Economists warn: US stocks may be brewing a "subprime crisis-style" bubble!
The US stock market is showing signs of a dangerous debt bubble, with economists warning that it could spread to the entire financial sector. While most economists do not believe that a subprime mortgage crisis-like situation will occur, some heavily indebted and unprofitable companies are already facing difficulties. The losses of these troubled companies could contaminate other market sectors, making it crucial to strengthen scrutiny of non-productive, highly leveraged assets to avoid a financial crisis. In addition, Wall Street experts are also expressing concerns about the US stock market and the increasing corporate debt
An economist and investment veteran has stated that the US stock market is showing signs of a dangerous debt bubble, which could potentially "spread" its losses.
Former Goldman Sachs employee and current head of Versaca Investments, Dambisa Moyo, pointed out that the US stock market may be incubating the most harmful type of debt bubble, with losses potentially spreading throughout the entire financial sector.
Moyo wrote, "Signs of a bubble in the financial markets are evident. Such a trend has indeed raised concerns about a new debt bubble in the US stock market."
Moyo stated that what is more concerning is that the US may be experiencing the most challenging type of bubble, driven by highly leveraged and "non-productive" assets. These assets cause more harm to the economy than productive assets and assets financed through cash or equity.
She added, the "best" example of such a bubble is the subprime crisis, where an oversupply of housing and high-risk loans led to a one-third drop in house prices.
Most economists do not believe a similar situation will occur today, thanks to stricter lending standards in the banking industry. However, Moyo pointed out that many seemingly highly leveraged and non-productive companies appear to be financing in the shadow banking sector, where debt is almost unregulated.
Some heavily indebted and unprofitable companies are already facing difficulties. According to S&P Global data, corporate bankruptcies are rising at the fastest pace since the pandemic began, with bankruptcy filings in June rising to 346 cases.
Moyo added that the losses of troubled companies could also contaminate other areas of the market. Moyo stated, "While losses suffered using accumulated savings have limited impact on the overall economy, losses suffered using 'borrowed' funds, especially highly leveraged funds, could be contagious. It is risky for systems with opaque sources and forms of capital behind many investments. Strengthening the review of non-productive, highly leveraged assets is crucial to avoiding a financial crisis."
Other Wall Street experts have also expressed concerns about the US stock market and the increasing corporate debt, especially in a market where valuations are so high. According to a valuation indicator, US stocks appear to be more overvalued than ever before, even exceeding levels seen in 1929