June 04, 2019

The Fed Has Already Told Us What’s Coming…

For those how pay attention, the Fed has already broadcast what the next crisis will be…

Corporate bonds…

When the Fed cut interest rates to zero in 2008… and held them there for even years straight… it gave the “green light” to corporations to go on massive borrowing spree.

After all… if you’re the CEO of a company… and taking on debt suddenly costs NOTHING… why wouldn’t you start borrowing?

It took US corporates 50 years to hit $3 trillion in debt… they DOUBLED that in eight years thanks to the Fed’s Zero Interest Rates Policy (ZIRP).

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All of this new debt was based on the idea that interest rates would stay near zero forever…

Put another way, the entire US corporate sector has become one gigantic leveraged bet on interest rates staying low.

If you don’t believe me, the NY Fed admitted this in a piece published last week…

...After falling in the initial recovery from the Great Recession, corporate debt to GDP has increased to its highest level in fifty years… …An economy with 50 percent highly levered companies and 50 percent unlevered companies has the same aggregate leverage as an economy with 100 percent companies at…

Source: Liberty Street Economics

In simple terms, the Fed is admitting that the concentration of highly leveraged corporations has opened the door to a crisis…

So we know what's going to cause the next crisis... now the question is "when will it hit?"

The market is telling us "soon."The Junk Bond ETF has broken its bull market trendline… AND been rejected by former support.

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So what happens to stocks, once this bubble bursts?

We’re going to find out soon…

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A Crash is coming…

Best Regards,

Deo Talaverano.

Chief Market Strategist DHF.

George Town. Cayman Islands.