There are plenty of arguments over whether we have reached the end of the long expansionary cycle in the U.S., and whether the rest of the world can stay out of recession. One alarming new data point released Monday comes from Credit Benchmark, which crunches credit upgrades and downgrades by banks. It claims more than 30,000 different bank analysts’ observations are collated into its monthly survey. Credit deterioration is a typical symptom of the end of a cycle — and that is exactly what Credit Benchmark is finding, particularly in the industrial sector. To start with the least surprising name, the direction has been negative for industrials in the U.K. with only brief interruptions since the Brexit referendum in June 2016. Many companies have business models that will be badly affected by exit from the EU. The extent of the problem, however, is alarming and dispiriting.
With the Conservatives looking well-placed to take an overall majority in next month’s general election, uncertainty should die down. The country is likely to exit on terms roughly in line with those already on the table. But turning around credit sentiment promises to be difficult.
Excerpt from: Active Managers Just Can’t Win the Loser’s Game.
Bloomberg, November 21, 2019.
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