Michael Milken on Crises
Michael Milken on credit and crises in today's FT:
This illustrates the myth that investments currently in favour are safe. In two 1982 articles – “Nowhere to Go but Down” and “Nowhere to Go but Up” – I made the points that companies with few perceived problems tend to be priced for perfection; and conversely, that it is hard to bankrupt even weak companies, which nearly always rally when investors, management and labour co-operate to sustain them. Like more than 99 per cent of companies, these enterprises do not carry investment-grade ratings. But non-investment-grade companies create virtually all net new employment.
Finally, as I said in an academic paper nearly 40 years ago, investors need to understand that capital-structure risk should vary inversely with business risk. Companies with volatile revenue streams must avoid leverage and build their capital structure with substantially more equity than debt. Some should have little or no debt.
More here.