Corporate Debt

[pandy]

There's an interesting AP article in the Morning Call (local paper around here) about mounting corporate debt. The writer says that this stuff you hear about "all the cash on the sidelines" is misleading. He says that corporate America is a lot like America in general, most of the money is held by a few. He said that about three quarters the companies actually have a lot of debt and that is at dangerously high levels. Meaning that any weakening in the economy could cause a stock market collapse. Basically what he was trying to say, the stock market is riskier than many realize right now, but he said that people are putting money it in because of the low interest rates, no place else to put their money.

Does anyone have any opinions on this?

[PICSIX]

It could get very ugly:

http://www.cnbc.com/2016/07/20/crexit-warning-as-corporate-debt-seen-ballooning-to-75-trillion.html

[JustRalph]

All that cash has been sucked into personal accounts of the larger companies

It was predicted. They've all cashed out and are running their companies on credit lines. Why not........it's legal

[whodoyoulike]

... Does anyone have any opinions on this?

One of the problems which I see was in the increase in corporate debt. It went to buy back the individual companies shares. This didn't help improve the company's infrastructure or improve existing or new market share. Eventually, it will affect their ability to service their debt. When rates rise this will be more apparent and I think rates here and around the world needs to rise to spur the world economies.

[pandy]

That's what he said in the article, that companies are buying their own stock. I wasn't aware of the size of all this corporate debt. This makes the stock market look even more risky right now.

This low interest phase that we've been in for so long now seems dangerous. It forces people into stocks who shouldn't be in stocks, people and companies over leverage because they can borrow so cheap, it artificially pushes up prices of real estate. And now the fed is in a catch-22 situation where they're afraid to raise interest rates but we'd be better off higher interest rates.

[Shemp Howard]

Don't worry. Push comes to shove, the Fed will start buying corporate debt.

[JustRalph]

That's what he said in the article, that companies are buying their own stock. I wasn't aware of the size of all this corporate debt. This makes the stock market look even more risky right now.

This low interest phase that we've been in for so long now seems dangerous. It forces people into stocks who shouldn't be in stocks, people and companies over leverage because they can borrow so cheap, it artificially pushes up prices of real estate. And now the fed is in a catch-22 situation where they're afraid to raise interest rates but we'd be better off higher interest rates.

Exactly right👍 And it's been going on two decades now.

Those who used to retire and live off interest are non existent anymore. It used to be you could move to real estate. But we are now recreating the boom of ten years ago. What little cash I had, I was making nothing on. I was not going back into the market. So I paid of my real estate and dumped my rental property before the next bubble bursts. Just this month FHA loans dropped some credit requirements below 550 FICO.

I decided to keep one property that will provide me steady income in my later years ( most probably my wife) and settle in to watch what happens. It's not the same world our parents faced. And our children are screwed.

[whodoyoulike]

Exactly right👍 And it's been going on two decades now.
...

Stock buy backs have been going on for years. It's an acceptable form of financial engineering but coupled with the prolonged low interest rates the last 8 years or so and the widespread corporate participation, it's exaggerated the effect to dangerous levels.

[whodoyoulike]

Don't worry. Push comes to shove, the Fed will start buying corporate debt.

I wish you would expand on this.

But, If I recall correctly the Fed has already done this e.g., GM which they were already paid back. There were a couple of others which I can't recall at the moment.

[barn32]

The solution is simple. Buy gold. Hoard it in your socks and underwear drawer. And when the world finally comes to an end you can trade your gold for food and water because people really like very shiny things.