May 30, 2014

Market conditions similar to 2007

Regardless of the direction of the news flow of fundamental economic or corporate profit data, the markets have moved ever higher over the past few weeks.

Furthermore:
    The VIX (and other fear gauges) have dropped consistently.
    The Investors Intelligence bull/bear spread has rapidly expanded.
    IPO activity is back.
    M&A activity is soaring -- the number of deals worth $10 billion or more are higher than both 2000 and 2007.
    Share repurchases have accelerated -- again, thanks to easy money and the funding of equity buybacks by bond borrowings).

All of the above conditions are back to 2007 high levels.

Memories of the last down cycle (and lax lending standards) have grown faint, as evidenced by the quality (and coverage) of the leveraged buyout deals in 2014 having deteriorated, with 40% of private equity leveraged buyouts being done above 6x earnings before interest, taxes, depreciation and amortization and, again, at the highest since 2007. Investment-grade and junk spreads have plummeted, and bond yields have declined to fresh 2014 lows. 


via http://www.thestreet.com/story/12724898/1/kass-prepare-for-a-minsky-moment.html

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