Good For Microsoft, Bad For You!


By Aaron D Williams - aaron@aarondwilliams.org


Bio - Christopher Liddell - CFO Microsoft

Before joining Microsoft, Liddell was CFO at International Paper Co., the world's largest forest products company, with similar responsibilities. Prior to that, he was Chief Executive Officer of Carter Holt Harvey Ltd., then New Zealand's second-largest listed company. He also has worked as an investment banker as Managing Director and joint CEO for CS First Boston NZ Ltd.

There's a bunch more to his bio but I wanted to point out the "worked as an investment banker as Managing Director and joint CEO for CS First Boston NZ Ltd" thing!

Oh, and he is a genius!


I've had the good fortune of being acquainted with a number of the Microsoft big wigs over the last 18 Months. Although we've discussed, at length, a number of important issues regarding MSFT the deepest of said discussions have come due to their recent Issuance of Debt. I see this as one of the most brilliant moves Microsoft has made in the last decade! OK maybe a little dramatic. However, former Microsoft CFO John Connors and I have hashed over the move on a couple of occasions and agree that it's quite the deal. I've also spoken a time or two with Dan'l Lewin, Microsoft Corporate Vice President, Strategic and Emerging Business Development, and he agrees with my dramatic take. It really is a fantastic move. Now...

Aside from the obligatory question of, "What are they going to do with the money?" I want to show here just how great of a move this was. This was arguably, the cheapest money Microsoft will ever make. In addition to the Treasury Rates (which create a floor of sorts in the Bond market) being at the lowest levels seen in years, the doubt in Microsoft defaulting on their debt is also at a historical low. So here we go...!

At the time MSFT issued the debt, their Ten-Year Bond bid at the incredible rate of 4.20%. Wow! Seriously, that's unbelievable. (This link is to their SEC Form 8-K) In other words, people trust Microsoft just about as much as they trust the US Treasury. Really. Wow! There were other Bond Maturities issued but for the purposes of this read I'll focus on the Tens.

So, if you give Microsoft $100,000.00 today, they'll give you $4200.00 a year for ten years and then there's a really good chance they'll give you your $100,000.00 back. That's college for baby! Well..., maybe!

Below is a simplified worksheet and graph of the figures above. I've taken the liberty of adjusting to inflation expectations for the next ten years. Take a gander...


Cheap Money!


Let's assume that inflation stays around 4% on average, for the next ten years. To put this in perspective, that's about what inflation has been since 1985. OK. So if we average 4% inflation for the next ten then your $100,000.00 will have a real value at Bond Maturity of +-$80,000.00. 2019. Wow!  OK - So take that $100,000.00 now (well in 2019) $80,000.00 and add it to the Yields paid out over the ten years. $42,000.00 right? No. Once again, adjusted for an average inflation over the next ten years of 4% and we get a real value at Bond Maturity of +-$37,380.00. That means the real value at Bond Maturity is only $117,380.00. Or, a gain over ten years of 1.17%.

Believe me the numbers only get worse as the maturity date lengthens.

So why is this Good for Microsoft? Well, they have your $100,000.00 today and they'll only be giving you $117,380.00 in ten years. That is really good for Microsoft.

Oh and one other thing. If "super-inflation" does occur like those morons on Main-Stream Media outlets are trying to sell then MSFT basically makes money from borrowing money. And that's without the "What are they going to do with it?" question.


Hats are off to Mr. Liddell. He's the man! Oh, for Microsoft, that is!


As is everything when you have children, this piece was a little rushed. Let me know what you think.  My apologies for any misspelling, bad math, etc.

Feedback - aaron@aarondwilliams.org


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