Last Two Times This Happened, Stocks Crashed

[marmar]

By Wolf Richter, a San Francisco based executive, entrepreneur, start up specialist, and author, with extensive international work experience. Originally published at Wolf Street.

Global growth is languishing, corporate revenues too, but CEOs are trying to show they can grow their companies the quick and easy way. Cheap debt is sloshing through the system while yield-hungry investors offer their first-born to earn 5%. And this cheap debt along with vertigo-inducing stock valuations have created the largest M&A boom the US has ever seen, with May setting an all-time record.

There may be a sense of desperation among CEOs as the Fed’s cacophony evokes interest rate increases, the first since July 2006. So companies are issuing all kinds of cheap debt while they still can. Bond issuance has totaled over $100 billion per month in the US for the past four months, the longest such streak ever, according to Bank of America Merrill Lynch.

And that record issuance doesn’t account for the booming “reverse Yankee issuance,” where US corporations take advantage of the negative-yield absurdity Draghi has concocted in Europe and issue euro-denominated bonds into European markets.

“Issuers should realize that the window to lock in low long-term yields for any purpose is closing,” Hans Mikkelsen, a senior strategist at BofA, wrote in a note, according to the Financial Times. And so in May, M&A deals hit an all-time record of $243 billion.



US-M-A-record-months-May-2015-May-2007-Jan-2000The prior two record months: May 2007 ($226 billion) and January 2000 ($213 billion). Not long after those records were set, markets crashed with spectacular results. ....................(more)

http://www.nakedcapitalism.com/2015/06/wolf-richter-last-two-times-this-happened-stocks-crashed.html

[Warpy]

1. I'm certainly expecting it, the market is hyper inflated

The problem is that the common perception will be that there is no money left, and people will curtail spending even more than lousy wages have forced them to. That's why big crashes often usher in depressions. Add to that the fact that few people out of the top 10% have seen any sign of recovery over the last 8 years, and the recipe for disaster is there.

[marmar]

2. Agreed.

[RiverLover]

3. And it will be Welfare Time for Wall Street again when we bail them out.

We just had to cut Billion$ in food stamps, but will somehow manage to find the money for our too big to fail banks, who gamble risk-free with taxpayer money.

[Angry Dragon]

4. NO!!

It would be time to break them up.
Let them fail.
Throw the bastards in jail.

[erronis]

5. So why is it that us common folk can see the writing on the wall

And the stars of the economic/political universe keep saying "It's OK. We have it under control."

Alan Greenspan was no better than all the liars that promote war and chaos. I think that most of the president's economic team are lying us into another position where there is profit to be made.

With the congress bought and paid for, signed, sealed, and delivered; the SCOTUS majority has been brain-snatched; that leaves a presidential election that _might_ rescue us. Why do I feel nervous?