Home » Economics » Louis Gave On Corporate Debt And The Next Liquidity Crisis

Olduvai
Click on image to purchase

Olduvai III: Catacylsm
Click on image to purchase

Post categories

Olduvai
Click on image to purchase

Olduvai II: Exodus
Click on image to purchase

Olduvai
Click on image to purchase

Olduvai II: Exodus
Click on image to purchase

Olduvai
Click on image to purchase

Olduvai II: Exodus
Click on image to purchase

Olduvai
Click on image to purchase

Olduvai II: Exodus
Click on image to purchase

Olduvai
Click on image to purchase

Olduvai II: Exodus
Click on image to purchase

Olduvai III: Cataclysm
Click on image to purchase

Louis Gave On Corporate Debt And The Next Liquidity Crisis

This has been a good year for the stock market so far, at least in the U.S., yet many investors are wondering when the other shoe will drop. We spoke with Louis-Vincent Gave, founding partner and CEO at Gavekal Research, about the explosion in near junk corporate debt and why this is a problem during the next economic downturn.

For audio, see Louis Gave: Bond Market Liquidity Is the New Leverage

Bond Market Liquidity Is a Problem

The situation that’s developed is concerning. With the growth of exchange-traded funds (ETFs) in the corporate bond space, we have players that are guaranteeing daily liquidity in an asset class that historically doesn’t always guarantee liquidity.

Today, if investors need liquidity in a hurry, they’re essentially on their own, Gave stated. Meaning we might notice a dislocation in corporate bonds, keeping in mind that we’ve seen record issuance.

Normally, corporate debt relative to GDP makes highs at the bottom of the cycle when GDP is shrinking and everybody’s tapping their credit lines. Corporate debt relative to GDP is extremely high, and interestingly, Gave noted, the amount of debt that’s grown the fastest is just one notch above junk.

During the next recession, the number of companies that will be downgraded will lead to forced selling by institutions. This is one of Gave’s greatest concerns today.


Source: Gluskin Sheff

Buyer of Last Resort

We’ve had a semi-crisis in emerging markets this year and U.S. bond yields have come down, which normally provides some cushion to the system. This is the first time in Gave’s career where U.S. bond yields have gone up while emerging markets were under pressure.

…click on the above link to read the rest of the article…

Olduvai IV: Courage
In progress...

Olduvai II: Exodus
Click on image to purchase

Olduvai
Click on image to purchase

Olduvai II: Exodus
Click on image to purchase

Olduvai III: Cataclysm
Click on image to purchase