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Corporate Debt Boom Blows Up Another Bear Narrative
Remember the maturity wall panic?
That was another bear narrative popularized in 2022 and 2023. Like a lot of such narratives, it's in jeopardy.
The story was plausible. And eminently so. Rates remain miles above where they stood just a few years ago, and that means any company that needs to roll/refi will pay dearly.
That's especially problematic for lower-rated corporates, given their daunting refinancing wall. Small-caps and "lesser" firms generally have a more demanding maturity schedule.
El Heisenbergarino: famously not into the whole brevity thing.
TLDR: It’s all coming up roses
Tells me a lot of the AI Gold rush is being financed with debt.
Also tells me even with paying the high interest rates the debt financed investment in AI models out to significant cost reduction.
So either:
The models are wrong and the AI hype will fizzle leaving companies (in aggregate) with bloated balance sheets and increased risk to cash flows.
Or the hype around AI becomes realized, then earnings jump (temporarily) as expenses (read people) are eliminated and a deflationary cycle ensues as jobless rates soar. Massive transfer payments would be the only solution, but I doubt there’s political cohesiveness nor political forethought (as if such a thing could exist) to allow for a smooth transition to the new paradigm.
Either way, we’ve seen (or soon will) peak Invidia. Eventually demand for picks recedes once the last of gold miners arrives in town.