I wanted to share my response to a friend’s email on Friday, August 22, 2015.
Usually I don’t log in on weekends but yesterday was quite an event. It will be more interesting to see Monday’s activity to the better answer your question.
Friday was a fast market with a broad global sell off. When the morning started we were at the 6 month lows but it was the smallest of the 623 midyear lows since 1928. (Sunday I’ll re-calc the numbers based on Friday’s close). My point is that it is not unusual to have a painful adjustment of prices that measure economic circumstances. What remains to be seen is if this is a pause in a bull market or the beginning of a secular trend down. I’m betting on the former. Monday we could see more selling all day which will flush out the rest of the bull (a good thing) or see a bounce off the bottom into plus territory all day (which would mean we need to go south like this again) or we could see a strong bounce in to plus territory that closes with a deep sell off by day end (pray we don’t).
So based on that, to answer your question, a reduction in appetite for debt offerings at a potential firm will come from a major change in attention and focus by scenario number three. However that might likely be short lived because there are other factors unique to the U.S. economy that would preclude that distraction for too long (but let’s talk Monday if you want on those details).
The only thing I would be concerned with right now is political risk. Ahead of the election there are many proposals being floated about the student loan problem and firms will use that as a reason to wait on a decision –and I’m afraid that is a valid and normal protocol.
In our case I’m guess it is more than likely we can find an underwriter with a big vision and bigger balls.
Kevin J. Palmer
The Quiet Rich
