Jump to content

Shocker! Money Magazine Says 10 Year Yield May Hit 10%! 4/25/22


Recommended Posts

  • Replies 56
  • Created
  • Last Reply
1 hour ago, potatohead said:

Lee,

Excellent stuff. I have to say,  your analysis has put to shame the Fintwit crowd and many of the highly regarded experts. The reasoning and analysis speaks for itself.

Thank you as always, sir! 

I just don't have the patience or desire to argue with them. 

Link to comment
Share on other sites

6 minutes ago, The CoinGuy said:

As I was leaving...thought I'd read the last post and noticed...

4 pages on a Monday?

Interesting.

Ciao,

TCG

Bottom of some significance. 

Rally in the 10 year too. That's been overdue. 

Link to comment
Share on other sites

Image

Pinched this from Twitter.

It's supposedly the financing terms for Musk's acquisition of... Twitter.

They are... completely insane.

Someone check my math... weighted average rate is SOFR + 4.74%.

SOFR follows the Fed:

image.thumb.png.498c76d31f1586c1afe21eaec6c80fb6.png

So, let's entertain that two more rate increases of 50bps gets done at the next two meetings. That'd put SOFR at ~1.3%.

1.3% + 4.74% = ~6.04%.

Let's call it 6%.

6% on $25b = $1.5b in annual interest.

Next, let's look at Twitter's financials the past two years: specifically, operating profit (i.e., gross profits - SG&A).*

2021 = $3.279B - $1.760b = $1.519b

2020 = $2.349B - $1.450b = $0.899b

So... financing of this deal under a 50bps/next two meetings consumes all Twitter's recently observed annual operating profits.

Let's assume simply a Fed panic and SOFR of 0%: annual financing still would be 4.74% X $25b = $1.185b.

Goldman Sachs has the Fed capping out at 3-3.25%.

https://www.reuters.com/article/usa-fed-research/goldman-sachs-sees-five-rate-hikes-in-2023-idUSL3N2VO0WL

Just for giggles, what if the Fed loses control and has to ramp rates aggressively to say... 5.25%?

5.25% + 4.74% = ~10%.

Well, that math is easy: 10% of $25b = $2.5b.

The terms of this deal appear... somewhat... "orthogonal" to some ROI associated with Musk's $21b capital outlay. 

But then, most regrettably, I'm not a genius multi-billionaire founder of visionary companies.

I'm just a guy with a calculator....

*Twitter includes R&D as an operating expense, but I don't want to include that because it's a discretionary use of capital/past profits to generate future profits: I'm only interested in observed profits generated by business operations. Data from here:

https://finance.yahoo.com/quote/TWTR/financials/

Link to comment
Share on other sites

Archived

This topic is now archived and is closed to further replies.

  • Tell a friend

    Love Stool Pigeons Wire Message Board? Tell a friend!
  • Recently Browsing   0 members

    • No registered users viewing this page.
  • ×
    • Create New...