Global debt — when is the day of reckoning?
Central banks and companies still have ways of kicking the can down the road
Laurence Fletcher
How worried should we be about debt? The answer is not straightforward.
First, the bear case. In short, debt is just too big for comfort. Global debt has swelled 50 per cent in the decade since the credit crisis, according to Standard & Poor’s, the rating agency. Government debt in the eurozone is higher than before the financial crisis, as are, in some cases, household debt-to-income ratios.
Meanwhile, private equity firms’ debt-to-earnings ratios are approaching pre-crisis levels, suggesting they are again comfortable with taking on more debt on the companies they buy. So-called covenant-lite deals with low investor protections are the norm.
If this all goes wrong, it could be ugly, with broad ramifications for investors and economies.
For instance, a downturn could trigger downgrades on the huge number of bonds that just scrape into the investment-grade ratings, leading to a wave of forced selling by funds that cannot hold debt below triple-B.
So-called “financialisation” — whereby companies take on more, cheap debt to boost equity market returns — could also mean less resilience when things start to sour. Andrew McCaffery of Aberdeen Standard Investments, points to a potential “rapid negative feedback loop into economic activity”.
A side effect of higher debt levels could be that investors and economies start to feel the effects of a sell-off or a slowdown more quickly than they might otherwise have done.
But, bulls point out, immediate triggers for a day of reckoning are lacking. US housing debt is down since the crisis. US economic growth remains robust. And, if there is stress, it is not showing up yet: corporate defaults in both developed and emerging markets remain rare.
Fraser Lundie, co-head of credit at Hermes Investment Management, said corporate borrowers (even those with low ratings) still had wriggle room to avoid repayment problems. They can use levers such as dividend cuts to help bondholders, shifting some of the strain on to equity holders instead. Indeed, Mr Lundie said he had used market jitters over triple-B bonds as a buying opportunity.
Sadly for debt bears waiting for their moment of glory, borrowers are likely to be able to keep paying back high levels of debt for some time because, quite simply, it is cheap. Central banks and companies still have ways of kicking the can down the road.
A sweep higher in inflation or a dive in global growth would, of course, throw the bullish case off course. Until then, some market watchers are keeping the faith. “I’m very worried [about debt] if you have a long time horizon. I’m not at all worried if you have a short time horizon,” said David Lafferty, chief market strategist at Natixis.
lunes, abril 15, 2019
GLOBAL DEBT -- WHEN IS THE DAY OF RECKONING? / THE FINANCIAL TIMES
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Etiquetas:
Central Banking,
Financial Markets,
Global Debt Markets,
Investment Strategies
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Estimados amigos,
Les doy cordialmente la bienvenida a este Blog informativo con artículos, análisis y comentarios de publicaciones especializadas y especialmente seleccionadas, principalmente sobre temas económicos, financieros y políticos de actualidad, que esperamos y deseamos, sean de su máximo interés, utilidad y conveniencia.
Pensamos que solo comprendiendo cabalmente el presente, es que podemos proyectarnos acertadamente hacia el futuro.
Gonzalo Raffo de Lavalle
Les doy cordialmente la bienvenida a este Blog informativo con artículos, análisis y comentarios de publicaciones especializadas y especialmente seleccionadas, principalmente sobre temas económicos, financieros y políticos de actualidad, que esperamos y deseamos, sean de su máximo interés, utilidad y conveniencia.
Pensamos que solo comprendiendo cabalmente el presente, es que podemos proyectarnos acertadamente hacia el futuro.
Gonzalo Raffo de Lavalle
Las convicciones son mas peligrosos enemigos de la verdad que las mentiras.
Friedrich Nietzsche
Quien conoce su ignorancia revela la mas profunda sabiduría. Quien ignora su ignorancia vive en la mas profunda ilusión.
Lao Tse
“There are decades when nothing happens and there are weeks when decades happen.”
Vladimir Ilyich Lenin
You only find out who is swimming naked when the tide goes out.
Warren Buffett
No soy alguien que sabe, sino alguien que busca.
FOZ
Only Gold is money. Everything else is debt.
J.P. Morgan
Las grandes almas tienen voluntades; las débiles tan solo deseos.
Proverbio Chino
Quien no lo ha dado todo no ha dado nada.
Helenio Herrera
History repeats itself, first as tragedy, second as farce.
Karl Marx
If you know the other and know yourself, you need not fear the result of a hundred battles.
Sun Tzu
Friedrich Nietzsche
Quien conoce su ignorancia revela la mas profunda sabiduría. Quien ignora su ignorancia vive en la mas profunda ilusión.
Lao Tse
“There are decades when nothing happens and there are weeks when decades happen.”
Vladimir Ilyich Lenin
You only find out who is swimming naked when the tide goes out.
Warren Buffett
No soy alguien que sabe, sino alguien que busca.
FOZ
Only Gold is money. Everything else is debt.
J.P. Morgan
Las grandes almas tienen voluntades; las débiles tan solo deseos.
Proverbio Chino
Quien no lo ha dado todo no ha dado nada.
Helenio Herrera
History repeats itself, first as tragedy, second as farce.
Karl Marx
If you know the other and know yourself, you need not fear the result of a hundred battles.
Sun Tzu
We are travelers on a cosmic journey, stardust, swirling and dancing in the eddies and whirlpools of infinity. Life is eternal. We have stopped for a moment to encounter each other, to meet, to love, to share.This is a precious moment. It is a little parenthesis in eternity.
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