All of this is great but there are a lot of companies that need to refinance debt at lower rates soon that will become insolvent otherwise (and will lay more people off). Cem Karsan and others have talked about this. How would this consideration change your analysis (if it does...)?
I would suggest look at corporate net interest payments which are at 75 year lows. They’re not hurting due to rates at all. A small rise there would be healthy. But if we had widening credit spreads rather than the tightest in history I would pay attention
Part of the point I cited from Cem and others like Michael Howell was made was based upon the notion that companies were able to refinance their debt or take on debt at the covid interest rate lows. And supposedly everyone expected perpetual low rates and preferred shorter term debt (i.e. 5 year type debt). So net interest payments being low would not be an indicator until the refinancing wall hits in 2026 and beyond.
As for credit spreads, the markets have been pricing in cuts, so if they don't get them as your piece advocates for, those would widen in this situation.
Note I do not actually know about the extent of the "wall of debt" . I have not looked at data for that (could be a source of future exploration). My claim is just reiterated from what I have heard from Cem and Howell.
My answer is the same. If refinancing at higher rates causes issues, spreads will widen. Go through every business survey - not one mentions cost of capital as an impediment to their business. Tariffs and inflation are always discussed. So if the credit wall is an issue, that’s embedded in my scenario 1. Let some weakness manifest, let inflation be defeated, then begin a rate cut cycle.
1) Do those surveys ask about future expected problems or are they focused on issues that are only currently at hand?
I trust your assessment on this if you say debt cost isn't an issue but the above question still lingers for me. I also push back in all of this not to be argumentative but because I want to highlight potential blindspots. Anlayzing the economy is like solving a puzzle and noone has all of the pieces. So by having a dialogue you get the ones you may need from others and vice versa.
2) What data do you recommend tracking for someone concerned about this debt refi wall? I don't have a bloomie so I can only can subscribe to ibkr indices (s&p, cboe are some of the data providers that can be bought) or just trading view. One example of what I am looking for is https://fred.stlouisfed.org/series/BAMLH0A0HYM2 . I think you have used this before but again, any others?
3) What data would I be missing out on by not having a bloomie that would help show potential debt refi issues?
4) I went ahead and dug up some of michael howell's work on this in case you are interested. He tracks this with a ratio of debt to liquidity and has noticed when it goes way over 2.5 times that it usually triggers a decline once that happens. My apologies -- I would have posted all of this in the initial post but my familiarity at the time was superficial and just from stuff I had listened to on podcasts. I realize the post is from 2024, but that's the main one I found and he keeps metioning refinancing as a looming issue in recent interviews (as has Cem)
Michael does mention the debt wall on latest podcast but barely. Cem actually mentions it more in recent podcasts but doesn't have specifics like Michael does in his post.
5) Do you have a timeline for rate cuts that you care to give based on this recent post? How long should the fed wait if inflation stays flat before cutting rates?
I don’t know why I didn’t get notifications for this. To monitor the risk of interest expenses on Corp balance sheets, I would suggest looking at things like: net interest payments, capex - cash on balance sheets, and lending standards from banks. All are suggesting policy is too easy not too tight.
I can’t say I pay as much to liquidity as those guys do. No opinion. Stocks are rallying and that suggests liquidity is not tight .
For your last question, I address this in the policy prescriptions section.
Great read
Thanks man.
All of this is great but there are a lot of companies that need to refinance debt at lower rates soon that will become insolvent otherwise (and will lay more people off). Cem Karsan and others have talked about this. How would this consideration change your analysis (if it does...)?
I would suggest look at corporate net interest payments which are at 75 year lows. They’re not hurting due to rates at all. A small rise there would be healthy. But if we had widening credit spreads rather than the tightest in history I would pay attention
Part of the point I cited from Cem and others like Michael Howell was made was based upon the notion that companies were able to refinance their debt or take on debt at the covid interest rate lows. And supposedly everyone expected perpetual low rates and preferred shorter term debt (i.e. 5 year type debt). So net interest payments being low would not be an indicator until the refinancing wall hits in 2026 and beyond.
As for credit spreads, the markets have been pricing in cuts, so if they don't get them as your piece advocates for, those would widen in this situation.
https://www.cmegroup.com/markets/interest-rates/cme-fedwatch-tool.html
Note I do not actually know about the extent of the "wall of debt" . I have not looked at data for that (could be a source of future exploration). My claim is just reiterated from what I have heard from Cem and Howell.
Do you have any further reactions to this?
My answer is the same. If refinancing at higher rates causes issues, spreads will widen. Go through every business survey - not one mentions cost of capital as an impediment to their business. Tariffs and inflation are always discussed. So if the credit wall is an issue, that’s embedded in my scenario 1. Let some weakness manifest, let inflation be defeated, then begin a rate cut cycle.
1) Do those surveys ask about future expected problems or are they focused on issues that are only currently at hand?
I trust your assessment on this if you say debt cost isn't an issue but the above question still lingers for me. I also push back in all of this not to be argumentative but because I want to highlight potential blindspots. Anlayzing the economy is like solving a puzzle and noone has all of the pieces. So by having a dialogue you get the ones you may need from others and vice versa.
2) What data do you recommend tracking for someone concerned about this debt refi wall? I don't have a bloomie so I can only can subscribe to ibkr indices (s&p, cboe are some of the data providers that can be bought) or just trading view. One example of what I am looking for is https://fred.stlouisfed.org/series/BAMLH0A0HYM2 . I think you have used this before but again, any others?
3) What data would I be missing out on by not having a bloomie that would help show potential debt refi issues?
4) I went ahead and dug up some of michael howell's work on this in case you are interested. He tracks this with a ratio of debt to liquidity and has noticed when it goes way over 2.5 times that it usually triggers a decline once that happens. My apologies -- I would have posted all of this in the initial post but my familiarity at the time was superficial and just from stuff I had listened to on podcasts. I realize the post is from 2024, but that's the main one I found and he keeps metioning refinancing as a looming issue in recent interviews (as has Cem)
https://capitalwars.substack.com/p/the-great-wall-of-debt
A post I found about the extent of debt
https://dunham.com/FA/Blog/Posts/wall-of-corporate-debt-fallen-angels
Michael does mention the debt wall on latest podcast but barely. Cem actually mentions it more in recent podcasts but doesn't have specifics like Michael does in his post.
https://www.youtube.com/watch?v=FXboQtNgkcY&t=4519
5) Do you have a timeline for rate cuts that you care to give based on this recent post? How long should the fed wait if inflation stays flat before cutting rates?
I don’t know why I didn’t get notifications for this. To monitor the risk of interest expenses on Corp balance sheets, I would suggest looking at things like: net interest payments, capex - cash on balance sheets, and lending standards from banks. All are suggesting policy is too easy not too tight.
I can’t say I pay as much to liquidity as those guys do. No opinion. Stocks are rallying and that suggests liquidity is not tight .
For your last question, I address this in the policy prescriptions section.
Hope that helps!