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Comment: Letter from America

Andrew Morris (pictured), managing director of Signature, a trading name of Rowan Dartington, on the current state of the markets and levels of company debt…

Due to a combination of the Jackson Hole gathering and hurricane Irene, all eyes have again been on the United States. The country appears to be holding its breath for the feared economic slowdown. With both Bernanke and Obama caught in a financial straightjacket with little or no wriggle room, there was almost an air of resignation hanging over the nation.
However, here’s something to cheer everyone up. Constituents of the FTSE 350, ex the financial sector, cut their debt by some £57bn over the last two years reducing their collective level of gearing to the lowest level since 1993. Such a position highlights the robust state many companies, both here and across the Atlantic, are in. Albeit, this does also reflect a level of caution amongst management teams, given the continuing uncertainty in the global economy. In the very short term such a position is very reassuring as certainly much of the Global selloff in equities 2008/09 was a consequence of companies being encouraged to have far too much debt on their balance sheets.
Balance sheet strengths bode well in challenging times and emphasise the hidden value in the current climate. Let’s therefore hope the fear of a recession is worse than the reality.

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