Debt Is Growing Faster Than Cash Flow By The Most On Record

By now it is a well-known fact that corporations have no real way of generating organic growth in this economy, so they are relying on two things to boost share prices: multiple expansion (courtesy of central banks) and debt-funded buybacks (courtesy of central banks), the latter of which requires the firm to generate excess incremental cash. Incidentally, as SocGen showed last year, all the newly created debt in the 20th century has gone for just one thing: to fund stock buybacks.

The problem with this is that if a firm is going to continue to add debt to its balance sheet in order to fund buybacks (and dividends), then it needs to be able to generate enough operational cash flow in order to service the debt. Even if one makes the argument that debt is cheap right now, which may be true, or that central banks are backstopping it, which is certainly true in Europe as of a month ago, the fact remains that principal balances come due eventually also, and while debt can be rolled over, at some point the inability to generate cash from the operations catches up with them; furthermore even a small increase in rates means the rolling debt strategy is dies a painful death, as early 2016 showed.

In the following chart we can see net debt growth skyrocketing nearly 30% y/y, while EBITDA (cash flow) has been contracting for the past year. In fact, as SocGen shows below, the difference in t

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