Cutting through technical verbiage to grasp real life concepts is key to understanding. This presentation from American computer scientist and Navy Rear Admiral Grace Hopper is helpful. Here is a direct video link.
Still stinging from the blame and lawsuits directed its way in the 2008 crisis, S&P Global Ratings agency is trying to get out in front of the default tsunami now rising in corporate debt markets around the world.
Already north of $50 trillion in 2015, corporate debt globally is expected to increase another 50% over the next 4 years driven by expansive monetary policies from central banks and value-blind buyers gobbling up risky assets. Here is the graphic courtesy of the Financial Times.
Here is the bottom line: Credit quality has been deteriorating since 2015 with 2/5ths of non-financial corporations in S&P’s sample already highly leveraged and growth in corporate borrowing now outpacing economic growth.
Never mind Brexit, S&P warns this is setting up to be “Crexit” where current holders look to dump falling assets all at once:
“A worst-case scenario would be a series of major negative surprises sparking a crisis of confidence around the globe. These unforeseen events could quickly destabilize the market, pushing investors and lenders to exit riskier positions (‘Crexit’ scenario). If mishandled, this could result in credit growth collapsing as it did during the global financial crisis in 2009.”
As the global economy gears down through the dog days of summer, the US dollar is bid and commodities wobbling once more. This chart of the Canadian dollar versus the greenback suggests a similar pattern may be in the offing in the second half (2H) of 2016 as we saw last year. We have been expecting weakness in risk assets to resume and will soon find out if that is the case. The loonie is a useful barometer to watch.
