Think you like to shop? You’ve got nothing on Corporate America. Year-to-date, US. corporations have borrowed $439 billion – 33% ahead of last year’s pace record pace. Banks are providing loans freely without taking into account the varying risks of each situation.
Whether it's to the prestigious Procter & Gamble (PG) or a speculative biotech, they're providing a loan at much the same rates. This easy access to capital has some of the world biggest investors and bankers very nervous.
Earlier this month, Bank of America (BAC) Chief Executive Ken Lewis said this relaxed lending will backfire. And PIMCO portfolio manager Mark Kiesel told CNBC “The biggest risk facing the corporate bond market right now is that you’ve got the significant growth in private equity and hedge funds. And they are basically attacking company’s capital structures. Putting more debt on companies at a time when the economy looks like it’s set to slow,” he adds.
So as the barbarians load up companies with debt and the riskiest companies get loans for near the same rates as the safest, a dangerous credit bubble may be developing.
To be sure, corporations have near record cash on their books so they have had no problem paying off these loans so far. Making some say we could be a long way off from facing the consequences.
“Well I think the bull case for stocks is one based on strong fundamentals, massive global equity, said Michael Darda, Chief Economist, MKM Partners.
“A global boom that’s continuing and really this idea of having our excess liquidity cake and being able to eat it too”
Though as Bank Of America's Lewis warned, one bad deal could set of a domino effect. “As the default rate picks up lenders will go from wanting to lend to not wanting to lend,” adds Mark Kiesel.
Behind the corporate credit bubble that’s Thursday night’s Ratigan Report.
Click here to read The Ratigan Report: The Credit Bubble Pt. 2
Ratigan Report Pt. 1
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Trader disclosure: On May 24, 2007, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s Fast Money were owned by the Fast Money traders:
Najarian Owns (JPM), (SPF), (MU, (EMC), (BIIB), (FITB); Bolling Owns (T), (DIS), (ICE), (NMX), Gold, Silver, Coffee, Sugar