Where are we Today in the Credit Cycle?
according to Matt Eagan, Loomis Sayles
Matt Eagan presented at a webcast organized by Litman Gregory. (Here's how the two are linked.)
Bottom Line: We are in "late cycle" if not at the tail end of "expansion" (Slide 4). The best time to be adding exposure (as in investor) to this asset class (which is fixed income & credit) would be after a downturn is over, in my opinion, or when the Risk Premium is high and Default Loss is low (as in Jan. 2016; slides 13, 18).
Note added on March 31, 2020: US stocks as measured by the S&P 500 would go on to peak on Feb. 19 and crash by -36% before rallying by +18%.
Vocabulary
- OAS = option-adjust spread
- IGRP = investment grade risk premium
- HYRP = high yield risk premium
- NIPA = national income and product account
Dollar
- They expect the dollar to "remain firm" mainly due to coronavirus. Prior to that, they were expecting green shoots outside of the US and had been bearish on the dollar. No more.
China & Coronavirus
- Most companies in China cannot stand being closed for more than 3 months from a cash flow viewpoint.
- When SARS hit (2003), China represented 4% of global GDP whereas it now represents 18%. The impact of coronavirus can be 4 times as large.
Selected Slides
Author is also on Twitter
