I’m typing this week’s message on a day when, at least at the moment, the Dow is down some 750 points. Multiple headlines say a surge in COVID cases would be the culprit.

Well, I certainly get that, but recall that we’ve been sounding alarms herein since before COVID hit the global scene.


Our concerns initially revolved around macro fragility we were identifying across the industrial spectrum — in a degree that typically signals recession in the not-too-distant offing — along with an existing corporate debt bubble for the ages.


Of course our present concerns essentially revolve around the same. Only we’re now living the worst recession since the Great Depression, and, ALAS!!!, the powers that be are going to nearly unthinkable — and technically illegal (Fed’s corp bond purchases) — lengths to keep said debt bubble inflated. Hard to fathom that this ultimately ends well…


Then of course we work on weird stuff like this 93-year chart of the daily rate of change in the S&P 500:



Yes, there’s presently a danger signal within all that noise.


Back to the not-so-weird stuff: I’ll keep this week’s message brief and to the point with the following visuals:   click each to enlarge…


More countries experiencing recession simultaneously than ever:





Per my comment above, the nearly unthinkable surge in corporate debt issuance amid recession (pink shaded areas):





What is of course thinkable is the record rate of corporate defaults we’re seeing during this worst recession since the GD:





And, no, there’s ultimately no reconciling those last two charts!


The history of corporate cash flow recovery post big drops in capacity utilization. This flies in the face of Wall Street’s, frankly, illogical and empirically unsupported forward cash flow projections (i.e., be very careful whom you listen to):





And lastly, the litany of calendar risks related to expiration of the plethora of stimulus measures applied to this point (of course there’ll be extensions to some, and/or possibly new ones added):



Source: Hedgeye Risk Management


Bottom line: Amid a debt bubble that the Fed is determined to not let pop, amid general conditions that are anything but conducive to cash flow generation remotely resembling from whence it came, amid stock market valuations not seen since the lead up the early 2000s tech bubble bursting, well… let’s just agree that the risk in equity markets is historically high at the moment…


Thanks for reading.
Marty