This page has been archived and commenting is disabled.
Is The Post-Crisis Corporate Re-Leveraging Rally Over?
Last week we pointed out the cognitive dissonance between the 'belief' that advanced economies are gradually (and rightly) deleveraging - as central banks maintain the status quo by kicking the can - and the reality of no actual deleveraging. Today, we look at the global corporate re-leveraging cycle that, as UBS notes, has struggled to gain traction after the initial recovery phase following the 2008/9 crisis. The corporate re-leveraging is broadly defined as trends in the use of cash as well as more active capital structure dynamics - a cycle that has ebbed and flowed over the last three years.
UBS Investment Research: Is that it for the re-leveraging cycle?
In 2011 we witnessed some encouraging trends: the corporate sector grew both dividends and capex by 15% and repurchased nearly 200% more stock versus 2010. In addition, net leverage increased on a global basis for the first time in several years – a positive given current low levels. This year, however, these trends are all set to weaken fairly significantly. Our latest edition of World Inc. shows forecasts for dividend growth slowing to just 5% and capex to 8%. Further, share buybacks are expected to shrink by over 30% and net leverage to drop.
The rolling crisis in Europe and continued uncertainty about the overall strength of the global economy has certainly played a role here insofar as these issues have impacted corporate confidence with regard to capital outlays and have also limited investment opportunities. Further, as our Asset Allocation team noted in a recent analysis, the opportunity cost of conservative cash management for the corporate sector has been minimal.
Given all of this then, it’s probably no surprise we’re seeing an apparent stalling out of the re-leveraging cycle. But while current opportunity costs may be low, a reluctance/inability for corporates to invest and/or return cash to shareholders is not without consequences.
Returns on capital are set to decline this year – the first time since before the financial crisis. RoE is being squeezed from all sides: asset turns, profit margins, and leverage. We continue to believe that leverage will be the most effective mechanism to support RoE in this environment. Increasing dividend payouts and repurchasing more stock would certainly help here.
With the corporate sector struggling to maintain aggregate earnings growth, it will be imperative – for both growth and returns – that the broader releveraging cycle not completely fade away (see illustrative charts below).
Charts: UBS
- 7707 reads
- Printer-friendly version
- Send to friend
- advertisements -





The Careless Whisper News Update & Threadjacking
QUOTE OF THE DAY: "LIBOR rate fixing was a consequence of not charging for bank accounts." (Sir) David Walker, Chairman, Barclays Bank
http://rt.com/business/news/banks-libor-account-fee-102/
Revealed: Eduardo Savarin's Personal Media Kit From "TheFacebook" 2004; Outlines Advertising Pitch
http://www.digiday.com/platforms/how-eduardo-saverin-sold-facebook-ads-in-2004/
The Honorable "Matty The Horse" Dead At 92
http://www.channel6newsonline.com/2012/08/li-mobster-matthew-matty-the-horse-ianniello-dies-at-92/
1968 Ford Sells For $11 Million At Pebble Beach Concours d'Elegance
http://www.latimes.com/business/la-fi-0820-mercedes-auction-20120820,0,3471123.story
Very interesting about what was the most ever paid in history for an American car.
Think that part of the reason, is that as America sinks into tyranny, there is a great fierce nostalgia for America's 'golden age', when America really meant something wonderful.
For the decade 1968-1976, America even did not have a death penalty! - almost European! - until Jimmy Carter allowed it to come back.
That 1968 Ford GT40 was used by Steve McQueen to help make the film 'Le Mans', and was driven by the racing driver David Hobbs, who has more recently been an announcer for North America's Speed Channel.
Here is a photo of the most expensive car in American history ... not really a Duesenberg, but a 'doozy' nonetheless
http://wheels.blogs.nytimes.com/2012/06/13/a-tale-of-two-ford-gt40s-will...
Is the stock market open today?
It's dead, Jim.
But Silver definitely has a pulse.
<...and a woody as well...>
Hey, here’s an idea for deleveraging.. I know first-hand how it applies to corporate and housing debt, but I just heard the term used for the first time in respect to municipal bonds.
“STRATEGIC DEFAULT”, as in ways to get out of union contract obligations and other local government overreaches.
Maybe it’s the municipalities that will swoop in on the Ponzi like a big black bird.
you want a reservation for when? bwahahaha
http://www.nickandtonis.com/
After causing 2 crashes, The Bernank is going to be careful about continuing the manipulation indefinitely. There will never be a time, while the Federal Reserve exists, that there will not be manipulation, going forward.
I have literally never seen such weak non holiday volume.
not until after the election. Ben has his orders from the bat phone.
here's dougNoland from his weekly wrap a few daze ago
Another week at the casino :> Read more
so either a type-O or the "junkies" are rolling over TONS of debt and mebbe getting cash and/or "CPA-generated digits" too! bot? all tree? fo? mofo?
what i find noteworthy is that the Ts are "losing value" to junqueBlondes? risk w/ an election erection? anyhow, this is riskOn till somebody starts slashing tires, apparently...
...hooligans everywhere... freePussyRiot <: recent photo...
...it depends on the meaning of 'over' ?But what about Yahoo Finance's story?:
3 Reasons Why This Rally Is Real and Will Last
http://finance.yahoo.com/blogs/breakout/3-reasons-why-rally-real-last-160442234.html
Every reader gets a free set of pom poms!
Yes, the rally is probably over until another round of pumping starts. If any more wealth flows out of Treasuries, this cheap money addicted economy is going to be crushed by "high" borrowing costs.
Fake, fake, fake price action in the ES as usual. In case everyone doesn't know, the goal here is to keep the market propped up through Sep expiration so the squid et al can rake in the profits from all the puts/protection bought for August... Remember all the scary write-ups and proclamations made by the TBTFs in late Spring/early summer about how things were looking like a blueprint of last year... so BEWARE of August. And now... Susprise! market magiclally drifts higher thanks to the ES trade-bots all through the month.
Exact same playbook as Dec - Feb. During another brutally low volume time period... Christmas, the market started magically floating higher, sticking it to everyone who had bought protection in the fall. Rinse, wash, repeat.
So here are the ingredients needed for a phony rally: A semi-scary selloff of maybe 8% or so. Accompany that with some leaked white papers from the squid, telling of scary times ahead... herd everyone into protection. Then wait for a notoriously slow trading period - Christmas or August - and creep the ES higher.
and you thought the internet bubble was a complete fraud. This trumps it big time!
Please click to balance the budget:
https://petitions.whitehouse.gov/petition/all-congressmen-senators-amp-p...
"Last week we pointed out the cognitive dissonance..."
Been seeing more and more cognitive dissonance lately. Must be a trend. Unfortunately peak Cognitive Dissonance is further away than you might think.
The first law of Cognitive Dissonance is......"A mind in denial tends to remain in denial."
Like the tulip bubble, these dissimulations, machines and artifices aren't exactly new to mankind.
Oil
In other news, Lowe's misses and trims outlook. Glad this has nothing to do with the stock market.
WTF - why dio they even bother opening this POS anymore? I didn't think it would be possible - but it looks like another record low volume day. won't be too long and a 500 contract day will be considered Heavy volume
So, apparently, we need more debt?
*
** * *
A corporation reaches enlightenment when it fires ITS LAST employee and buys back THE ONLY SHARE left.
It becomes global, omnipotent, and priceless...
Algos will divide by zero and the stars will fall from the sky. * *
* *
What does that mean when the market closes and it says $SPX $Change -.04 in red? I'm not sure I've ever seen anything like that before...
It simply means that the fucking robots that are controlling this manipulated piece of shit are deathy afraid to let ANY selling gain a foot hold - bcause there is NO MARKET UNDER THIS MARKET - therefore - if and when the selling REALLY Starts - the CRASH that ensues will be of Biblical Proportions
Yet it remains an arcane mystery why the market despite all manipulation has a habit of ending red on Mondays.
Seriously, how can anyone look at Shanghai market and think "everything will be just fine"???
In China, "everything will be just fine" is an order, not a suggestion.
Edit: Wait, did I say China?
Though I am still waiting for it the real danger point will come (as it has before) when margins begin to diverge from EPS (i.e. EPS is made from leveraging eg share buybacks rather than sales). In particular, when EPS continues to decrease while margins compress, it is a sign that a bubble is probably forming (after the jump).
http://www.adsanalytics.com/dashboard/docs/dashboard.php?treepage=tree_d...
J.S.