The Corporate Debt Bubble and Potential Winners

The Corporate Debt Bubble and Potential Winners

By Daniel Goldman | Trading Politics | 14 Sep 2019


As some are starting to point out, corporate debt is becoming incredibly worrisome, especially with negative yielding debt. As a percentage of GDP, corporations are holding more debt now than before the "great recession." Perhaps more importantly, a good chunk of global corporate debt is negative interest yielding debt. The current state of corporate and government debt is unprecedented. Moreover, I still believe that US government bonds will start yielding negative nominal interest. The only reason the US hasn't pushed its interest rates into negative territory is because other countries have lowered their interest rates more rapidly. 

When reality finally sets in, things are going to be bad. A lot of corporations are going to be in serious trouble. Overall, negative debt will be bad for government, investors, and corporations alike. But instead of looking at the potential losers in this whole mess, perhaps it might be better to look for potential winners, and I can see two industries that could easily rise from the ashes of whatever crash ends up coming in the future, whether it happens quickly, or takes quite a while.

Specifically, the cannabis and blockchain industries, which have not been able to operate with the help of traditional financial institutions, have the potential to weather the storm quite well. Additionally, both of these industries have been stiffed by various regulations and a significant degree of regulatory uncertainty, which is often worse than the regulations themselves. 

While there are loan options available for the cannabis industry, the fact that it is still deemed to be illegal, on the federal level, at least in the United States, means that no federally chartered bank is allowed to touch these businesses. It's also why stock exchanges refuse to list these businesses, even ones that don't actually produce or sell cannabis itself, as was the case with MassRoots. 

Meanwhile, blockchain and cryptoasset companies have been denied access to traditional banking services, because the banking industry is frightened by the unjustified conflation between crypto and illegal activities, such as drug sales. In fact, Coinbase recently lost lost Barclays and Santander UK has halted payments to Coinbase as well. While this issue may be related to Coinbase specifically, other firms have had to rely on risky banking institutions. This lack of traditional banking has, in some cases, resulted in significant loss of funds.

However, as these two industries continue to grow, and recognition from the financial industry increases, or robust alternatives to the traditional financial industry, that comes from the crypto space itself grows, these two industries, which have long been held back, will be able to flourish, just as seedlings begin to sprout and grow an entirely new forest after the devastation caused by a wildfire brings the previous iteration of the forest to ashes. 

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Daniel Goldman
Daniel Goldman

I’m a polymath and a rōnin scholar. That is to say that I enjoy studying many different topics. Find more at http://danielgoldman.us


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