Recap 10-25-13: Some Charts


Some interesting charts from a Blackrock call yesterday:

A key reason why profits are so high as a percentage of GDP:

Corporate Leverage is rising:

A point also noted by Goldman (and the Fed – there was an article on BBG today that the Fed warned banks against relaxing criteria for leveraged loans)

Debt has been used to buy back stock or M&A:

Price Volatility on the Barclay’s Agg is now higher than the coupon:

Also, here is an interesting Fed Paper:

Abstract: This paper explores the hypothesis that the rise in intangible capital is a fundamental driver of the secular trend in US corporate cash holdings over the last decades. Using a new measure,we show that intangible capital is the most important firm-level determinant of corporate cash holdings. Our measure accounts for almost as much of the secular increase in cash since the 1980s as all other determinants together. We then develop a new dynamic model of corporate cash holdings with two types of productive assets, tangible and intangible capital. Since only tangible capital can be pledged as collateral, a shift toward greater reliance on intangible capital shrinks the debt capacity of firms and leads them to optimally hold more cash in order to preserve financial flexibility. In the model, firms with growth options tend to hold more cash in anticipation of (S,s)-type adjustments in physical capital because they want to avoid raising costly external finance. We show that this mechanism is quantitatively important, as our model generates cash holdings that are up to an order of magnitude higher than the standard benchmark and in line with their empirical averages for the last two decades. Overall, our results suggest that technological change has contributed significantly to recent changes in corporate liquidity management.


  • UMichigan Consumer Confidence declined to 73.2 in Oct vs 74 exp and 75.2 prev
  • US Durable Goods Orders jumped 3.7% in Sept on the back of aircraft. The core measure, however, declined by -1.1%
  • German IFO declined to 107.4 vs 108 exp and 107.7 prev
  • Nationwide core CPI in Japan was +0.7% y/y in September, inline with expectations. Core core (ex-food+energy) was 0.0%, inline with estimates and not negative for the first time since December 2008.
  • Carney sets out dramatic easing on liquidity according to FT headline; Carney just published a speech in which he outlined new liquidity procedures for UK banks. The BOE will now offer money for longer periods, accept a wider range of collateral, including “any asset of which we are capable of assessing the risks” and lowering the cost of using the bank’s facilities
  • Harry Reid said he regrets being “too lenient” in earlier budget and tax talks with Republicans and that no deficit grand bargain will be coming from the new budget conference committee. “If you give a bully a dollar today, they ask for a dollar and a half tomorrow…it has taken a while for all my caucus to come to that understanding. And quite frankly, the president, wonderful man that he is, he doesn’t like confrontation and he likes to work things out with people.”
  • BBG: Fed Said to Issue Warning About Lax Leveraged Loan Underwriting Practices
  • Apparently Rand Paul threatened to put Yellen’s nomination on hold

Upcoming Data:

  • Mon: Italy Business Confidence, US Capacity Utilization, Pending Home Sales, Japan Retail Trade, Overall Household Spending
  • Tue: Germany GfK Consumer Confidence, French Consumer Confidence, US Retail Sales, Consumer Confidence
  • Wed: US ADP Employment, CPI, FOMC, JapanPMI, UK GfK Consumer Confidence, Australia New Home Sales, Building Approvals