(New York)

Investors need to be worried about the amount of corporate debt out there. Over the last decade, companies have binged on corporate debt to the tune of $14 tn of issuance. Total US corporate debt from nonfinancial companies is now 74% of GDP, its highest ever. And total corporate leverage is now 20% higher than before the Crisis. On the back of this, Goldman Sachs says that so far this year stocks with the strongest balance sheets have been outperforming weaker ones considerably. Here are some companies to look at to protect one’s portfolio from a crunch: Mastercard, Electronic Arts, Equity Commonwealth (a REIT), Graco, and Verizon.

FINSUM: The amount of corporate debt is quite alarming, and it does seem like there will be a reckoning. But when? As long as earnings stay strong, it seems unlikely there will be a big blow up.

(New York)

If you are an RIA looking to sell your firm, the environment is looking stronger and stronger. Terms for deals have improved mightily. For instance, whereas terms from a few years ago were typically 30% paid up front with the rest paid over five years based on client retention, currently 60-80% is being paid up front with the remainder paid off over a year. According to Joe Duran of United Capital, “The market is frothy, and terms for sellers are getting better”.

FINSUM: The market is getting better because there are many more buyers than sellers, which is raising prices and pushing terms in favor of sellers.

(New York)

On paper, the odds of a recession have never looked very high. It is only human instinct that makes many believe that is where we may be headed. However, that is starting to change. Since the Financial Crisis, the odds of a recession in the next 12 months held very low, around 5%. However, they have just jumped to 16% according to a popular recession calculator from BBVA. The last time the figure was higher was during the last recession. The two big factors boosting the odds are the US’ flattening yield curve as well as the threat of a trade war, which is hard for anyone to gauge. According to an economist at BAML, “Our calculations suggest that a major trade war would lead to a significant reduction in growth … A decline in confidence and supply chain disruptions could amplify the trade shock, leading to an outright recession”.

FINSUM: The models seem to be starting to catch up to what many innately know—that the economy and markets have been running hot and storm clouds are on the horizon.

(New York)

Markets got hit with a double whammy yesterday. Escalating trade tensions absolutely nailed equities, but in a move that surprised some, US Treasuries did not gain. For essentially the last 30 years, whenever equity prices took a big hit, Treasury bonds tended to gain on their safe haven value. However, yields on the ten-year actually rose a point yesterday. The reason why appears to be the Fed’s very optimistic position on the US economy, which compels many to believe rates are headed higher, making Treasuries less appealing.

FINSUM: Markets, both stocks and bonds, are caught between a burgeoning trade war and a rate tightening cycle. Doesn’t sound very bullish.

(Washington)

The Chinese stock market is now in a bear market and there is a great deal of pressure on its currency. Last time there was this much pressure, in 2015, the market broke, with stocks plunging and the yuan devaluing by 7% over the year. US stocks even plunged in fear. Now, the situation looks like it might occur again, causing some to call the yuan the next “big short”. The currency is already down almost 1% since Friday, and is in negative territory for the year. A burgeoning trade war with the US is adding pressure.

FINSUM: So the one big support for the yuan is the current strength of the Chinese housing market, which has been strong recently (a big contrast to 2015). That seems like it will keep a blow out from happening.

(Washington)

In what seems to be a perfect study in the law of untended consequences, the government’s new focus on tariffs are driving US manufacturers out of the country. American motorcycle maker Harley-Davidson (side note: can you think of a company more American than Harley-Davidson) has announced it will move some production off-shore because of retaliatory EU tariffs on American motorcycles. Europe is one of the biggest consumers of US products, including for Harley, and the company does not want to lose market share by raising prices for European consumers.

FINSUM: This is the downside of a trade war. Trump wants to have more US manufacturing jobs at home, but retaliations can cause perverse economic incentives to move manufacturing overseas.

(New York)

The Dow had a very ugly day yesterday, as did the Nasdaq and S&P 500. However, that might just be the beginning, argues Barron’s. Markets plunged as Trump escalated the trade stand-off with China and other US trading partners, including limiting Chinese investment in American technology companies. And while markets have been looking at a possible trade war for months, it seems as though they have not fully priced in one of the magnitude which now looks to be emerging. According to one analyst, “Markets are starting to price in the possibility of a trade war with China, however, I would argue that a true trade war–one that drives us into a worldwide recession–would lead to a 20% or more drop in prices, so we haven’t priced one in yet”.

FINSUM: This is a very ugly, but realistic, prediction. We are increasingly worried about the direction of the international dispute on trade.

(Houston)

OPEC is going to raise output by 1m barrels per day in a Saudi-led decision. But what will that mean for prices and oil-related companies? One might assume that higher output would be bad for prices, but in this instance, likely not. The reason why is that the high output is offsetting lost production from OPEC members like Venezuela and Iran. Libya is also experiencing lower production. All told, the three countries may combine for a 1.5mbd to 2.3mbd drop by the end of the year.

FINSUM: This hike is really just a partial offset to a much larger decline that is going on. It seems like it would be wise to stay bullish on prices.

(New York)

Many investors are worried about rising yields, which could wreak havoc on everything from the economy, to income stocks, to all manner of bonds. Well, for what it is worth, Morgan Stanley has just put out a piece arguing that the 3.12% yield seen on the ten-year Treasury recently is it, the peak. Morgan Stanley says that yields will stop rising and they are advising clients to go long Treasury bonds at current yields. The argument stands in contrast to Pimco and JP Morgan, who both see yields moving towards 4%. The one caveat to the call is if trade tensions get settled quickly, as turmoil on that front is one of the bullish drivers they see for Treasuries.

FINSUM: If trade tensions keep flaring we agree that Treasury yields are likely to stay flat or fall as investors flee to safety.

(New York)

As if there were not enough worrying indicators out there, Market Watch has featured a new worrisome measure. The paper interviewed a famous Wall Street quant who says that algorithms which track broad social media sentiment are showing significant risks of a serious decline in equities. The big worries on the public’s mind revolve around the escalating trade war between China and the US. The indicator also informs sector picks, to which strategist Yin Luo said “With U.S. stocks, we are bullish consumer discretionary, technology, and industrials over the medium horizon, and are negative on consumer staples and telecom services, where fundamentals remain relatively weak and momentum has been negative”.

FINSUM: We are always skeptical of these kinds of views because what people say on social media is not a very good reflection of what they are doing in their investment account. Further, there are likely mountains of people being assessed by the algorithms that have no trading/investment account, so their impact is nearly non existent.