Stephanie Pomboy on the myth of strong corporate balance sheets

I don't think the excesses on the credit side are on the consumer balance sheet so much as they are the corporate side which was the prime credit taker during this free money bonanza.  Bloomberg just reported that in January large corporate bankruptcy filings were the largest since 2010.  So you're already starting to see things turn, and as I suggested with this idea that it was an interest rate shock, that hit, when it happens... is going to be much more profound than the markets presently expect.  They're looking for sort of a gradual and modest deterioration in credit conditions and I think we'll see something far more severe and that it will play out much more rapidly.  The interest rate hit doesn't happen until you have to pay higher interest rates, obviously, so if you have an adjustable rate mortgage and they take mortgage rates to 7% at the peak, that didn't affect you at all if you didn't have a reset.  It only affects you when the time comes to reset.  And the same is true, obviously, on the corporate side.  On that score, there are several myths around the strength of corporate balance sheets, but an important one is that companies shrewdly took the opportunity to lock in the incredibly low borrowing costs that we saw during the pandemic/stimulus bonanza for as long as they possibly could...  The fact is, they may have borrowed long, but they borrowed a ton short.  And we know that because there's a trillion dollars in corporate debt here in the U.S. that has to roll this year and then there's another trillion that has to next year and there's another trillion in 2025.  So there's going to be no relief from this impact of higher interest rates in the foreseeable horizon.  The only thing, I guess, that could stave off a significant wave of corporate delinquencies would be for the Fed to swiftly pivot and cut rates back down to where they were.

~ Stephanie Pomboy, "Don't Be Fooled: A Hard Landing Lies Ahead For The Economy (And Markets)," Wealthion, 7:45 mark, January 31, 2023