US Economy

Altman: Bond activity no sign of upward economy

Is weakness driving M&A?

Recent strength in the corporate bond market is not necessarily a sign the economy will improve significantly, Evercore Executive Chairman Roger Altman said Monday.

Altman made his comments in response to a Wall Street Journal article that suggested record bond sales by companies with good credit ratings in October was an upbeat sign for the economy. Corporate bond sales reached $103 billion in October, the Journal reported, citing Dealogic.

"I think that's a sign … marginally, of relative confidence, but it's a sign of confidence in the status quo, not a kind of resurgent growth," Altman told CNBC's "Squawk Box."

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Altman noted that several forecasts suggest the U.S. economy will continue chugging along at 2.5 percent growth.

"I think the good news is that it's pretty predictable. I don't see any scenario under which we have a recession. I think the bad news is it's slowing, and so I don't think that bond surge is a sign of anticipated upward movement in the economy myself."

The uptick in merger-and-acquisition activity is also coming from a position of corporate weakness at the margins rather than strength, Altman said.

While he said every deal is different, he noted that top-line growth has been weak and therefore companies are attracted to the potential to attain synergies.

"Reasonable mergers generate substantial synergies, so that provides for earnings and cash-flow growth even if it doesn't provide for revenue growth, and I think that's a big driver," he said.

One slice of the mergers and acquisitions market in which Altman sees no signs of decline is tax inversions.

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Relentless pace of tax inversion 'unfortunate': Roger Altman

In an inversion, a U.S. company sets up or buys another company in a country with a lower corporate tax rate and then calls the new country home — thereby dodging U.S. taxes it would otherwise have had to pay.

Last week, Ireland-based Allergan confirmed that it is in preliminary talks regarding a potential deal with U.S. drug company Pfizer, raising questions about another pharmaceutical tax inversion.

The U.S. Treasury Department has taken steps to curb the appeal of the strategy, but several large inversion deals have been struck despite those measures.

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The pace at which companies are embarking on inversions will not slow down until the gap between corporate taxes in the United States and offshore locations narrows, Altman said. That in turn will not happen until the U.S. tax code is reformed, which is unlikely until 2017, following the next presidential election, he said.

The United States has the highest corporate tax rate — 39.1 percent — among industrialized nations.

"The rather relentless pace of inversions ... is unfortunate. It's not good for the country. It's not healthy in various ways, but until those differentials are closed, or at least largely narrowed a lot, I don't think the pace of these is going to change, so we're going to see more of them," Altman said.

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