Koo asserted that Japan was hampered by slow growth for years because its companies were paying down debt to repair their balance sheets instead of investing to maximize future profits. In 2011, Koo
argued the entire world could be heading down this path, but it never became a major theme of discussion. I’d venture to say that now, his moment has arrived.
And this is where Mr. Reynolds comes in. He warns, in a note to clients, that the market (specifically, forward Libor) is implying an ever slower recovery next year than what we saw in 2009. “The massive growth in debt and transformation of balance sheets will change the focus of companies to
debt buybacks in coming years,” he cautions.
The switch to companies minimizing debt--which can also take the form of equity issuance--instead of buying back stock ”[will make] for a less intense equity bull market than the last three” that we have experienced, Reynolds says.
www.cnbc.com
