Operating at the Intersection of Technology and the Capital Markets
Tag: corporate debt
The debt crisis is America's greatest threat. Not China. Not nuclear war. Not identity politics. Larger than the U.S. Economy and growing. Public Debt outstanding is approximately $31.4 trillion, significantly larger than the U.S. economy as fiscal spending far outpaces Real GDP growth. Public Debt outstanding will almost certainly continue to grow as fiscal deficits … Continue reading Debt Crisis
Management Teams Have Less Discretionary Capital as The Cost of Debt Rises As the cost of debt rises, management teams have less discretionary capital to allocate toward growth initiatives and various sources of competitive differentiation (Product Development for example). Belt tightening will be required as corporate America braces for the new normal of higher input … Continue reading The Cost of Debt Rises
Technology company earnings season is in high gear. It is a heck of a time to be a Technology fund PM or Analyst. Despite the NASDAQ Composite being down 13% YTD, the group has another 40% downside or more in our view. Many of the high-multiple of revenue (no earnings) stocks have 80-90% downside as … Continue reading Tech Earnings Season Is Here
Large, profitable Technology companies represent an increasing share of corporate profits. This phenomenon has enabled the corporate debt to pre-tax profit ratio to remain relatively stable since Q4 2017 with a MEAN multiple of 4.6x and a MEDIAN multiple of 4.4x over the Q4 2017 - Q4 2020 period. The outlier was the data collected … Continue reading Corporate Debt to Pre-Tax Profit Ratio Is Relatively Unchanged Since 2017
"There is nothing more permanent than a temporary government program" - Milton Friedman. First is was the financial crisis of 2008 that "forced" the Fed to perform unnatural acts. It was at this time that the Fed introduced Quantitative Easing ("QE"). QE was to be a "one-and-done" program. That program remains part of the Fed's … Continue reading Muted GDP Will Force Investors to Become More Selective
Ever "carb-load"? I used to. "Carb-loading" is the process of consuming large quantities of carbohydrates which are stored as glycogen and subsequently burned while competing in an athletic event. Doing so made me feel sluggish. Do you know who else feels sluggish? Software companies that Private Equity owners have loaded with debt. It's difficult to … Continue reading Debt-Loading Is Killing Innovation
It is going to take several years for the U.S. economy to recover back to 2019 levels. 2019 is a low bar in our view as that economy - much like the present one - was debt-fueled, deficit-ridden and plagued by artificially low interest rates. These factors in the aggregate have stymied sustainable, real economic … Continue reading Markets Are Poised To Grind Lower
Corporate debt is at a record $10.5 trillion (chart 1). Yet as a percentage of U.S. corporate equity market values, debt is a small percentage relative to previous years (chart 2). Thank the Fed for boosting equity valuations. Smart, heavily-levered companies used the opportunity presented over the past few weeks to capitalize on inflated equity … Continue reading It May Not Be Too Late To Issue Equity
The Fed's behavior in recent months has been something out of a horror movie. The low interest rate, expansionary monetary policies introduced by former Fed Chair Bernanke and continued by former Fed Chair Yellen have dramatically accelerated under current Fed Chair Powell. Bernanke dealt in $Billions, Chairman Powell prefers $Trillions. Click any of the charts … Continue reading The Forever Bubble-Blowing Fed
Check out our podcast on the topic at the SoundCloud link below. Look for the TEK2day Podcast on Apple, Spotify, Stitcher and Google Podcasts. https://soundcloud.com/ceorater/ep-371-moral-hazard-is-infecting-the-capital-markets
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