Smart Money Gearing Up for Corporate Default Wave

A video is making the rounds (see below). It shows that some very large investors are gearing up in preparation for the next wave of corporate defaults.

"The US is...in the late stages of a credit cycle," KKR's Jamie Weinstein tells Bloomberg TV, "and as you come to the end of that cycle, you see a rise in defaults."

KKR and other large players have raised billions in capital in expectation that many companies' assets are currently mispriced and about to head lower. When asked when will this happen, Weinstein responds:

"We're seeing it already. If you look at quarterly data over the last 30-some-odd years, the last quarter—the first quarter of 2016—was the fifth highest quarter on record. Three of the prior four highs were in the year 2009. So we actually have seen a significant increase in the default rate."

When we spoke to Edward Altman—one of the leading authorities in the default space—on our podcast in February, he had a similar message, telling listeners that we are no longer in a low-risk environment and things could escalate dramatically.

See Edward Altman: Risk in High Yield Market at 2007 Levels; Not Isolated to Energy

With global liquidity conditions deteriorating, margin debt on the decline, and corporate profits heading lower, make sure you have a plan when that next big wave comes.

For a complete archive of our podcast interviews on finance, economics, and the market, visit our Newshour page here or iTunes page here. Subscribe to our weekly premium podcast by clicking here.

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