Corporate and Buyout Debt Levels In the Red Zone – This Time It’s Different, Right?

The Wall Street Journal, which didn’t exactly cover itself in glory with its reluctant and initially Pollyanna-ish coverage of the 2007-8 LBO and debt market meltdowns, is now sounding the alarm – on its front page no less:

Risky Loans Surge in U.S., Overseas

(Website headline: Leveraged Loans Are Back and on Pace to Top Pre-Financial Crisis Records)

Investors worry this could pressure financial markets if global economic expansion fades

Lending to the most highly indebted companies in the U.S. and Europe is surging, a development that investors worry could pressure financial markets if the global economic expansion starts to fade.Volume for these leveraged loans is up 53% this year in the U.S., putting it on pace to surpass the 2007 record of $534 billion…

Sure, the piece is essentially just LCD’s data through the WSJ’s megaphone, but it’s a step in the right direction, and, really, they had to get the worry beads out in the wake of Toys R Us.

Wolf Richter crunches his own numbers in a more insightful piece from yesterday (Corporate Mirage: Debt out the Wazoo, Sales Languish, Stocks Soar) that illustrates the absurdity of the current debt/sales/share price trend lines, and is well worth reading.

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In short, debt jumped 35% since the prior peak before the Financial Crisis, as sales rose only 12% over the same period, but stocks have doubled from the highly inflated levels at that time.

It’s all part of the phenomenon of repressed yields and cheap credit: Companies are borrowing large amounts of money to buy back their own shares and to buy out each other, instead of funding investments in productive activities. The hype around these share repurchases and M&A fires up stock prices and contributes to the current stock price bubble, but does nothing for the economy and leaves corporate America and share prices in a very precarious position.

So is Toys R Us the Tribune of the new unwinding? As Richter writes, “Hype works, until it doesn’t.”

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Apple’s $5 Billion Leveraged De-Equitization Shows Folly of Repatriated Cash Tax Break

Soooo… Why again do they need that tax holiday?

And what does it mean when you’re your biggest investor?

Via Bloomberg:

 

Apple is about three-fourths of the way through a program that’s returning $300 billion of capital to shareholders by the end of March 2019. At the start of July, the company was sitting on more than $261.5 billion of cash — 94 percent of which was outside the U.S., Chief Financial Officer Luca Maestri said on an earnings call.

 

 

via Apple Sells $5 Billion of Debt to Fund Share Buybacks, Dividends – Bloomberg

This is Worse than Before the Last Three Crashes | Wolf Street

How long will “magical thinking” sustain the rally? No way to say. But when the gears are reversed, it could get ugly…. From Wolf Street:

“There are a million reasons why multiple compression hasn’t started yet, including the scorched-earth monetary policies by central banks around the world and the hope for miracles during the Trump administration.”

via This is Worse than Before the Last Three Crashes | Wolf Street