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I think there are definitely systemic risks which could hit the US economy (small recession due to everyone cutting back spending to weather the recession, resu
by ummonk 7y ago
I think there are definitely systemic risks which could hit the US economy (small recession due to everyone cutting back spending to weather the recession, resulting in poorly profitable zombie firms - many of them retail firms - being unable to service bad corporate debt). It's noteworthy that we've been seeing retail bankruptcies like Sears and Payless in a consumer economy this good - what happens to other retailers when the sentiment turns for the worse? Note that low fed rates won't necessarily keep the cost of servicing debt low, if investors anticipate potential bankruptcies and flee from poorly-rated bonds.
And yes, the big tech companies would certainly see revenues hit hard by such a scenario - but the big tech companies have plenty of cash to weather the storm.
- ethbro 7y agoSears (and possibly Payless too) were mortgaged past the point of sustainability. That's fundamentally different from firms that accrued a lot of cheap debt, but have an ability to service it even under conservative revenue models. If I have 10%+ profit margins and could increase my revenue with additional capital, why wouldn't I sell as many bonds as the market will eat, at current prices? Provided I'm not expanding in financially risky ways (e.g. opening new stores or other delayed-revenue choices), there's not much consequence even if the music stops playing. Which is why you saw Ford and GM announce they're hording enough cash for multiple years of downturn.