1/ THINK TODAY'S CARNAGE is oil+#coronavirus? It isn't. It's abt balance sheets. And no one is even talking abt the carnage to corp balance sheets from #pension liabilities given huge drop in long-term interest rates--the avg corp pension liability just went up ~20% & funding...
2/ ...pmts are coming due shortly for many. They will go up bc int rates plunged--a hit to free cash flow. Pick @Boeing as just one of many examples. Guess what--it had NEGATIVE $8.3bn of shareholder equity at 12/31/19, caused by its big pension deficit. Here's a screenshot: 
3/ Its total pension liab was $77.6bn at 12/31/19, using a discount rate of 3.3%. The drop in AA-corp bond yields (which set the disct rate) since 12/31/19 has been HUGE (guesstimate it's 1% & guess the pension liab has a ~10yr duration, so the pension liab is now ~10% higher).
4/ In other words, pension liab at today's interest rates now ~$7.76bn higher. Assuming pension assets are flat (that's prob optimistic too), most of the $7.76bn drops to shareholder equity & drives shareholder equity EVEN MORE negative than the $8.3bn it already was at 12/31/19.
5/ I'M NOT SINGLING OUT Boeing--many US corp balance sheets look similar--I'm just using Boeing as one of many examples to show corp balance sheets are highly leveraged. The plunge in long-term interest rates just ballooned their pension liabilities BIG TIME. Some will escape...
6/ ...credit rating downgrades, but many won't. So, nope, folks--today's carnage isn't just abt oil+#coronavirus. It's abt leveraged balance sheets, pure&simple. And too much leverage in the real sector means there's too much leverage on financial sector balance sheets. Again...
7/ ...the BEST THING THAT CAN BE DONE TO CALM MARKETS is for the big banks (the G-SIBs) to raise a lot of equity--fast, while they still can do so at reasonable prices. Again, central bank liquidity doesn't solve a leverage problem!
8/ With that context, you may find this interesting--it's from LAST WEDNESDAY!!!!! The Fed voted to relieve capital buffers for big banks LAST WEDNESDAY!!! This will not age well... morningconsult.com/2020/03/04/fed…
9/ Here's to hoping the big banks' smart management teams & boards heed the bond market's message, which it has been SCREAMING since last summer & it got EVEN LOUDER last fall. Stay safe out there folks...
