More Leveraged Than 2007

Northern Europe’s biggest private equity fund, according to Bloomberg, says it now sees debt “asset bubbles everywhere we look” as a result of the major central banks’ hyperinflationary policies. Thomas von Koch, managing partner at EQT Partners in Stockholm, told Bloomberg that “history offers little help in predicting how this will all end. There are financial bubbles being built up and how they’ll be solved, I don’t know. It’s the asset bubbles in general that concern me. It’s wherever we look.”

Koch says that debt levels are approaching those recorded in 2006 and 2007, just before the global financial crash.

These debt dangers are, of course, concentrated by the use of derivatives of roughly $1 quadrillion in nominal value. ZeroHedge picked up a report circulated Feb. 13 by Citibank Research, which for some reason surveyed 43 other banks, hedge funds, etc. on their use of credit derivatives. The survey found that
“…there seems to have been a shift from using derivatives as a hedging tool [35% doing this], to using them more for alpha generation [60%] as most products [sic] are now used more for adding risk and directional views.”
“Adding risk” in bankerspeak means increasing leverage by more debt; “alpha generation” means attaining exceptional profits, which is usually accomplished by debt leveraging.

Recall hedge fund vulture Paul Singer’s recent comment about the gargantuan bubble of derivatives, that “if even a small portion of them represent directional trades and not hedges,” that makes the potential for a global financial crash.