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Strategies & Market Trends : The Epic American Credit and Bond Bubble Laboratory
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From: redfrecknj12/4/2006 10:56:39 AM
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The leveraging of corporate balance sheets is slowly unfolding via a host of investment vehicles. Speculative activity, while not yet frothy, is on the rise and will eventually undermine corporate bonds. Merger & acquisition activity is booming. Meanwhile, private equity deals are mushrooming with no end in sight. Reportedly, there are hundreds of billions of dollars of uninvested private equity capital available for deals. Perhaps equity investors have decided that corporations are now under-leveraged and that CEOs are acting too cautiously. Thus, investors are using private equity as a way of re-leveraging balance sheets to maximize shareholder value. Our indicators do not signal that the scramble for “beta” and yield has reached the irrational stage. Nonetheless, it is troubling that speculation is on the rise and investors are aggressively squeezing down corporate spreads, at a time when leverage is rising. -- BCA Research, 11/30/06
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