If it isn’t apparent to you yet, it will be after this post. The U.S. Corporate bond market is believed by many financial pundits and professionals to be the epicenter of the next “crisis” or bubble. Given the volume of debt issued and the disproportionate share towards the bottom rung of the investment grade spectrum, many believe when the economy turns there will be a tsunami of defaults and other problems with the issuers.
Bob Farrell was a legendary technical analyst at Merrill Lynch for a number of years whose 10 Rules to Remember have been quoted in numerous places. During my tenure at Merrill Lynch, I first learned of the rules and have held onto them since. I’m not going to restate the rules here. You can search for them using your favorite search engine on the internet.
I’m going to talk about Rule #9 here. “When all experts and forecasts agree–something else is going to happen.” While I have no idea if all experts and forecasts agree U.S. corporate bonds are a ticking time bomb, it sure feels like all of the outspoken experts believe it will be a major issue to reckon with in the future.
The contrarian in me wonders if this concern is overblown. In full disclosure, I haven’t done more than a cursory review of the situation so I’m not the best person to question others who presumably have done quite a bit more work. However, I think many read something on a subject from an author they respect and latch onto the claim and run with it without actually doing any research/analysis of their own. I’m not saying that’s the case here but one of these days I’m going to dig into this topic and get the facts straight for myself.
For now, I’m somewhat dubious of the claim/forecast. More to come.