THEY SAY
From Pimco Managing Director Bill Gross’ October Investment Outlook:
Most U.S. corporations these days are finance-dominated companies whether they make widgets or cars, whether they sell insurance or overalls. Many, if not most, American companies are profitable primarily because of their finance activities. Sears, until just a few months ago, was really a credit card lender, not a retailer. General Motors in this year’s second quarter earned almost all of its money from its mortgage subsidiary. Deere sells tractors but has a finance arm that contributes a significant portion of annual profits to the bottom line. Dare I mention GE? It’s really more of a financial conglomerate/leasing company. If it brings good things to life, it’s because interest rates are low and their profits are favorably affected. Almost all of these companies as well benefit by swapping their long-term debt back into Libor-based/short-rate sensitive hedges. If the Fed jacks yields, they will pay through the nose and then some, as will our economy.
