We are back in another ‘epic credit bubble’ according to Blackstone; who is the Fed/government going to blame this time when it collapses?
“They can’t blame mortgage lenders, Wall Street, the bankers, securitization, and poor regulation this time. I guess they could still blame the rating agencies and institutional investors, because not much has changed there? To me, it’s obvious that the Fed’s low rates and easy money is causing this current credit bubble, as institutional investors who manage ‘other people’s money’ are forced to capitulate and chase higher-risk (credit and/or duration risk) assets to enhance short-term yields or risk being fired. This time, the Fed itself has touted its role in inflating bonds and stocks and creating “wealth-effect” economic spending. To me, this current credit bubble reveals the truth; that the Fed’s monetary and interest rate policies were a key cause of the 2000’s global asset bubbles and busts and the 2008 global financial crisis.” Mike Perry, Former Chairman and CEO IndyMac Bank
Blackstone: We’re in an ‘epic credit bubble’
Published: Friday, 27 Sep 2013 | 10:49 AM ET
One of the world’s largest investment firms believes the financial system is overly leveraged.
“We are in the middle of an epic credit bubble, in my opinion, the likes of which I haven’t seen in my career in private equity,” Joseph Baratta, The Blackstone Group‘s global head of private equity, said Thursday night at the Dow Jones Private Equity Analyst Conference in New York City. “The cost of a high yield bond on an absolute coupon basis is as low as it’s ever been.”
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Baratta said Blackstone is “bullish” on the U.S. economy, but the “valuations we have to pay relative to the growth prospects are out of whack right now.”
Baratta said the U.S. still has “clear headwinds” and is “range bound” between 1 percent and 3 percent economic growth.
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Blackstone, which manages $53 billion in private equity assets and $230 billion overall, is pursuing select investment opportunities in energy, transportation infrastructure, consumer finance, housing and construction, according to Baratta.
“We’re not just levering up U.S. GDP into multiples today,” Baratta said. “I do expect mean reversion to happen at some point on interest rates, on credit spreads, on the cost of some investment grade corporate credit.”
The high valuation of many companies today makes it harder for them to grow. “The biggest risk to returns of this vintage is that exit multiples are depressed,” Baratta said.
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