to your points:
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.
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capital spending is meager in my humble opinion. and certainly compared to the capex (when it zeroed) and was replaced by consumer spending (vis a vis easy credit, home equity credit, and all sorts of easy money deals from auto purchases, furniture and across the board...i.e. layaway, but take home today financing). if you mean that capex, there is no indication i can find, that it is rising to the degree to make par in former years, let alone replace the spending void you address. however, i'm ready for a change of mind... please do.
bond vs. equity market... well, i think you can agree, bond folks in the short term are and have been counting on the fed. and they should continue to do so, as gold suggests. however, given all other possible considerations... there are more ways than the fed for bond holders to find themselves suddenly screwed in this "potential" environment.... i.e. they are more than sanguine, and to the degree that, if their trade/position were to find itself suddenly surprised by some withdrawal of support (they are not alone) internationally, (and for a variety of projected reasons) they will find themselves overnite going through a very small door. I don't think you can disagree strongly with that possibility. or the repercussions.
as to the virtuous circle in "housing" markets... i must wonder... if there has not been, or continues to be that same circle, to an important enough degree, in the corporate debt market... which, shy of market recognition, is wholely dependent upon those who rate it... moodys and the like.
i suspect, they are going to want to start covering their asses. we shall see. when and if they blow the debt cover, what then? until now, its a handshake. and god knows, and you can imagine, the phone calls.
as to high yield us companies. do you mean, dividend yield? it has, historically speaking, hardly been lower. if you mean their debt?, that is NOT a good thing historically speaking. If you mean... well.... i'm looking for a ratio to that statement, that would provide a healthy support to what you have proposed. i don't find one based upon what i currently know. i'm open.
I don't think I covered all the points. Nor did you cover all of mine. but generally, one of us is not on the right side of the analysis (for better or worse and not criticism or spite implied). I'm open.
thanks for the time in your answer and the honesty of it. |
