• September 24, 2022

The Remarkable Janet Yellen

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How To Buy Corporate Bonds At 5% Discounts And 10%+ Yields

Today we’re in a situation that looks a lot like 2016. And back then, some savvy contrarians tapped it to grab quick 62%+ returns. The same setup is back again—and so …

If Apple TV+ wants to give its “WeCrashed” series a second season, it could tell the story of WeWork enabler Masayoshi Son and call it “ICrashed.”

Personally, I found the series on WeWork creator Adam Neumann uneven and unsatisfying. Fun and suspenseful at time, but mostly it served as a showcase for stars Jared Leto and Anne Hathaway to inhabit two oddballs baiting investors.

None more so than SoftBank’s Son, who couldn’t have been happy with the way he was depicted. No venture capitalist fell harder for what Neumann was selling, whatever that was. And no one did more to grease the WeWork wheels and protect Neumann from accountability to his early investors than Japan’s $100 billion man.

Even if we don’t get a Son-focused “ICrashed” season, the events of recent months already offer insights about what might be in the script.

In March, just as television audiences watched Kim Eui-sung play Son, the real one was wrapping up a truly dreadful fiscal year. The mega tech fund that led Neumann to target Son in the first place lost more than $20 billion in the year ended March, the worst showing ever. And this swing from a sizable profit the previous year tells a bigger story.

Investors aren’t exactly panicking, partly because they’ve seen this show before. They know that the next episode will involve accelerated plans to buy back stocks and Son’s talk of “defensive driving” to steer the company away from even bigger losses going forward. For example, Son’s team has put aside $22.4 billion to ensure bond redemptions covered for fiscal years 2022 and 2023.

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What these coming attractions don’t tell us, though, is exactly what Son’s Vision Funds 1 and 2 will be up to. The globe’s most important VC operation says it may slash investments in startups by 50% or more. While that’s dreadful news for wannabe unicorns everywhere, it raises questions about the mission of Son’s Vision Fund project going forward.

We know the origin story. Son’s journey to WeWork infamy started with a stellar investment return dating back to 2000. Back then, Son bought into the vision of an obscure and charismatic English teacher in Hangzhou. The $20 million Son handed Jack Ma was worth nearly $60 billion when Alibaba Group went public in 2014.

In 2016, Son decided to make repeating that magic SoftBank’s raison d’etre. Yet getting financial lightning to strike again, and again, is easier said than done. Between his two signature funds, Son has been deploying more than $130 billion of investment capital on a bewildering array of startups across the globe.

For all too many of them, Son’s team arguably overpaid. This turned Son into something of a one-man unicorn valuation bubble machine.

Really, I’m sometimes tempted to call Son’s team and ask if they want to buy one of the bridges in my Tokyo neighborhood. All I’d need to do is find some rationale to call it a tech play. It was Son handing Neumann billions of dollars that enabled WeWork, an office-sharing outfit, to position itself as the next Apple.

Ironically, Son is picking now to pull in his horns. You’d think an investor who revels in the comparisons we in the media sometimes make between him and Warren Buffett. Wouldn’t now, a moment when tech stocks are plunging, be the time to be gorging on undervalued companies?

One can debate what Son is thinking here. By saying he now plans to be “more careful when we invest new money,” Son could be trying to calm nerves among SoftBank investors. It’s one thing for Son to riff that he hopes history remembers him as a “crazy guy who bet on the future.” It’s another for today’s investors to worry it’s true.

Or is it that the brutal market selloff, and Vision Fund’s losses in WeWork, Uber, Oyo Hotels and others, have Son questioning his investment compass?

The bottom line is that SoftBank Group is, according to Reuters, now worth less than half of the paper value of its net assets. The question is whether the discount at which SoftBank shares are trading is here to stay or a mere stumble on the way to another Alibaba-like bonanza?

It’s anyone’s guess—possibly Son’s, too. In the meantime, Masa-san, I have a bridge I’d like to sell.

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