Bill commented (and I have had others say the same thing)

this was not one of your better postings…I think you are missing the point about the debt-is-bad argument.

I don’t think I am missing the point and I will explain my thinking. You see this “debt is bad” argument in my opinion is the latest attack by people to bring down the market. And while many think that this is a conspiracy I actually work at a hedge fund, and am running the order book. This means I need to make money, and I need to quite a bit of money. Not 10 or 20%. Quite a bit more. Can I make my numbers? Yeah I think so! So if I am under pressure what do you think others are feeling? The same thing. And as a result I see things in a more cynical manner.

So how come I see the hypocrisy?

I want you to look at the example of the company TomTom. Look at their price movements, and their strategies. When things were good TomTom was a high flyer and their stock reached the 70’s. They made an acquisition of a Dutch company that makes maps. This purchase was an expensive one because they had competition from Garmin.

What needs to be understood is that this purchase was pushed by the investment banks as a way of building market share. And the investment banks just kept whispering sweet nothings into the ears of the TomTom founders. Though when TomTom managed to win the deal they had to come up with the money. Answer, they issued debt, which again was pushed by the investment banks as they sold the debt to investors.

Then we had a market crunch, credit crunch, what have you. Result? TomTom needs to be downgraded because they over bought. The analysts said that they had too much debt, and could go bankrupt. Who is saying this? The same investment banks that told them to take on the debt in the first place! When I saw these comments coming from the exact same investment banks that issued the debt I thought what a bunch of twits.

As a result the TomTom stock was pushed down to slightly over 2 Euros. This drop in share value makes the dot com bubble seem like a warm up. If I were one of the founders I would be angered that they have been left in a lurch by the same people who told them to what they did. So what does TomTom have to do? Issue stock, which in previous years would have been a VERY BAD thing to do. Who underwrites this? Investment banks!

So you see this “debt is bad” argument is an argument raised by people who want you to push companies into issuing stock so that they make more money. If you believe I am being cynical, do some research into TomTom and look at the players involved and what you will see will thoroughly disgust you.

I am not angry at these folks since this is the nature of the beast. But I will call a spade a spade.

Stepping back what I see is that the argument “debt is bad” is a fashion statement. It is something to pick at, because otherwise they might have say, “you know things are ok, not great, but ok.” I am not arguing for rampant out of control debt. Since that will lead into troubles. What I am saying is that people are yet again overdoing the argument. It reminded me of when Cramer said, “Oh you should buy high yield dividend companies since nobody would lower their dividend…”   Ooops they did drop the dividend.

I am not scared of debt and I am not scared of companies that have debt. What I want them to have is a vision since visions and execution is what drives a company forward. And in that execution debt is part of it. I also think debt keeps a company honest, just like mortgage owners tend to stay more focused than say people who rent.