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Need proof that the credit markets are thawing? Look at SiriusXM.

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June 27, 2009 – Comments (3)

On Thursday, Sirius XM had a debt auction, selling four-year senior secured notes of a total of $525.8 million with strong investor demand. This led to Sirius rising from $.35 to $.45 in one day (though on Friday the Russell 2000 reshuffling led to a large sell-off of Siri in the last 5 seconds of trading. The stock now trades at somewhere between $.35-.45 depending on what the last 5 seconds of trading and afterhours)

This debt auction was interesting in that SIRI had originally planned to try to sell only 350 million of debt, with a higher interest rate of around 15%.  Instead, they were able to sell 525 million with an interest rate of 11%.  

Mind you, this is a company that was widely predicted to be bankrupt in February 2009.  Now, investors are buying its stock, and its debt.

That a risky company like this can obtain lending is the surest sign that A) credit markets have thawed, B) investors are becoming comfortable with higher risk again, C) banks/lending is returning to a more normal world. Combine this with the moves by the FED to reduce its lending now to commercial markets (from gne1963 ) - and you can see that the government is moving along with this perspective of thawed credit markets and beginning to reduce its role providing liquidity.

 The FED moves further signal to me that increases in the interest rates could come later this year (perhaps +0.25% to .5%), as well as increased returns of bank funds and decreases of aid to lending.  These are not the moves of a government that believes in currency devaluation - and you should take note.  I am highly skeptical about this idea of inflation in the future five years.  I further expect that when others catch on to this, as the dollar continues to hold/rise in strength - we will see some catastrophic in gold prices.  I'm expecting a 200-300 fall in gold prices this next year.  Further, I expect oil to stay in the 60-80 range.  

 -Rof out. 

3 Comments – Post Your Own

#1) On June 27, 2009 at 11:28 PM, checklist34 (98.47) wrote:

that is definitely proof that credit markets are not completely risk-averse, rofgile, wow.

in fact, some companies that aren't on bad financial footing and far better than SIRI got rates only slightly lower than that just 1-2 months ago.

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#2) On June 27, 2009 at 11:40 PM, awallejr (30.35) wrote:

The FED isn't raising rates anytime soon.  How many exclamation points do they need to use when they say they aren't.  Once the recession is over. Once you have growing GDP.  Once you see unemployment actually start declining, then thoughts of raising rates can be addressed, given the then inflationary picture.

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#3) On June 27, 2009 at 11:58 PM, rofgile (99.31) wrote:

Awaellejr:

 I'm not saying for certain they will raise rates by the end of the year, but I think there is a good chance- though the amount raised will be small (0.25-0.5).

 6 months is a long time. 

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