domingo, 14 de enero de 2018

domingo, enero 14, 2018

We Give Up! Part 2: Consumers And Corporations Join The Debt Orgy


Late cycle behavior is everywhere these days. Governments have stopped worrying about deficits, and now the rest of us are apparently joining the orgy.

Corporations, for instance, are buying each other out – mostly with borrowed money – at a record pace:

December’s $361 Billion Deal Haul Is the Busiest in a Decade 
(Bloomberg) – Just as most people are packing up for Christmas, dealmakers across the world are rushing to finish up a slew of transactions in industries ranging from consumer to telecom and health care to gambling. 
Companies have announced about $361 billion of mergers and acquisitions this month, making it the busiest December in at least 12 years, according to data compiled by Bloomberg. On Friday, the last work day before bankers and executives break for the holiday, GVC Holdings Plc of the U.K. agreed to buy bookmaker Ladbrokes Coral Group Plc for as much as 4 billion pounds ($5.4 billion), Deutsche Telekom AG said it will buy Liberty Global Plc’s Austrian unit and Roche Holding AG announced the $1.7 billion acquisition of U.S. biotech Ignyta Inc. 
“We have announced three new takeover deals in the last month, and we have worked on a range of M&A continuing through the holiday,” said Gavin Davies, global head of M&A at law firm Herbert Smith Freehills in London. “Clients want to get deals done, for growth, for rationalization, and to get ahead of tech disruption, and they are working hard to make those deals happen‎, despite a more challenging political and economic M&A environment.” 
Europe has been a hot spot for M&A this year on the back of a more stable economic outlook and growing confidence. Still, the U.S. has seen the biggest transactions in December, led by CVS Health Corp.’s $67.5 billion purchase of Aetna Inc., creating a health-care giant that will have a hand in everything from insurance to the corner drugstore. Also in December, Walt Disney Co. agreed to acquire a large portion of media mogul Rupert Murdoch’s 21st Century Fox Inc. in a $52.4 billion deal. 

 
The busy end of the year may spill over to January and beyond, especially in Europe, according to Cathal Deasy, head of M&A for Europe, the Middle East and Africa at Credit Suisse Group AG.
“Against a backdrop of strong macro fundamentals in Europe, boardroom confidence and supportive capital markets, we are positive on the outlook for European M&A in 2018,” said Deasy. “The strong finish to 2017 gives us further conviction.”

Consumers have lately caught the same fever, and are enthusiastically buying stuff they don’t need with money they don’t have:

U.S. Consumer Spending Rises in November, Savings Rate at 10-Year Low
(Wall Street Journal) – Americans spent more and saved less in November, a sign that low unemployment, robust consumer confidence, the prospect of tax cuts and buoyant financial markets are underpinning a strong holiday shopping season.

Americans are saving at the slowest pace in a decade, likely in anticipation of continued job and wealth gains as stock indexes barreled to new records last month and the unemployment rate stood at a 17-year low. The personal saving rate in November was 2.9%, the Commerce Department said Friday, falling below 3% for the first time since November 2007, just before the last recession hit. 

 
Meanwhile spending was strong in a key month of the holiday season, outpacing income gains. Personal consumption expenditures, a measure of household spending, increased a seasonally adjusted 0.6% in November from the prior month. Personal income, reflecting Americans’ pretax earnings from salaries and investments, rose 0.3% in November from the prior month. 
The income data fell short of economists’ expectations, while the spending data exceeded them. 
“Very elevated consumer confidence makes people more comfortable saving less,” Ian Shepherdson, chief economist at Pantheon Macroeconomics, said in a note to clients.  
Consumer spending accounts for more than two-thirds of U.S. economic output, and Friday’s report suggests momentum was strong as the final quarter of the year progressed. The latest spending data shows increased outlays in November were driven by spending on goods like recreational items and vehicles, boding well for holiday retailers.

The theme running through both of the above stories is repetition: The same let-it-all-hang-out debt-driven enthusiasm that prevailed at the end of the previous bubble has taken hold at the end of this one.

What happens next? If history is still a useful guide, growth will spike (since spending borrowed money counts as “growth” in the Keynesian economics practiced by most policy makers), leading to higher interest rates which raise the interest costs of over-indebted governments, businesses and individuals, which at last pops the bubble and sends us back to 2008.

At which point we’ll see lots of articles explaining how corporations and consumers haven’t been this cautious for at least a decade.

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