Minyan Mailbag - Repatriation
Note: Our goal in Minyanville is to remove intimidation from the financial markets and encourage an interactive dialogue among the Minyanship. We share this next discussion with that very intent.
Aside from pharma buying biotechs for new pipelines, won't essentially most of the big multi-nationals also be bringing in billions that can sub for Elmer's printing press and provide some serious liquidity?
This is a good point and I believe it will lead to some substitution for issuances in the bond market. However, the amount of total dollars available for repatriation is dwarfed by the dollars dealt with in the corporate bond market. Funds available for repatriation are also somewhat sector-specific.
Professor Reynolds can speak to this "far" better than I, but I would suspect the high demand for corporate debt will not be abated by this development. Supply, however, might be. This is because of the money coming back and the need to avoid appearances of using repatriated cash to fund more debt. Keeping in mind again the huge mismatch in dollar value, I can see where the same demand for debt combined with lower offerings would serve to push spreads narrower -- something Prof. Reynolds has noted is positive for equities.
As far as Mr. Greenspan is concerned, I completely agree. In my "Wrong End of the Telescope" article, I noted that among the worst mistakes bears have made about the liquidity --> economic failure --> market crash scenario is to assume those implementing monetary policy are stupid. Don't think for a minute this relatively novel tax break was created and passed seperate from monetary policy based upon liquidity infusions. Hell, the title of the Act shows the intent was to spur economic development! This is one more thing that will allow Mr. Greenspan flexibility to ease off the spigot without trashing the market (which controls the economy).
Where the rubber meets the road is how fast companies will put this cash to work. They must file a use of funds report with the IRS BEFORE they bring the money back. I would expect the Federal Reserve & Treasury to be very interested in those plans. They will use them to gauge how quickly they can rely on these dollars and plan their monetary policy accordingly.
Thanks for the inquiry,
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