Liquidity moves markets!Follow the money. Find the profits!
However, as recent Fitch forecasts suggest, things are about to get 1999-2000 styled. Fitch latest projection (mid-December) for U.S. Junk Bonds default rate for 2016 is at 4.5%, with energy sector at 11%. Now, for sectoral comparatives, here are the historical average default rates for the periods outside official recessions:
The average in the historical series ex-recessions is close to 2.2%, which would make 2016 forecast for 4.5%… err… touchy, to say the least. It is also worth noting that in three pre-Global Financial Crisis recessions, build up in default rates was gradual, over two-four years. We are now two years into such a build up.
Obviously, this does not look like a good time to go into heavily leveraged assets… unless you’ve never been through a credit cycle meat grinder before…
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