Saturday, July 4, 2015


The culprit in the next market crash will again be mal-credit:

And the cost of money is so low it’s almost irrelevant. Thomson Reuters in a white paper on M&A pointed out that these deals are nurtured by the cost of funds in the bond markets and by rising share prices in the equity markets. Currently, bond markets “are following the path of quantitative easing,” the authors said. While the Fed has ended QE, the ECB, the Bank of Japan, and others are still pursuing it with a passion. And stocks have soared. That’s feeding the M&A boom with its crazy valuations.
But this time, it’s different. The white paper explained that during the last M&A boom just before the Financial Crisis, private equity firms were the deal drivers, with LBOs accounting for 25% of the activity. Now the boom is driven by corporate buyers. With access to cheap debt and armed with their own overpriced shares, they’re “out-bidding” private equity. And private equity, considered the ultimate smart money, sees these irrational prices, shudders, averts its eyes, and steps back from the melee.

If you want to prosper, avoid mal-credit at all costs...

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