The No. 1 Reason to Buy Stocks RIGHT NOW
Andy Snyder|May 12, 2021
Here is the absolute No. 1 reason that you need to own stocks right now…
It comes down to a single figure… 95.
It’s the reason Jeff Bezos is getting richer. It’s the reason stocks are hitting record highs. And it’s the reason we’re convinced the Dow will hit 100K before this bull begins to slow.
It didn’t make a whole lot of headlines on Monday, but the savvy financiers at Amazon (AMZN) just borrowed a heck of a lot of money – $18.5 billion.
They don’t need a penny of it.
At last report, the $1.6 trillion company had a cash stockpile of more than $84 billion.
It’s enough to build warehouses across the planet… buy all sorts of startups… and give creditors total confidence in the company’s ability to pay its bills.
That’s why when Amazon belly-flopped into the debt market this week, investors tossed piles and piles of money on top of it.
The craziest thing is that the company’s most expensive tranche of new debt – a crazy 40-year bond – cost the company just 95 basis points (0.95%) more than comparable Treasurys.
It’s enough cash to buy some of the bluest of blue chips… at an ultra-low interest rate just slightly north of 3% (locked in for the next 40 years!).
Shorter maturities were even cheaper. About $1 billion worth of two-year bonds had a yield of just 10 basis points above equivalent Treasurys.
Several of the new bonds came with record-low rates for corporate-issued debt.
For some context on just how paltry these rates are, Amazon’s average annual growth rate over the last five years is 29.26%.
Paying off that interest won’t be a problem.
In fact, the debt is so cheap and Amazon’s growth is so strong that the company has plenty of margin to spare. It has so much, in fact, that it can use the borrowed cash to reward its shareholders.
After this latest round of mega-debt, rumors are flying that Amazon will finally unleash the $5 billion in share buybacks the company authorized in 2016.
Whether it makes the move or not is irrelevant. Either way, all of that virtually free money will reward shareholders handsomely.
Free Money Free-For-All
And it’s not just Amazon. The spread between “high risk” corporate debt and “risk free” Treasurys from Uncle Sam is as narrow as we have seen since 2007.
Across the risk spectrum, very few companies are paying more than 290 basis points (2.9%) higher than equivalent government debt.
That’s nuts.
It’s why the folks who say this debt-fueled bull run is running out of energy are flat-out wrong.
The quick decline in corporate borrowing rates over the last six months proves that the real driver of growth is just getting started.
Get this… At the end of last year, the spread between speculative and safe debt was more than 4.4%. Since then, it has dropped by 1.5%.
That’s huge… especially when we’re talking about hundreds of billions of dollars in borrowed money.
Yes, debt is a tool with a very sharp edge. It will cut in both directions. Companies wrongly leveraging up without the growth to pay for it will be in trouble. But with borrowing costs cheaper than ever, the bar for success is lower than ever.
That means now is the time to own stocks. They should make up a larger percentage of your total portfolio than ever.
They’re fueling up for a big, interest rate-driven (and therefore inflation-driven) run.
In this economically messed up world, they offer you the best chance at a reprieve from the shocks that lie ahead.
Andy Snyder
Andy Snyder is an American author, investor and serial entrepreneur. He cut his teeth at an esteemed financial firm with nearly $100 billion in assets under management. Andy and his ideas have been featured on Fox News, on countless radio stations, and in numerous print and online outlets. He’s been a keynote speaker and panelist at events all over the world, from four-star ballrooms to Capitol hearing rooms.
