Wednesday, December 2, 2015

The Corporate Financing Gap.......ANOTHER PESKY FACT!

The Corporate Financing Gap

The corporate financing gap, the difference between organic cash flow and the outflow on dividends and buybacks.

The current deterioration in the credit market is particularly worrying at a time when corporates are becoming more and more dependent on external sources of liquidity. The US corporate financing gap – has turned strongly negative. 

In the past, when the financing gap went strongly negative, the next downturn was just around the corner.

And here is the chart which suggests the next downturn may be "just around the corner."



Will it be different this time?

Any attempts to extrapolate profit margins, the lifeblood of corporate cash flows, suggests that much more pain is ahead: If we were to perform a simple modelling of NIPA margins, using as inputs the unemployment rate, wages and nominal GDP growth, we get as a result a clear deceleration in profit margins next year.



The Next Recession "Is Just Around The Corner!"

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