Chamath Palihapitiya, CEO of VC company Social Capital, has warned about a looming crisis in equity markets due to the issuance of low-interest debt. According to Palihapitiya, this might be the “biggest business secret hiding in plain sight right now,” as many companies won’t be able to refinance their debt, seeing their equity values collapse.
Social Capital CEO Chamath Palihapitiya Warns of Future Corporate Bankruptcies
Chamath Palihapitiya, CEO of VC company Social Capital, has warned about a crisis in equity markets that could develop as soon as 2024. Palihapitiya, whose net worth reaches $1 billion, states that corporate America might be close to experiencing difficulties due to the issuance of debt at very low-interest rates.
Palihapitiya stated:
It turns out that companies issued a ton of short-term debt during the pandemic at close to 0% interest rates. Hundreds of billions of dollars will come due starting Jan-2024 and will need to be refinanced at much higher rates.
The investor, who qualifies this situation as the “biggest business secret hiding in plain sight right now,” estimates that the debt wall of obligations to be fulfilled next year will put a “lot of pressure” on several companies.
Refinancing Crisis
Palihapitiya, also a big Bitcoin proponent, explained many of these institutions will not be able to fulfill their debt obligations, having their equity value and operations “incinerated.” Private companies will be hit heavily due to their specific circumstances.
Palihapitiya explained:
Prepare for a bunch of companies who will not be able to refinance their debt and will thus see their equity value incinerated. This will hit the private equity industry very acutely, whose core playbook involves wrapping their companies in gobs of high yield debt.
However, Palihapitiya believes there is also a silver lining behind this development, as this crisis will “create opportunities for those with capital on the sidelines to act as a buyer and recap the best of these companies.”
He expects that word of the potential corporate bankruptcy of these companies will start spreading on news sites this fall. Palihapitiya’s views coincide with other predictions that warn about a stock market crash.
Bank of America’s chief investment strategist Michael Hartnett stated in a note issued on Friday they were not convinced that the technical bull market would continue. “Still feels more like combo of 2000 or 2008, big rally before big collapse,” he concluded.
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