Another bumpy day for global markets and given the time of this podcast, it appears a choppy day in Asia and in the futures markets. A lot of this continued downside may be on the back of President Donald Trump’s Oval Office address this evening, where he is placing a restriction on all human travel from Europe into the US for 30 days. This will, however, exclude the UK and is limited to people and not goods. So trade between the USA and Europe will continue. The President also laid out some of his plans for attacking COVID19 as well as some measures to be taken to provide economic “stimulus.” The true stimulus is to allow markets to correct to fair value, the liquidation of malinvestments, and the subsequent restructurings that need to follow suit to occur. Will this be painful? Yes. But it is necessary and would set the path forward from a solid foundation. However, this would require great leadership, which is unfortunately, in very short supply.
On the corporate side, big names such as Boeing, Wynn Resorts, and Hilton Hotels, have all tapped out their respective credit lines. Over the past few weeks, the share prices of these companies have also taken a considerable beating. In essence, these companies are on life support. How much longer can they last? Also, how many other companies, small, mid, and large have tapped out their credit limits? With additional travel bans the world over, airlines continue to be negatively effected. With low margins and high debts loads to begin with, this places the entire industry in dire straits. Will all of these companies be able to weather the storm? Unfortunately, most likely not.
Add this to the cracks in the corporate debt markets and we’re likely to see many companies with BBB rated debt downgraded to junk. If and when this happens, we will truly begin to see what companies have foundations of concrete and those of sand. The dominoes are set, this bubble has likely been pricked, and once the air is let out, you cannot put it back in, the only question that remains is which dominoes fall first? Stay diversified, stay vigilant, and stay with The Kapital News. #Economy #COVID19 #Recession #Politics #Oil #Gold #Bonds #Silver #Debt