Moody’s and S&P ignore reality again!

You need to read this article from Bloomberg about the rating agencies:

• Bloomberg – Ratings Inflation Is Back, Subprime Style

From the article: “Some investors warn the approach has encouraged an epic debt binge that could pose dangers as years of near-zero interest rates come to an end. AT&T’s plan to borrow about $40 billion to buy Time Warner Inc., in addition to its $120 billion of debt already outstanding, is just the latest example. In 2015 alone, U.S. companies borrowed a record $1.6 trillion in the bond markets, with $258 billion of that going to finance acquisitions by investment-grade companies, Barclays Plc says. According to Morgan Stanley, corporate America is now more leveraged than ever.”

You may ask – why is this a problem?  Good question:

• Bloomberg – Why Corporate America’s Debt Is a ‘Major Risk’ – Bloomberg

It just amazes me how short folk’s memories are – we know this is going to end badly, but we ignore it.  And if you think the US is bad – look at China and India:

• Forbes – China Is Said to Be Relaxing Rules to Tackle Its Corporate Debt Problem
• Brink – Rising Corporate Debt Poses Growth Concerns in India

At some point – we are going to have another credit melt down, just like in 2008 – and when reality sets in – the Bond and Equity Markets will be very painful for most investors: