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Strategies & Market Trends : SiliconInvestor All Stars Forum
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To: Box-By-The-Riviera™ who wrote (297)2/26/2007 7:08:43 PM
From: SouthFloridaGuyRead Replies (2) of 1718
 
You've made some valid points.

Subprime debt is equivalent to HY debt, where we are also seeing nosebleed spreads. The similiarities end there, IMO.

There's plenty of data out there supporting the contention that interest coverage is about as favorable today as it has ever been.

Given the relative robustness of capital spending, employment conditions, liquidity, bond versus equity valuations, etc. the underlying factors behind high yield debt valuations are supportive.

This differs from the housing market where 1) housing was and continues to be unaffordable and more importantly 2) the cycle of price appreciation had flattened to a point where the virtuous circle of refinancing was halted.

So I suppose if you think that High Yield US companies will experience a massive earnings reversal (not slowdown,...reversal), then yes, spreads should significantly widen to reflect the increased default risk.

I just don't see that in the cards.
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