Wednesday, April 13, 2016

Corporate Debt Issuance .. "The Primary Threat
To Financial Stability Going Forward"?
"Aggressive monetary policy in the form of QE and zero or negative interest rates is all about encouraging (forcing?) borrowers to take on more and more debt in an attempt to boost economic activity, effectively mortgaging future growth to compensate for the lack of demand today. These central bank policies are having some serious unintended consequences, particularly on mid cap and smaller cap stocks. Aggressive central bank monetary policies have created artificial demand for corporate debt which we think companies are exploiting by issuing debt they do not actually need. The proceeds of this debt raising are then largely reinvested back into the equity market via M&A or share buybacks in an attempt to boost share prices in the absence of actual demand. The effect on U.S. non-financial balance sheets is now starting to look devastating. We’re not the only ones to be worried. The Office of Financial Research (OFR), a body whose function is to assess financial stability for the U.S. Treasury, highlights corporate debt issuance as their primary threat to financial stability going forward."
- SocGen's Andrew Lapthorne
LINK HERE to the article

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