Coronapanic Update 3

We’re not even close to the panic “Federal Reserve is going to strangle the economy with rising interest rates coupled with end of year tax loss selling” bottom of 2018:

The flu, which tends to kill an estimated 100 to 200 Americans a day, depending on the year, is now the trigger to a market panic.

Perhaps Coronavirus is the excuse for what was a stretched market – although its real-world effects is probably in-line with past happenings, the psychological effects have spiraled into something that is now turning into real-world effects that will take the better part of a year to digest.

People are staying home, events are being cancelled, there’s mass panic at Costco for toilet paper (rationally speaking, toilet paper is quite a bit down on the list of things you’d want if the world is going to end), and travel plans are being suspended. In China/Hong Kong, kids are staying home and not going to school, and needless to say, this is going to have an impact on consumption. It’s got recession written all over it.

There’s been an obvious rush for liquidity, and the next ripples to emerge will probably be in the corporate debt markets as covenants get breached due to shortfalls in revenues/EBITDA amounts.

I’d be really cautious about companies that have credit lines that have covenants that were close to being reached in the last quarter.

Likewise, companies that are requiring rollovers of debt will be facing a very uncomfortable situation.

I recall the 2008 days when companies like Sprint Corporation and other reputable corporations had their long-term debt trading at 20-25% yields to maturity. Will we get to that point?