Fasten your seatbelts: History’s about to repeat itself

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Over the last decade, I’ve found my opinions coinciding more and more with those of SocGen strategist and “uber-bear” Albert Edwards. Last week he hit the headlines again with a claim that a “gut-wrenching slump” in profits amounts to an almost-certain predictor of recession. While the historic evidence for this is compelling, I’m not so sure this time couldn’t be slightly different — at least in terms of causes and effects. Continue reading

Deutsche Bank’s Ominous Warning: A “Perfect Storm” Is Coming In 2018

 

“We could now be at a crossroads,” warns Deutsche Bank in its annual default study report. As the ‘artificial bond market’ is exposed and yield curves flatten on Fed rate hikes so carry risk-reward is reduced and default cycles have often been linked to the ebbing and flowing of the YC through time with a fairly long lead/lag. With HY defaults having spent 12 of the last 13 years below their long-term average (with the last 5 years the lowest in modern history), “a perfect default storm could be created for 2018 if the Fed raises rates in 2015.”

Defaults will stay unusually low so long as current artificial conditions continue. However, as Deutshe Bank explains, the benign default environment of the last few years may be about to changeContinue reading

Fed to Trigger ‘Collateral Financial Damage’: Lavorgnia

Joe Lavorgnia, chief economist at Deutsche Bank, criticized the Fed’s strategy and sees broad “collateral financial damage” once interest rates eventually edge higher.

“They have the pedal pressed so far down, I just think it’s going to end so badly,” said Lavorgnia on CNBC’s “Squawk on the Street” on Friday. He was commenting on the Fed’s strategy of near-zero interest rates. Continue reading