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0 pointsdev-ns86y ago0 comments

I look at it this way. Your essentially buying a companies future earnings by buying their stock. For some time here, corporate earnings are going to take a hit. B2C probably the hardest, but B2B will also feel the effects, ripple effect if you will. The strain these quarantines are putting on Small business owners will also ripple into the larger corporate companies that the market is composed off because these SBO are the consumers too.

I don't have a full understanding of the Repo market, but I do get it at a moderate level. I understand that it acts as the "lube" to our financial system and It's obvious it's not functioning correctly. What effect will this happen on the growing corporate debt that's out there? What effect will the lower revenues have on the ability for business' to pay back the debt and interest?

These are questions I have, but don't necessarily have factual answers for. However I don't feel good about the answers to them and for that reason do think were in for a recession.

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raincom6y ago· 2 in thread

repo markets don't help corporate debt at all, as long as the federal reserve don't accept the commercial paper (corporate debt, in other words). The moment the fed accepts commercial paper as collateral, yes, it does. However, this will lead to a bigger problem.

If S&P drops ratings for many companies, many banks will end up holding bags; in which case, the fed will come to rescue these banks.

dev-ns8OP6y ago

> "repo markets don't help corporate debt at all"

I'm not sure I agree with this statement. The repo market may not help or hinder corp debt directly, but I think it very much so effects corporate debt.

Corporations presumably get their loans from banks. What facilitates banks to make these loans? The Repo market. What happens if the repo market collapses / shrinks / endures instability? Banks most likely, would not be able to make as many loans and the rate for future loans would increase due to lower supply and higher demand.

On top of future loans, this could have a negative impact to current outstanding loans held by corps. I'm not 100% sure the terms of corporate loans, but if they have variable rate loans with banks, this shrinking of loan supply coupled with increased demand for liquidity would surely hurt some of these corporations.

raincom6y ago

Even before issuing loans, banks look at market conditions and ratings. In the present scenario, banks will stop giving loans to companies. When Fitch and S&P cut down ratings for many companies, banks become reluctant. Yesterday, the federal reserve agreed to take commercial paper with certain ratings.

What repos do: swap one kind of IOU (I owe you) with another kind of IOU. This doesn't make banks to issue new loans to distressed companies, any more than you/I can give loans to a dead beat. During good times, everyone is happy to issue loans.

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