The Corporate Apocalypse - The Three Charts (Or Why Aren't Low Rates Working?)

Corporates are in relatively good financial shape and theory says should respond to high profits and cheap debt by investing more. However, while high ‘profits’ and low cost of debt are reasons for capex and opex to be rising more quickly than they are, these two critical drives of recovery show no signs of responding to these profit/debt incentives – and so as Citigroup notes “recovering is not booming”. Top-down, compared to history, capex is low, following P/E’s sentiment – especially in Europe (indicating a lack of confidence in the future). However, at the sector level this reverses: high capex has been given a low PE, while low capex has a high PE. The market is effectively encouraging companies to invest less and return more money. Longer term the consequences for economic growth, inflation and earnings growth are negative. It seems – as indicated by the relatively low level of net borrowing during a period of ultra-low interest rates and the market’s decision to demand low capex and more yield from companies – that the balance-sheet-recession mantra of debt-minimization over profit-maximization is in full swing in the corporatocracy – and we know from Japan that no matter how much extreme monetary policy is thrown at the wall, none of it sticks.

The Lower The Rate, The Less They Borrow

continue at ZeroHedge:

http://www.zerohedge.com/news/three-charts-corporate-apocalypse-or-why-low-yields-arent-working

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