Guggenheim's Minerd: Recession 'Appears to Be Inevitable'

Scott Minerd, Guggenheim Partners co-founder and Guggenheim Global chief investment officer, said that a global recession may be inevitable with markets finally “waking up” to the risk of financial and geopolitical contagion from the coronavirus.

“Who could predict the exact chain of events set off by the coronavirus that leads us to the circumstances that we face today?” he recently wrote. “It is virtually impossible to identify the next domino to fall but one thing seems certain: They will continue to fall.”

"The market is waking up to not just viral contagion from #coronavirus, but also to financial and geopolitical contagion, and to the knock-on effect to corporate earnings and cash flows once the world enters a #recession which now appears to be inevitable," Minerd wrote. 

— Scott Minerd (@ScottMinerd) March 9, 2020

With energy bonds “plunging,” contagion is likely to spread into other credit-market sectors including airlines, lodging, and retail; even solvent companies may struggle to roll over maturing debt, Minerd wrote in the essay titled “The Butterfly Effect.”

As for what’s to come, the veteran investor is predicting that the “fair value on the 10-year Treasury note will reach -50 basis points” before the end of the year, with the possibility that rates could “overshoot” to -2%.

"Credit spreads have a long way to expand. BBB bonds could easily reach a spread of 400 basis points over Treasurys with BB bonds at 750 basis points over and single B bonds at 1100 basis points over. The risk is that it could be worse. "

— Scott Minerd (@ScottMinerd) March 9, 2020