I think I can say, with a great deal of certainty, that I’m not always right !
Apart from anything else, I put forward that piece on long term debt to see if others saw it the same way that I did. After all, Buffett is not the author of that book. However, one assumes that David Clark, especially, did his homework well enough to ensure that he got his facts right.
”If companies can not show a 3x or 4x Net annual Income to LT Debt now, when interest rates are near zero, just how will it look when interest rates revert back to normal levels (4-5% nominal rates). Companies should be generating huge cash flows and be paying down their LT Debt.”
I think you’re absolutely correct, E_K_S.
Of course, there may be those who would argue that, if one can get a better return with someone else’s money, over and above the cost of that money, then that may be the way to go.
However, at the end of the day that’s still Profit – x, plus the risk of a future cost increase if rates rise.
Using one’s own cash, if one had it, is Profit – zero.
I suspect, though, that there may be a "break even" point somewhere .......... |
