Here's how the corporate merger explosion could accelerate a market crash and make the next recession even worse

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M&A has picked up in the last few years, and that activity is creating a major side effect that could hurt the stock market and broader economy.

right now? For one, it now makes up a record share of total assets for US nonfinancial companies — something Moody's says is inevitable in an age when technological advancement and brand enhancement are key.

Considering equity markets take their cues from drivers like balance-sheet strength — as well as more immediate measures of credit quality like profitability and cash flow — it's possible a major goodwill squeeze could accelerate a broader stock meltdown. At the core of the situation is a potentially lethal double whammy: goodwill is more more vulnerable during market downturns and there's way more goodwill overall in the market right now.

"Asset write-downs or impairments consequently increase in periods of widespread market devaluation when earnings and cash flow expectations deteriorate," Moody's wrote in a recent report."Such write-downs, if more dispersed than in the past, could put further strain on balance sheets in a time of weakness, amplifying the already negative effects of an economic downturn."

 

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I didn’t go anywhere else. Who else is coming? Who else’s umbrella is it? He was not in the room, so I had to look elsewhere.

We spend to much time looking for ad hoc indicators for the next crash sometimes it’s correct sometimes not. But what is the root cause of all crashes? Debt/Leverage and it’s usage. Therefore we as a firm look to that and think of the systemic aspects to it. Scaling our efforts.

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