CORPORATE CREDIT DOWNGRADES RISE


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The number of corporations seeing their credit rating fall last year was 4.67 times more than those with rising ratings, according to ratings service DBRS Morningstar.
The pace of downgrades surpassed 2008’s 3.08 ratio and approached the 5.39 mark set in 2009 at the worst of the Great Recession.
Morningstar recorded 70 downgrades in 2020, compared to 45 in 2016 when the number spiked as the method of calculating downgrades for European financial institutions was changed.
There were 74 downgrades in 2008 and 97 in 2009, DBRS said.
About 40 percent of oil companies monitored by DBRS were degraded last year. The automotive and retail sectors saw 30 percent of companies’ creditworthiness knocked down.
Automotive, consumer services, energy, real estate, and retail could continue to be vulnerable to downgrades amid aftershocks of the global economic collapse, DBRS’s report cautioned.
TREND FORECAST: With oil prices sharply rising there will be some respite in that sector, however, the serious economic damage of year-long low prices will not resuscitate the deep in debt.
Also true with retail and real estate, both of which have been propped up with government payout to the public and zero interest rate policy respectively. 
We agree with the statement of Morningstar director Anil Passi who told the Wall Street Journal. “We’re living in an artificial world propped up by money printing. There’s going to come a day when everyone has to stand on their own two feet.”
The day of reckoning will come when equity markets crash. (See Gregory Mannarino’s new article, “MARKETS’ DAY OF RECKONING: COMING SOON.”

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