Guggenheim Partners’ Scott Minerd warned in a new market outlook titled “Peace for Our Time: The coronavirus is a looming economic problem” that the Covid-19 outbreak in China is the latest red flag for investors could prick the corporate debt bubble.
Minerd says, “cognitive dissonance in the credit market is stunning.” He compares today’s uncomfortable and eerie stillness in the corporate bond market to the late 1930s, right before the Nazis started bombing Britain.
But the larger-than-life CIO spoke even more ominously during an interview with CNBC, warning that “I have never in my career seen anything as crazy as what’s going on right now,” adding “this will eventually end badly.”
Financial markets, he warned, show a “cognitive dissonance” from economic reality that has created a dangerous bubble among debt assets.
“In the markets today, yields are low, spreads are tight, and risk assets are priced to perfection, but everywhere you look there are red flags.”
Investors are underestimating the impact that the outbreak will have on the Chinese economy.
“In that sort of environment, people are not going to go to work. You’re not going to get output, and it’s unlikely that we’re going to return to any sort of level that was consistent with the pre-Lunar Holiday,” Minerd said.
With the virus outbreak worsening, and China shockingly reporting a massive jump in new infections on Wednesday-Thursday due to a “change in the definition” of how it counted confirmed cases, resulting in a surge of nearly 20,000 cases over the two days, Minerd warns: “Covid-19 is much more deadly than SARS and if not contained threatens to become a global pandemic.”
The economic impact of the virus outbreak will result in China’s GDP for the first quarter to be slashed to sub 6% annualized from an already …
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