The 2007 Style Credit Downgrades Have Begun

by John Galt August 18, 2019 22:30 ET

The nightmare has returned. Despite the fact that it is “different this time” as housing is not the central reason for our economic issues, the story sounds eerily familiar.

First and foremost this story from the Nikkei Asian Review which dropped earlier today:

Credit downgrades accelerate on all sides in US-China trade war

How bad is it per the article? Here is a brutal excerpt:

Credit rating agencies have downgraded listed companies worldwide at rarely seen levels this year, underscoring the risks to the global economy posed by the prolonged U.S.-China trade war.

The 487 downgrades for financial and nonfinancial companies through Aug. 13 outpaced the number of upgrades by 60, data from S&P Global Ratings show. The number of downgrades have not surpassed upgrades for a full year since 2016.

Net downgrades among American companies are at the highest in three years. Among Chinese enterprises, the gap between credit downgrades versus upgrades has reached its worst in two years.

Ouch.

In the article linked above it references Accuride and Apex tools, both of which were clients of mine way back in the day. If they are facing credit downgrades, then the cost of doing business in the United States is about to increase proportionately.

The impacts on U.S. auto production, housing, and other aspects of Trump’s highly touted manufacturing economy will be profound if not terminal for some corporations teetering on the edge due to a strong U.S. dollar and weakening U.S. demand.

The failure of the Trump administration to secure a trade deal by April of this year may well push many Chinese companies out of business but the Communist leadership will accept these losses to defeat the U.S. in the short term for long term gain as those companies can and will be absorbed as state run enterprises until their domestic economy can recover.

Prepare for the worst as the 2007 style credit downgrades are just the beginning. And remember the credit rating agencies lied about most of the financial and other corporations right up until the last minute until the entire system crashed in 2008.

Wash, rinse, repeat.

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