READER INITIATED ALERTS

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1,081 thoughts on “READER INITIATED ALERTS”

    1. 730Cap, It was one of the few that has stayed within 1 div payment for the last 6-7 ish months.

  1. Maybe swimming upstream here, though thought it worth throwing out an observation regarding the lower-rated/high-yielders; relative to the potential for a near-term recession.

    In a law of large numbers exercise, there’s a very high correlation between a credit rating and a company’s ultimate staying power, probability of distress or outright failure. Notable is that while rating focus on predicting a company failure, there are many levels of pain or lost sleep an investor may experience in lower-rated issues prior to actual default.

    Expectations are increasing that a recession is on the horizon. Related is that defaults tend to be clustered into tight periods of time that surround poor economic conditions. Complacency with lower ratings during periods of prosperity – including those fueled for many years by a lax fed – may yield to surprise downside outcomes when the economic environment is more challenging.

    The severity and speed of recent rate increases will disable marginal companies loaded with debt, irregular cash-flows or with low defensive capacity whose existence was made possible by lower for longer. Tighter underwriting, higher spreads and lower capital liquidity (think QT) will add to the challenge for the slightly stronger companies. Lower earnings and the resulting inability to service or cheaply refinance heavy debt overhangs will impair yet another group.

    This seems a good time to recall the adage “don’t fight the fed”, which has telegraphed quite clearly its intention to make life a lot more difficult. Marginal companies are going to fall – and it appears yield-chasing will be entering its cyclical punishment phase.

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