Submitted by Taps Coogan on the 26th of July 2019 to The Sounding Line.
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Hondius Capital Management Chief investment Officer, Shawn Matthews, recently spoke with Bloomberg about swelling corporate debt levels and the risks of continued monetary accommodation.
Some excerpts from Shawn Matthews:
“We have $600 billion of corporate debt with negative yields, which is an amazing thought process… Really it is pushing people into the equity market as a ‘no other alternative’ that’s out there. But really, the equity market as well is being driven by the cheap debt because the corporate buybacks of equity have been substantial. If you look at Citi Group… Citi said they grew at 12-13%, but in reality you take out the tax cut plus the corporate buyback (and) their earnings are flat. So, I think it is all being driven right now by debt and cheap debt and it could go on for a while more, but certainly there are implications for that.”
“(The Fed) is pushing on a string right now from an economic standpoint. If you look at what’s happened in Japan over the last 20 years, if you look at what’s going on in Europe as well, they haven’t been able to increase their economic output just because they’ve lowered interest rates. I think we are getting into that trap as well. So we’ll lower interest rates, but all we are doing is continue to have financial assets higher which is bifurcating the world… The people who owns stock, and there’s only 52% of the country right now (that) own stock, are going to do well because of that. But still, you have a substantial amount of people that aren’t doing well and eventually they’re going to demand higher wages… If productivity gains don’t start to go up, you’re going to get some inflationary pressure from the bottom, which is then going to cause bond investors to be a little bit more concerned… which means you’ll have higher rates.”
“…Clearly right now in the debt market you are taking way to much risk for the opportunity and the return you are getting.”
There is more to the interview, so enjoy it above.
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