Executive Summary
- China's critical role in keeping the party going (and why China is in a weaker position this time)
- Despite current stock prices, the economic data is awful and fast getting worse
- A recession is near-unavoidable at this point
- What to do if you're not in the top 0.1%
If you have not yet read Part 1: It's 2016 All Over Again. Or Is It?, available free to all readers, please click here to read it first.
I know that it seems as if the US equity markets cannot ever go down and, truthfully, those indexes receive a ton of help from the Fed, the media, and from corporate buybacks.
The trouble, as always, when it begins will not be detected in the large, successful companies first. Amazon and APPL will be among the last to go down.
The trouble will start at the outside and work its way inwards. This “outside in” phenomenon is pretty robust and it has not yet been repealed by the interventionistas at the Fed.
In the US we might look to the small cap stocks to give way first, and I think they have. It's in that universe where we will find an outsized majority of the zombie companies.
From a fundamental standpoint the small caps are a certified balance sheet mess. Their net debt has been on a 40-degree, ruler-straight rise since 2010 even as their EBIDTA has risen at only a 10-degree trajectory. The current gap is eye popping.
This is a huge increase in debt, and it makes these companies especially vulnerable to any economic downturn or rise in interest rates.
Accordingly, while all eyes are on the Nasdaq powering to a brand new all time high, the small caps in the Russell 2000 are definitely not making new highs and seem to be sneaking out the back door.
If you are looking for a place to short US equities at the index level, the small caps are the ...
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