daytrade diaries... may 20, page-80

Is any share safe until its Capital Raising is completed?? Kohler notes how short termish mkts have become..... something day-traders are well aware of.

Alan Kohler in yesterday's Spectator notes: 'Every day more companies are announcing share issues. In the past two weeks alone $11 billion has been raised, and since January the figure is $26 billion. For an equity market still down 45 per cent from the peak despite a two-month rally, there is an extraordinary amount of capital raising going on.

It is getting a little more desperate though: last year the equity raisings were generally renounceable rights issues; now the issuers have toughened up, so they are typically non-renounceable these days.

If the stock you own is not putting out its hand for your money, fear may be a more appropriate emotion than relief. Does the company really have enough cash flow to service its debts if things get worse?(see MM comments re this paragraph below)

The good news is that fund managers aren’t asking too many questions, such as what the money is going to be used for, and what the return on equity will be.

That’s because there is no such thing as long term investing at the moment, only the next quarterly return, so discounted new shares that might produce a quick turn are being snapped up without a second thought.

So directors have very little choice. With debt markets closed but equity markets open for the moment, the wails of shareholders worried about dilution have to be ignored – even if those wails emanate from around the board table.'

MikeM. I agree with Kohler's comment that:'If the stock you own is not putting out its hand for your money, fear may be a more appropriate emotion than relief.' But not just for the reason he puts forward. I have little doubt (but no evidence) that some companies have approached investment banks re under-writing a capital raising. The underwriters have demanded such severe terms that the SP will be crucified. Hence, the issue of raising more money from a share issue has been quietly shelved by the company.

MikeM: Hence, i am avoiding all stks which have high debt but are yet to raise more capital. They may not need to issue more shares.... but the risk of a sharp fall in SP (look at BSL) from this very event is enough to prevent me from even considering buying until the way ahead for the economy becomes clearer.