Displaying items by tag: leverage

(New York)

Stock markets have been taking a beating lately. Between worries over trade and rising rates, as well as the fading effects of tax cuts and the prospects of weaker earnings, stocks have been getting hammered. Now there could be another material blow coming: corporate deleveraging. For years, companies have gorged on debt to fund buybacks and dividends. However, as rates a rising, they are now under pressure to deleverage, and there will be increasing plans for paying down debt. All of that means companies will be spending less in equity markets and on growth.

FINSUM: This is bad news. Stock buybacks have been one of the main drivers of returns the last few years, and the evaporation of that stimulus will add pressure.

(New York)

In what shocked us as a very eye opening statement, a number of funds are saying the market now is more fragile than before the Financial Crisis. According to one so-called tail fund, or funds that invest for profiting when there is a big market reversal, “The financial system is a lot more fragile than it was in 2007 … Leverage is up on every single metric, in just about every category, and debt has increased. The more you indebt someone, the more fragile they become, especially with variable interest rates”, says hedge fund manager Richard Haworth.

FINSUM: These kind of funds are always warning about the next catastrophe, but somehow their warnings seem more prescient right now.

(New York)

Banks may be about to receive a huge gift from regulators in a move that shows just how much the deregulatory push of the Trump era might help the financial industry. The US Federal Reserve, which has significant oversight of the financial regulatory landscape has proposed changes which would loosen restrictions on banks’ balance sheets, allowing them to become more reliant on debt financing, thus having more leverage.

FINSUM: All the details of the new proposals are not clear yet, but this could be a significant boon for banks.