I've
learned (towards the end of the book) is how the short-term cost of money (operating credit)
tripled from about 5% to about 15% while the government waffled and did inconsistent things as
the crisis was breaking. Ended up putting a lot of businesses into liquidity crises, and it wasn't
until mid-2009 that the short-term money cost got back to its normal relationship with long-
term credit costs.
I can't figure whether to be afraid of the inflation warned of in this article or conversely, another liquidity crisis, as investors sit on
money, leading to short-term (or even long-term) deflation. I just don't have enough
information, and if there are lots of investors feeling the same way, that tends to tighten money
markets.
I'm pretty sure there's money to be made by someone smart and well-informed in the current
market, especially with the election a week away, but I haven't a clue about which way to bet.
#Comment Re: made: 2010-10-29 17:22:24.867013+00 by:
Dan Lyke
My Dad reports that in the early '70s, AmEx waited a couple of months to run their charges in Germany through in order to take advantage of the falling dollar.
The money for capital expenses doesn't make a whole lot of sense because they're willing to lend me money to buy a car at terms that are ludicrously loose. If it were one company, I'd chalk it up to the finances of that company, but it's more than that, including companies which are jumping through hoops to hang on to cash owed suppliers.
#Comment Re: made: 2010-10-30 08:42:49.43308+00 by:
DaveP
Companies, at least larger ones, borrow money via either bonds or lines of credit. The first are
a very different market, and it wouldn't surprise me to find out that the bond market still has
some residual wackiness going on. Corporate lines of credit I know less about, but my
impression is that they're still different from personal lines of credit.
Panic's been an interesting book, and I recommend it. It's been a very fast read (just about a
week of evenings), but I find it's taking a lot of cycles for me to process, partly because of my
ignorance about many of these financial markets. Almost makes me want to learn more about
economics, except that according to the authors of the book, almost all the academics have
things wrong, so where does a guy go to learn?
#Comment Re: made: 2010-10-30 11:36:03.928256+00 by:
meuon
DaveP, I can't post what I want publically, except to say "lines of credit" for business are nearly extinct, and private money will cost you around 20%. You learn by getting your hands dirty and hanging with people who are making the world go round. It's an expensive education.
#Comment Re: made: 2010-10-30 21:56:56.322233+00 by:
DaveP
Yeah, meuon, my knowledge of such things was fuzzy five years ago when I was running my own
business, and I've been out of touch since then. But those numbers sound in-line with what Redleaf was
saying in Panic.
Whitebox is located here in MSP. It'd be fascinating to be able to pick their brains, but as you point out,
that's unlikely to be a cheap endeavor.