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re: Soft landing: Did the Fed really somehow achieve the impossible?
Posted on 12/28/23 at 8:45 pm to Big Scrub TX
Posted on 12/28/23 at 8:45 pm to Big Scrub TX
The corporate maturity wall is in the trillions in 2024 and goes up from there. The large companies with good balance sheets and cashflow will be fine. Everybody else will not have access to funds. Bankruptcy rates are going vertical. It’s not something you would see effect capital markets because it’s smaller companies. That should bleed into high yield credit. I’m not saying it’s the end of the world but earnings and margins are likely to deteriorate. I’ll post the earnings dashboard from refinitiv for the Russell and the S&P. Small caps are getting slaughtered and large caps will have hard comps to meet. Yardeni data showed margins getting squeezed and earnings peaking on the S&P. This is all with a fed pivot and credit tightening happening in recent months/quarters. I wouldn’t bet against mega cap equities but next years not looking pretty.
2
Posted on 12/28/23 at 10:13 pm to wutangfinancial
quote:I was speaking specifically of the levered loan market. It looks termed out really far.
The corporate maturity wall is in the trillions in 2024 and goes up from there. The large companies with good balance sheets and cashflow will be fine. Everybody else will not have access to funds. Bankruptcy rates are going vertical. It’s not something you would see effect capital markets because it’s smaller companies. That should bleed into high yield credit. I’m not saying it’s the end of the world but earnings and margins are likely to deteriorate. I’ll post the earnings dashboard from refinitiv for the Russell and the S&P. Small caps are getting slaughtered and large caps will have hard comps to meet. Yardeni data showed margins getting squeezed and earnings peaking on the S&P. This is all with a fed pivot and credit tightening happening in recent months/quarters. I wouldn’t bet against mega cap equities but next years not looking pretty.
How wide can you see HY spreads getting? And how disorderly do you envision any sell off?
Posted on 12/28/23 at 10:27 pm to wutangfinancial
Soo.....move out of anything but large/mega caps? Any other pointers?
Posted on 12/29/23 at 12:05 pm to Big Scrub TX
quote:
How wide can you see HY spreads getting? And how disorderly do you envision any sell off?
It depends. Congress wouldn't allow contagion in credit markets to sort itself out. But clearly there's spiking counter party risk in the banking system. Check this out:
Meanwhile corporate credit spreads are falling
Here's the small cap/large cap Q3 dashboard: 
I'll just take my 5% until there's a bull steepener in Treasuries while this stuff plays out. Volatility is insanely cheap as well.
Posted on 12/29/23 at 12:35 pm to GREENHEAD22
That was my thought. But then I wonder if we would miss on some up and coming companies that are relatively cheap buys. Not sure if that would balance out the duds, though
Posted on 12/29/23 at 1:11 pm to AndyJ
If big tech outperforms they’ll pull the entire large cap market up with them. If they underperform it would wipe out any outperformance by smaller companies in the S&P. Just look at 2022.
Posted on 12/31/23 at 12:34 pm to euphemus
There was a major down turn due to the covid crash 3 years ago. That kind of muddies the water.
Posted on 12/31/23 at 12:41 pm to ItzMe1972
The problem with the Fed is that they have one lever to push and pull, but many things affect inflation. The Fed (fortunately) doesn't control the dems money printing nor does it control the supply chain but those are major factors.
Posted on 12/31/23 at 2:24 pm to wutangfinancial
quote:Right. That obviously directly corresponds with SVB and 1st Republic.
It depends. Congress wouldn't allow contagion in credit markets to sort itself out. But clearly there's spiking counter party risk in the banking system. Check this out:
quote:Yep. USFR still paying close to 5.5%. And the VIX is basically at a 5 year low.
I'll just take my 5% until there's a bull steepener in Treasuries while this stuff plays out. Volatility is insanely cheap as well.
Posted on 12/31/23 at 2:50 pm to Shamoan
quote:
I stand in awe that we aren’t in a cratering economy. I blame the stupid of the American populace that our addiction to spending (even against our best interests) will pull up out of this quagmire. Our ignorance might save us from doing the responsible thing.
I applaud the work ethic of the American populace. We work harder and longer than pretty much all industrialized nations. Our general desire to work saves us time and again.
Posted on 1/1/24 at 10:17 am to Big Scrub TX
The recent spike isn’t SVB that’s why I pointed it out
Posted on 1/1/24 at 3:50 pm to wutangfinancial
quote:Sure, but it's also not that big.
The recent spike isn’t SVB that’s why I pointed it out
Posted on 1/2/24 at 8:08 pm to Big Scrub TX
It’s re-accelerating though which is not a good sign with rates falling and credit tightening
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