Return on Investment vs. Return of Investment
Lost money from leverage
For those who have been following my postings on social media you’ve seen the latest breaking news with liquidity issues with the bank lending as predicted.
After reading many articles everyday and being reminded of what I saw leading up to 2008 it got me thinking about the top headlines regarding negative yielding bonds around the world, high yield bonds, junk bonds, IPO’s like wework and even fixed income assets like pension funds that try to chase yields and are way underfunded and also need safety.
Then I finished watching the movie margin call and thought about the snap back in yields on the US bonds the recent 8 days and then I thought about the difference from those who lost some of their money, but others borrowed cheap money and lost leveraged money.
Then I thought about all of these people chasing % and ROI and corporate bonds that may get downgraded for and sell very cheap in a liquidity crisis situation.
I think about how interest rates are low and the articles talk about the leverage, speculation, and gambling with borrowed money all for ROI, %, yields, lending to high risk loan burning pre-IPO companies.
I saw wework headlines talk about $65 billion was someday a possibility to $10 billion this past week. It got me thinking about all of this chasing of interest rate returns 2 or 2.5, but what about the principle. With all of this risky speculating
It got me to thinking…
Return on investment vs. return of investment.
I think that’s why the hard money lenders in real estate are really focused on asset-based lending
Lenders are really doing loans based on stable income since they are doing 100% loans
Then all this corporate debt and zombie corporations that survive off of refinances every few years and very low debt. Not sure what those lenders are doing
A lot of cash-burning companies like moviepass the money comes and goes quickly.
Mark down of assets
As there are more liquidity issues and more price discovery and mark downs of asset values on the books the reserves and collateral won’t be sufficient and you’ll see many more sellers in the future. The momentum hasn’t shifted yet, stay tuned