Scott Minerd of Guggenheim’s speaks his mind and following is the summary of his views at Reuters Global Investment 2019 Outlook Summit.
“Corporate credit is clearly the big excess that needs to be flushed out of the system,” and General Electric Co is just one example of a broader problem.(corporates have bought back their own stock with debt and it will lead to weaker credit profile )
Guggenheim expects $1 trillion of investment debt will be downgraded to junk status as the Fed raises rates and the economy slows over the next two years.( Junk rated bonds are a big short in my view but timing is important)
U.S. economy is on a collision course due to excessive corporate debt and he has prepared by buying higher credit-quality investments.( same thing will happen in EM including India, spreads will just blow out and investors holding credit funds will see NAV losses)
“We’re in the process of slowly killing the expansion,”. “Any attempt to rein in credit is ultimately going to blow up.”
(if everybody knows it then why is FED raising the rates……well it is to fund their underfunded pension plans and getting ready with enough ammunition for next recession)
A recession may not materialize until 2020,and the Fed may hike rates up to five times until the end of 2019 unless oil price declines or another factor cause them to scrap such plans.( if Scott is right then 2 year US treasury will be close to 3% , and that is a very good reason to sell EM and invest in US )
The rate hikes will keep the U.S. dollar strong as higher yields attract capital and put more pressure on emerging markets struggling to repay debts in dollars.( probably the most important view for investors looking to invest in emerging markets like India)