– Founder and CIO Niels Clemen Jensen flags up potential liquidity squeeze –
ARP founder and chief investment officer Niels Clemen Jensen is flagging up the risk of a US recession amidst a potential liquidity squeeze among lower-quality US corporates.
– Founder and CIO Niels Clemen Jensen flags up potential liquidity squeeze –
ARP founder and chief investment officer Niels Clemen Jensen is flagging up the risk of a US recession amidst a potential liquidity squeeze among lower-quality US corporates.
Jensen warns in ARP’s January note that tighter lending faced by lower-quality stocks in the US has put pressure on corporate debt levels lately, with many such companies turning to cash to run their businesses. As a result, corporate debt levels – which have been rising in recent years – could once again begin to fall, putting the squeeze on liquidity.
Such a tightening of liquidity conditions would almost certainly result in a recession, Jensen observed. “Tightening liquidity conditions equal decelerating money supply growth which leads to reduced bank lending – ie slower velocity of money which affects GDP negatively.”
Jensen, whose institutional investment consultant and multi-manager fund provider runs the ARP Diversified Futures Fund and ARP Energy Fund, cautioned against the “widely perceived” view held among US investors that “everything will be fine” once the protracted US-China tariff war is resolved.
“The liquidity issue I am raising here has nothing whatsoever to do with the trade war and everything to do with a change in investor behaviour and the ensuing change in corporate behavior,” he observed.
Last month the US and China agreed in principle a truce in their continued tariff standoff, with the so-called ‘phase one’ deal covering a range of areas including agricultural products and intellectual property.
Jensen said: “Let’s assume corporate debt levels don’t rise by 5 per cent in 2020, as they have done more recently, but instead fall by 5 per cent. Such a reversal would take USD2 trillion of liquidity out of the US financial system – ten times more than the Fed can inject by cutting interest rates to zero.”
London-based Absolute Return Partners runs the ARP Diversified Futures Fund, which invests solely in the USD8.8 billion Winton Fund, the flagship strategy of systematic managed futures hedge fund Winton Capital Management, launched by AHL co-founder David Harding.
The ARP Energy Fund, which launched in 2016 with USD1 billion in assets, offers investors multi-strategy exposure to energy markets through a concentrated portfolio of energy funds.
