Did You Notice The Warning Signal Of Junk Debt?
The Trump economy is failing
There are so many companies with astronomical amounts of corporate debt who will never make the returns to pay it off. Queue the zombie company apocalypse when the next corporate debt crisis hits. Just a week ago, Moody’s downgraded Ford’s investment-grade status. Ford handled the Great Recession with eloquence, but currently the new CEO seems preoccupied with the bottom line, China investments, and pure EV vehicles (that Ford cannot build yet!). These missteps, exacerbated by the China tariffs situation and the slicing of interest rates is making Ford and many others creep towards bankruptcy.
Corporate debt is climbing up to concerning levels, and combine that with the US economy that is propped up with American consumers who spend money they don’t actually have. We’re always shrugging our shoulders when it comes to our incomprehensible level of debt—and it comes out to the same thing: a dependence on borrowing will not sustainably drive your economy. With Trump’s reduction of interest rates & spending incentives, he doesn’t seem worried about the consequences either. The debt bubble will burst. Trump’s campaign promise to reduce the margins has failed miserably—they have skyrocketed! The great economic promises are crumbling. If we want another 2008, let’s just keep it up. Eventually the aftermath will arrive, and it will be impossible to look away.
What's with the fuss?
Trump’s pro business approach is doing just fine, and will continue to be stable unless 2020 leads to the election of a Democratic Socialist. Obama’s doubling of our national debt, artificial constraint of interest rates, and endless regulation has slowly but surely been alleviated by Trump’s approach to our economy. It’s also hard to blame any kind of political development for junk debt trends. High yield issuers are always the teeming the line of default—it’s the name of the game! High yield issuers! It comes with risk.
And speaking of risk, this may actually be a pretty good time to buy junk: low interest rates and yes…high yields. The leftwing media is trying to inspire a recession with all of this talk—but as long as interest rates remain low, debt will be cheaper to refinance than it was just a year ago. Corporate debt has increased to buy back shares, to reverse the process you just sell shares. The debt bubble is an overblown concept that doesn’t consider the collateral we have—highways, buildings, hospitals, power plants, railroads, dams. Financial collapse is miles away from any kind of “warning sign” that we’ve recently been confronted with. If we keep talking as though the second 2008 is around the corner, we will just expedite its’ arrival. So how about we stop the premature worrying until there is a true indicator of imminent economic downturn.