Please reload


Please reload



The End of the Credit Lifeline?

January 13, 2020

We passed the first phase of a China trade deal, the Federal Reserve is cutting rates, there are no ominous signs of a recession, corporate earnings were strong, the S&P 500 was up 27 percent in 2019…no reason to worry, right?




To see where the stock market is headed, look at credit markets. Problems arise there first before spreading to the rest of the economy.


The corporate bond market houses $10 billion in corporate debt, which is an all-time high whether measured nominally or as a percent of gross domestic product. When, not if, this market bubble pops, it will likely infect the rest of the economy.


See, corporate debt activity is fueled by firms that don’t make enough money to service their debt, but continually borrow money to stay afloat. That’s not sustainable over time. As companies default on their debt, an avalanche of bankruptcies typically follows.


But companies aren’t defaulting because low interest rates keep cheap money available and there clearly isn’t a shortage of willing lenders, as balance sheets loaded with debt will attest.


This has the Fed’s fingerprints all over it and is short-lived. The day of reckoning will come. Many firms don’t have the cash to pay down their debt. So, either defaults will rise, or debt will come down. If it’s the former, it won’t be a happy ending.


This all seems like a giant house of cards. Firms have taken on more debt than ever, and the credit quality is the lowest it’s ever been (nearly 1,000 North American firms were downgraded in 2019).


Some companies are completely dependent on the credit market. Once there’s enough fear in the chain and somebody stops the lending, the house could tumble.

Share on Facebook
Share on Twitter
Please reload


Pennsylvania Office

P (610) 358-8942

F (610) 358-8943

Delaware Office

P (302) 449-0111

F (302) 449-1888


51 Woodland Drive
Glen Mills, PA  19342

291A Carter Drive
Middletown, DE 19709



Check the background of your financial professional on FINRA’s BrokerCheck.

This material has been prepared for informational and educational purposes only. It is not intended to provide, and should not be relied upon for, accounting, legal, tax or investment advice. Please consult with a professional specializing in these areas regarding the applicability of this information to your situation.

Andrew Wood, Dan Simon and Alison Slezak are Investment Advisor Representatives. Advisory services are offered through CoreCap Advisors, LLC., a Registered Investment Advisor. CoreCap Advisors, LLC and Daniel A. White & Associates, LLC are separate & unaffiliated entities. 

© 2018 Daniel A. White & Associates, LLC. All right reserved. Built by Atwood Sites.

PA OFFICE: (610) 358-8942
DE OFFICE: (302) 449-0111