How important is debt financing to the market?

[son of baglimit]

from what i was beginning to read, and is now more & more evident, the lack of willingness of the financial markets to put up the cash for someone ideas on how to become bigger & more profitable is starting to bite.

i think a little generalising will be good in this thread, so go ahead.

it appears with the lenders not willing to lend, the spenders cant spend, and the buyers, without income & therefore cash to buy, go home empty, and the sellers losing trade and laying off the buyers, and neither of them not willing to borrow, .............

nasty cycle isnt it.

over to the economic experts

 

[reece55]

Re: how important is debt financing to the market ?

from what i was beginning to read, and is now more & more evident, the lack of willingness of the financial markets to put up the cash for someone ideas on how to become bigger & more profitable is starting to bite.

i think a little generalising will be good in this thread, so go ahead.

it appears with the lenders not willing to lend, the spenders cant spend, and the buyers, without income & therefore cash to buy, go home empty, and the sellers losing trade and laying off the buyers, and neither of them not willing to borrow, .............

nasty cycle isnt it.

over to the economic experts

The free ride is certainly over.....

What's even worse from no money for new ideas is that now there is no money for existing businesses that require debt to continue to fund their businesses..... Or, as I suspect will be worse, the interest rate demanded by financial institutions that fully factors in an appropriate risk premium will drag a lot of business that are now packed up on acquisitions down to financially unviable levels.

Have a look at what the market thinks of our property sector now - the S&P property index was down 11.8% and whilst CNP made up a lot of that loss, take a look at the rest of the sector - see Goodman Group, which got hammered a humble 25% on, as they said, nothing. Any entity that relies on the recycling of debt to fund their business is now in trouble if they haven't locked in their debt well in advance........ I wonder how the magicians at Macquarie are feeling now??????

Cheers

 

[dhukka]

Re: how important is debt financing to the market ?

What you are describing in a roundabout way is deflation or a contraction of credit. Here is my poor attempt at explaining why I think deflation will be theme in 2008 not inflation.

Here is a much better explanation from a more informed source:

And then there is the source I respect even more Nouriel Roubini:

Third issue: would monetary policy easing cause a much higher inflation rate and undermine the anti-inflation policy credibility of the central banks? After all inflation rates are now rising around the world thanks to high and rising oil, energy, food and oher commodity prices. My answer to the question above is no as a US hard landing followed by a global slowdown will seriously reduce those inflationary force and would – like in 2001-2003 – rather induce serious deflationary risks. Inflationary pressures may be elevated now but they will fizzle away in short order once the US hard landing is in full swing. Thus, the central banks current concerns with a rise in inflation are misplaced as a US recession will lead to global disinflation (and concerns about deflation as in 2002-2003). There are at least four reasons why these global inflationary forces will abate once this US hard landing occurs:


a) a fall in US aggregate demand relative to supply;

b) a slack in labor market conditions and slowdown in wage growth as the unemployment rates sharply increases;

c) a fall in global aggregate demand as the glut of output from overinvestment in China and some other emerging market economie will face a fall in global demand as the world re-couples with the US hard landing;

d) a sharp fall in oil, energy, food and other commodities prices as a global slowdown emerges.

We are thus set for the repeat of the 2000-2003 cycle when the Fed and other central banks underestimated the downside risks to growth and overestimated the upward risks to inflation and ended up having to aggressively cut rates to deal with the fall in economic activity and the deflation risks that such a US and global recession triggered.

 

[Smurf1976]

Re: how important is debt financing to the market ?

from what i was beginning to read, and is now more & more evident, the lack of willingness of the financial markets to put up the cash for someone ideas on how to become bigger & more profitable is starting to bite.

i think a little generalising will be good in this thread, so go ahead.

it appears with the lenders not willing to lend, the spenders cant spend, and the buyers, without income & therefore cash to buy, go home empty, and the sellers losing trade and laying off the buyers, and neither of them not willing to borrow, .............

nasty cycle isnt it.

over to the economic experts

Yep, basically a classic credit contraction.

End result? Probably recession and it has essentially nothing to do with who is in government etc - politicians are virtually powerless to stop it.

IMO we'll see a serious deflation scare in 2008 (globally) to be followed by the biggest round of inflation any of us have ever seen. That's the pattern - find an excuse and then inflate to the max.

 

[numbercruncher]

Re: how important is debt financing to the market ?

The world economy is a RaceCar, Years ago the fed had the tank full with cheap easy credit and a lead foot, we are now somewhere between E and 1/4th of a tank, the Fed is desperatley waving the refuel flag in pit lane but it seems our brake pads have worn out, what to do?