Junk Bond Zombies


We Haven’s Seen this Big Red Flag since the Great Recession

Casey Daily Dispatch
November 25, 2015

The junk bond market continues to show signs of cracking …

For months now, we’ve pointed to the decline of junk bond values as one of the biggest red flags in the entire market. The bond market is where companies, countries, and individuals go to borrow money. It’s far larger and more important than the stock market. …

Warning signs usually appear in the bond market long before they show up in the stock market. We’ve focused specifically on … junk bonds … . Companies in poor financial shape feel the pain first. That’s why junk bonds often point out problems before other assets do. … Half of all corporate bonds have a junk rating (now, up from 40% in 2007). …

In 2008, the Fed dropped its key interest rate to effectively zero. … The past seven years of incredibly low rates have fueled a corporate borrowing binge … . U.S. corporations outside the financial sector owe … nearly 50% more than a decade ago. …

Many U.S. companies could struggle to pay back all this money … Because profits for major U.S. companies are shrinking.

U.S. companies have issued $9.3 trillion in new bonds since the financial crisis. That includes $1.4 trillion in new bonds in the last year alone … . That’s a new all-time record. But U.S. companies will probably top it this year. …

Yesterday, Financial Times reported that companies are defaulting on bond payments at the highest rate since the financial crisis. … Many more companies are likely to default. Last month, The Wall Street Journal reported that corporate downgrades are at their highest level since the Great Recession. … On Monday, (the second biggest junk bond fund, PDR Barclays High Yield Bond ETF (JNK),) dropped to its lowest level since July 2009. …

Meanwhile, the stock market isn’t as healthy as it looks … . Only a few companies are driving the rally … The Dow has gained 13.6% since late August. The Russell 2000 has gained just 5.7%. …

The junk bond market is under stress. Earnings for U.S. companies are shrinking. And a handful of large stocks are driving the stock market rally.

We believe the U.S. stock market is topping out. …

We suggest taking a few simple steps to safeguard your wealth now…before the mainstream media tells you the party is over. …

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About icliks

Biding my time in central ms ... yours too, if ur reading this.
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