The unwinding of the "efficient capital structure" beckons.HT: FT Alphaville's Further Reading post.
It may feel as if bond bears are everywhere these days, but for Jeff Bahl, former head of U.S. high-yield credit trading at Goldman Sachs and now a portfolio manager at Bahl & Gaynor, there aren't enough of ’em.
Taking matters into his own hands, Bahl's latest letter to investors comes with a warning label:
Warning: This is not your cookie-cutter advisor letter. During periods of market stress, there is the clockwork mailing of generic and uninspired advisor letters. These cookie-cutter notes tend to be chock full of “hope” and a universal message to “buy the beaten up stocks”. The Taylor Swift and crafts station is in another room.What follows is a "while history does not repeat, it certainly rhymes"-style argument applied to the high-yield debt market, which has jumped from about $944 billion outstanding back in 2008 to $1.8 trillion currently.
And while Bahl isn't predicting an "end of times"-style wave of corporate defaults, he is drawing on his two decades of bond trading experience to call for a turn in the credit cycle that will spur deleveraging.
Over the past two decades, we’ve experienced firsthand a few significant booms and busts within the credit markets. During each boom, it felt as if the trend had real permanence and extrapolations were sent to epic proportions. And, the violent unwind of each of those booms was stronger and longer than anyone had thought. Glory. Greed. Fear.At issue is the feedback loop that has allowed companies to take on ever increasing amounts of debt, helped by investors chasing the uncorrelated and higher returns on offer from junk bonds....MORE
Thursday, January 28, 2016
"Goldman's Former Head of Junk Bond Trading Has Some Choice Words About the Credit Market"