size corporate debt one rung >junk7 Feb 2019 00:23
Another case to look carefully at balance sheets of companies and hhow much debt is on the books, a good case for v few rates rises anytime soon ,,,,,Louis Gave (Gavekal Research) says the greatest source of potential instability in the years ahead lies with the massive growth of the U.S. corporate debt market, particularly at the BBB-rated (near junk) level.
Gave recently told FS Insider that it has far outpaced the economy and could be due for a reset during the next downturn, which is increasingly becoming a concern by other strategists.
When it comes to potential trouble spots brewing in the financial markets or global economy, Gave said “if you ask a French client, they tend to point a finger at Italy. If you ask Italian clients, they point a finger at Deutsche Bank; and if you ask German clients, they point a finger at France. When I talk to my U.S. clients, most of them point a finger at China, which they see as having unsustainable high levels of debt and is an accident waiting to happen.”
However, Gave sees an even source of potential problems since, as he points out, the "size of corporate debt one rung above junk has never been greater"
“There are real questions about all the energy debt that’s being issued by a lot of negative cash flow companies in the energy space,” he said, which also leads to questions about industrial, auto and real estate debt.
Gave asked listeners whether all this growth in debt has "funded the purchase of assets that allow the servicing of the debt and then the reimbursement of the debt or has this growth really funded a massive rise in share buybacks and financial engineering?” Gave said if the answer is the latter it would signify that our balance sheets are far more stretched out than they have been in pervious cycles.
Sign In
Follow the stocks
