The market for risky bank loans that fuel leveraged buys out deals hitting speed bumps – end of the bull market?
Alex Hernandez
Jul. 13, 2007

The risky bank loans that fuel the merger mania of these days are finally hitting speed bumps. Prices of many corporate loans fell significantly over the past month. Meanwhile, some new loan sales have been seeing lackluster demand from investors, a potential challenge for the corporate buyout boom, which many loans are helping to fund.

This can mean and end of the M&A bubble and hence the end of the bull market. 90% of the last 100 rallies were fueled by takeover news and M&A activities. As M&A activities slowdown, the stock market will naturally plunge into a bear market.

But there is one catch. China is planning to enter the M&A funding market in America. In addition, increasingly, mutual funds are in a race to provide better performance have entered the buying the bank loans. These mutual funds are in trouble. Redemption will dry out further liquidity in these markets.

Investors can eventually feel the pinch. The loans that fuel M&A in essence fuel the stock market rise. There is early indication that the easy money for stock market may be coming to an end.

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