Wednesday, November 20, 2019

This Week's Message: Uneasy...

I'm going to let you off easy with this week's message; I mean in terms of length, the actual message itself is not what I'd call "easy" -- I'd actually call it a somewhat "uneasy" message.

Just three things; the first being a quote I took from this week's outstanding interview featuring Macro Insider's Raoul Pal and Hedgeye Risk Management's Keith McCullough.

Here Raoul expresses precisely what you've been hearing from us over the past few months -- essentially from the moment we began hedging portfolios back in the summer -- which is what we view as the huge (2008-style) risk lurking in the corporate debt market:  emphasis mine...
"...there's obviously these shenanigans going on in the funding markets right now; there's basically a lack of domestic liquidity in the funding markets because of the amount of new issuance coming out of the treasury. But that illiquidity; the Fed have started printing more money again to do it -- to try to alleviate some of that strain. At the far end of the strain-curve are the triple-Cs and they're going "no no no, there's a problem here", they're not getting the funding they need, so they're blowing out. The triple-Bs, because they're supported still by the pension fund sector, are not feeling it. But meanwhile there's the corporate profit slowdown, and what's in that bunch of triple-B's? Ford, GM, AT&T, General Electric and Dell; those five are an enormous part of that market: any one of those -- and Ford, one of the agencies downgraded to junk -- but once one of those actually falls, and becomes one of the fallen angels, and falls into the triple-C category, then the whole thing's over, because the junk bond market doesn't have enough buyers already, and its widening. God forbid, if one these come through and get downgraded the whole thing is going to seize up."
So, again, when the next recession comes we think it's going to be very messy for markets (to say the least!). Of course the question of the day is, what's the risk that the next recession will actually begin sometime soon? Well all we can do is crunch the data, not to answer the question (as it [the beginning date] can only be known in retrospect), but to assess the risks and act accordingly within our clients' portfolios.

Virtually everything I touched on in this short video on general conditions from 12 days ago is the same. Well, actually, in the aggregate, it's slightly worse; our proprietary macro index moved 2 points further into the red last week:




And, lastly, here's another brief video we shot 4 days later where I highlighted some interesting historical timelines.



Thanks for reading, and watching!
Marty

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