WHAT COULD POSSIBLY GO WRONG?
Financial follies and disaster in the making
Argentina just sold a 100-year bond issue... three years after its latest default... and despite defaulting on its sovereign debt six times in the last century. That’s an average default of once every 17 years. The debt is yielding roughly 8%, so investors should receive their money back within 12 years... so long as nothing goes wrong. The cryptocurrency Ethereum briefly “flash crashed” more than 99% on the GDAX exchange... dropping from $319 to pennies within seconds... The drop was blamed on a $30 million “sell order” that triggered stop-loss orders. And the Ethereum price recovered quickly. But in the meantime, crypto investors lost millions... another reason not to enter your stop-loss orders into the market – whether the stock market or the crypto market.
Brazilian leveraged-buyout firm (and frequent Warren Buffett deal partner) 3G purchased Popeye’s Louisiana Kitchen three months ago... for almost $2 billion... The acquisition price was a 20% premium to the share price... and is equal to 21 times the annual earnings of the business before taxes, interest expense, or depreciation. That’s an all-time record price for any restaurant acquisition in history over $100 million, according to Jim Grant of Grant’s Interest Rate Observer. Popeye’s has 1,600 locations in the United States and another 400 around the world... Thus, 3G paid about $1 million per location. Is there a difference between borrowing a bunch of money to make mortgages in America’s worst neighborhoods... and borrowing a bunch of money to sell chicken? Stay tuned.
14 | July 2017
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