The signs are starting to add up that the United States is at the top of the economic cycle, and therefore headed down, likely into a bear market and recession, an increasing number of economists and money managers say. The main culprit for the looming downturn, they say, is the Federal Reserve, which is expected to again raise U.S. overnight interest rates on Wednesday...
“When the music stops I do think it’s going to be pretty ugly,” said Jonathan Beinner, chief investment officer of global fixed income at Goldman Sachs Asset Management.
Beinner highlights the increase of global debt, now upwards of $237 trillion and the way the debt has been dispersed as risks to the economy. Rather than banks holding most of the debt as it happened in the financial crisis, this time it’s hedge funds, private equity and investment managers holding most of it. Also worrisome, he says, ratings agencies are again being overly generous with their appraisals allowing for companies with very high debt levels to gain investment-grade ratings.“We’ve sown the seeds for the next downturn and there’s a lot of similarities,” Beinner said, comparing today’s climate to what existed ahead of the global financial crisis in 2008.“After ’08 everyone was like, ‘I can’t believe we did all those very stupid things.’ But we’re doing them all over again,” he said during a presentation at the Bloomberg Invest summit in New York last week.
More at this link. For those reluctant to sell profitable positions, one way to cushion the downside is with out-of-the-money index puts.