Elevated sharemarket valuations imply that future returns will be very poor.
I was asked to tender our strongest convictions at a conference this week. The first was that we will experience the worst corporate default cycle since the global financial crisis in the US and since the 1990-91 recession in Australia. The second was that cash and liquid, high-grade bonds should outperform stocks and risky debt over the next few years.
Interest rates are likely to remain structurally high for a number of years, which is not reflected in equity, commercial property, residential real estate, venture capital, high-yield bond and/or private debt prices.Defaults in Europe are already at their worst level since 2009 . In the US, where the economy has been extremely resilient care of excess consumer savings buffers, this year is shaping up as the second worst since the GFC and will deteriorate further.P.
In Australia, there have been more than twice the number of insolvencies in construction in the past three months than the next closest industry sector, hospitality .that tracks the proportion of listed firms that do not have enough income to pay the interest on their debts. Coolabah updated this for the 2022 financial year and found more zombie propagation: they have jumped from about 5 per cent to 10 per cent of all listed companies globally over the past decade.
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