Corporate credit flowing freelyAs the second anniversary of Lehman Brothers' collapse approaches, market commentators have been analyzing how surprisingly constant many features of the financial landscape have remained. Several Wall Street powerhouses remain too big to fail, for example, and many critics have argued that financial markets remain as exposed to shocks as ever, despite plenty of lip service paid to avoiding another crisis.

But when it comes to one of the most profound economic impacts of the 2008 meltdown -- the downright seizure of credit markets -- things could hardly be more different now than during the height of the crisis. While credit evaporated in the wake of Lehman's demise, companies with strong balance sheets are now seeing a deluge.

The impact of this dramatic turnaround continues to boost stocks in new ways. Witness reports of Microsoft's (MSFT) plans to finance buybacks and dividends through new debt issues even though it already sits on piles of cash.

Unanswerable Questions

Compare that to the onset of the financial crisis. Just two weeks after the collapse of Lehman, AT&T (T) CEO Randall Stephenson shocked investors by saying the iconic company -- generally seen as a safe haven because of its steady business -- was having difficultly securing short-term loans to fund business operations.

AT&T's woes were part of the prevailing paranoia. Who was holding toxic assets, and how little were they worth? Answers were impossible to find in the wake of Lehman's bankruptcy as it became clear that nearly worthless securities were scattered all over. As counterparty risk spiked, so did the rates banks charged each other for overnight loans. And even the bluest-chip companies worried about basic funding just to keep the lights on.

Now, though, just two years later, credit could hardly be easier to come by for corporate behemoths holding plenty of cash. Companies like IBM (IBM) are able to get three-year loans for a stunning 1%, and banks are racing to line up debt financing for blockbuster acquisitions.

Creating an Upward Spiral for Equities?


Microsoft plans to raise as much as $5 billion in debt to fund a return of capital to shareholders through increased stock buybacks and dividends, according to reports on Sept. 13. Microsoft shares spiked 5% on the news, meaning that more than $10 billion in equity capitalization was created for the software giant, whose market cap now approaches $220 billion.


Microsoft may now be able to use the funds to boost dividend yields ahead of the 2% offered by the S&P 500, according to some analysts. "We expect Microsoft's board to elect to raise their dividend to a level where the yield will meet or exceed the index average, even with material accretion in the share price," Katherine Egbert, an analyst at Jefferies & Co., wrote in a research note today.

Other such corporate titans that now enjoy easy access to credit could increasingly follow suit. Rising payouts to shareholders could continue to make stocks increasingly attractive relative to bonds and lead to an upward spiral for equities.

Of course, investors should note that many negative conditions remain, despite promises of sweeping changes since Lehman's collapse. But when it comes to the most important factors that move markets -- such as corporate cash flows and credit quality -- things could hardly be more different.

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CAH2416

TOO BAD BANK CREDIT ISN'T FLOWING TO SMALL BUSINESSES. BANKS GIVE EVERY REASON UNDER THE SUN FOR NOT LOANING TO SMALL BUSINESSES EVEN THOSE WITH GOOD TRACK RECORDS. THE BANKS TOUT THAT THEY ARE THE"BIGGEST SBA LENDERS IN THE STATE" AND EVEN THEN THEY WILL NOT LEND TO SMALL BUSINESSES. AS A CPA I WORK WITH SMALL BUSINESSES EVERY DAY AND UNTIL THE BANKS STOP WORRYING ABOUT THE BOTTOM LINE AND START WORRYING ABOUT WHAT DRIVES THE U.S. ECONOMY (i.e. SMALL BUSINESSES) THINGS WILL NOT IMPROVE!!!!!!!!!

September 15 2010 at 7:20 AM Report abuse rate up rate down Reply
ca2474

and btw, bush passed the unemployment extensions, not obama go look it up koolaid boy...

September 15 2010 at 5:28 AM Report abuse rate up rate down Reply
ca2474

miser, really? how about the 10 percent unemployment? or the debt we are hitting? you may wanna go look it up but this guy has put us in debt we cant get out of. and for your info , 6 of bushes 8 years is unemployment was 4.5 percent, so how do you factor your thinking? think they saved us? think these banks and municipalities wont fail agian? why cause uncle sam gave them cash? all they did is push the problems down the line...thats it. cause those same teachers cops and firemen will still have to lose there jobs in year or two. and those same banks will alos bust agian. we all no everything this guy did was a scheme, one big ponzi scheme for? votes...

September 15 2010 at 5:27 AM Report abuse -1 rate up rate down Reply
ultraz2

Scarry isn't it.

September 15 2010 at 1:43 AM Report abuse rate up rate down Reply
ultraz2

some 1 do, you may be right I hope your wrong.

September 15 2010 at 1:41 AM Report abuse rate up rate down Reply
some1do

Stocks are a leading indicator. We had the 2009 rally. But we have topped out in April. Wait for bad news to pop again. This is going to be a single dip depression. Stock market has head and shoulders pattern. 2000 is left shoulder, 2007 is head, 2010 is right shoulder. Stocks can go down lower than you can imagine. Get out while you can. Nothing has been fixed. We have borrowed and spent on consumer debt. We are not increasing our productive capacity or competitive edge. Borrowing from China to consume more Chinese products is not going to be a recovery. This is a dead end. Crash is coming. http://www.kondratieffwavecycle.com/economy/deflationary-crash/

September 15 2010 at 1:27 AM Report abuse rate up rate down Reply
ultraz2

BULL SH-T, Unemployment continues to get worse , the major bailed out TARP BANKS are not modifying many loans at all when asked to help,the banks just use one excuse after another to disqualify people. The US WALLSTREET STOCK MARKET is a lost cause, ordinary investors get screwed by big banks brokerage houses who cater to the richest clients, the housing crisis has not improved.Forclosures and BANKRUPTCIES INCREASE------Banks keep ripping off with high overdraft intrest and rip off teaser rates and rip off fees. SO HOW IS IT BETTER THAN 08----LIES ALL LIES. ----------------------------------------------------------------------------------------------------------------------------------------------------------Go to florida and ask those people what they think. Go to major cities in the US--Detroit and others. And the auto industry is really not doing that great, it's stable but just barely. Not selling many 30 to 50 thousand cars now days, people either don't have the money or have wised up and don't want to make the banks rich at the expense of their childrens dwindling inheritence.

September 15 2010 at 1:07 AM Report abuse +1 rate up rate down Reply
wal5we

gold?...you see all these fancy commercials for gold investment, usually coins. they look nice but you need a microscope to read the fineprint in the purchase document(s). The coins are coated with a very thin layer of gold maybe 1/1,000 of an inch and the rest is filler metal. The "minted" coin probably costs $2 to make and they get some gullible idiot to buy it for $50-100 each. Why isn't the govt. cracking down on these shysters? Why does it always take a few thousand complaints before these fraud artists are shut down AFTER they've stolen millions from these dopey "investors". It's called capitalism and buyer beware.

September 15 2010 at 12:07 AM Report abuse rate up rate down Reply
prognesub

Love dat government money. Socialism to the rescue of the free enterprise people. Now lets see you put people back to work. Do something positive to earn your taxpayer handout. Putting people to work in China doesn't count.

September 14 2010 at 11:47 PM Report abuse -3 rate up rate down Reply
shm3418

Just in time for nobama to get credit for it.....and all else that can make the smoke and mirrors look good for november! But least we not forget, JOBS should have been priority one from the start, not stimulus to wallstreet and china! But that's ok, our kids will know that we made china what it is today and what it soon will be tomorrow.

September 14 2010 at 10:49 PM Report abuse -2 rate up rate down Reply