credit economy Markets

The ‘Music Of The Credit Cycle’ Will Keep Playing – Until It Stops

The point of no return...

If you're looking to capture the "essence" of the current cycle, you needn't look much further than the explosion in non-financial corporate debt and the concurrent bid for equities from corporate management teams. That's the message one gets from a quick read of Oleg Melentyev's base case for 2020. Melentyev is BofA's US high yield strategist. In a note dated Friday, he expresses a generally benign take on things headed into the new year. But that's contingent on the somewhat dubious dynamics that have defined the post-crisis, easy money regime. (BofA) What you see there in the left pane is a $4.3 trillion corporate debt binge since 2009. In the right pane is a simple visual showing net buybacks. "About 30% of total EPS growth in the last five years was derived from share buybacks alone", Melentyev notes, adding that "this was the music of this credit cycle – to borrow cheaply and to turn around to improve the bottom line through either share repurchases or M&A". That's gone on for longer than many critics believed was possible. Central banks have succeeded in prolonging the cycle, and the hunt for yield has ensured that markets remain forgiving for corporate borrowe
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2 comments on “The ‘Music Of The Credit Cycle’ Will Keep Playing – Until It Stops

  1. jabel5 says:

    If you think that Trump is motivated by ideology or principles then you see a problem for the world economy. If you consider Trump as basically a narcissist then you know he will soon make whatever deal he can with China and declare it to be the greatest triumph in trade negotiations known to man. Therefore, I am long China.

    • Mr. Lucky says:

      Me, too. China was forging a civilized country 4000 years before the countries of today have even existed. In the middle 1800s the countries we call Italy and Germany didn’t exist. China has been forging trade deals for 1000s of years. I think they have more experience than the rest of us put together. To ignore this is folly.

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