top of page
.png){kind=small}
Selected Insights from the Gansalo Capital Research Library
A strong indicator of extreme risk tolerance in the financial system – and warning signal that the equity market will soon drawdown – is when the additional risk premium for junk debt over investment grade debt falls near or below the risk-free rate. When that happens, a recessions is almost certain.
It is difficult to estimate, with reasonable confidence, the intrinsic value of a company. A careful attempt at such analysis will yield, at best, a wide confidence range around the value estimate that will render the analysis un-useful. It is much easier to determine a bargain price for a company relative to the investor’s required rate of return. This paper describes a framework for that.
VIX oscillates between extreme levels that coincide with those of credit spreads. With the right strategy, profits can be generated from the oscillation. For example, a strategy that is long any liquid ETN that tracks VIX when VIX reaches its floor and exits when VIX peaks will produce alpha. There is risk that the ETN will decay over time when VIX futures are in contango, though that risk is controllable.
The same driver of economic growth sets in motion the conditions for an economic contraction. The driver of growth is the availability of credit in the economy; when credit is abundant and used, growth will accelerate in the near term but will decelerate in the future as the ensuing debt becomes a burden on the economy. The debt will constrain growth until it is dissolved. The opposite is true when credit is scar.
bottom of page