background image

OP 2019: Corporate credit crunch pushes Netflix into GE’s vortex

Peter Garnry
Chief Investment Strategist

Summary:  The once all-powerful General Electric is foiled by the magnitude of its liabilities and the contagion ripples through the markets, bringing content king Netflix to its knees.

For the full list of Saxo's 2019 Outrageous Predictions, click here.



2019 proves the year of credit dominos toppling in the US corporate bond market.
It starts with General Electric losing further credibility in credit markets, pushing
the credit default price above 600 basis points as investors panic over GE’s $100
billion in liabilities rolling over in the coming years at the same time as the firm sees
deteriorating cash flow generation.

GE loses its ability to contain the damage and files for Chapter 11 and restructuring,
selling off assets and consigning the once-glorious industrial giant to the dustbin of
history.

The event sends shockwaves through global credit markets as investors realise that
the Powell Fed has already tightened financial conditions beyond the market’s ability
to bear. Credit spreads over the Treasury curve widen rapidly, painfully lifting funding
costs for US companies. The carnage even spreads as far as Netflix where investors
suddenly fret about the firm’s fearsome leverage, with a net deb t to EBIDTA after
CAPEX ratio of 3.4 and over $10bn in debt on the balance sheet.

Netflix’s funding costs double, slamming the brakes on content growth and gutting the
share price. To make things worse, Disney’s 2019 entrance into the video streaming
industry trims Netflix growth further still.

The negative chain reaction in corporate bonds sets off massive uncertainty in high-yield bonds leading t o a Black Tuesday for
exchange-traded funds tracking the US high-yield bond market where ETF market
makers are unable to set meaningful spreads, forcing a complete withdrawal from the
market during a tumultuous trading session.

The fallout in the ETF market becomes the first warning shot of passive investment
vehicles and their negative impact on markets during turmoil.

Quarterly Outlook

01 /

  • Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Quarterly Outlook

    Fixed Income Outlook: Bonds Hit Reset. A New Equilibrium Emerges

    Althea Spinozzi

    Head of Fixed Income Strategy

  • Equity Outlook: Will lower rates lift all boats in equities?

    Quarterly Outlook

    Equity Outlook: Will lower rates lift all boats in equities?

    Peter Garnry

    Chief Investment Strategist

    After a period of historically high equity index concentration driven by the 'Magnificent Seven' sto...
  • FX Outlook: USD in limbo amid political and policy jitters

    Quarterly Outlook

    FX Outlook: USD in limbo amid political and policy jitters

    Charu Chanana

    Chief Investment Strategist

    As we enter the final quarter of 2024, currency markets are set for heightened turbulence due to US ...
  • Macro Outlook: The US rate cut cycle has begun

    Quarterly Outlook

    Macro Outlook: The US rate cut cycle has begun

    Peter Garnry

    Chief Investment Strategist

    The Fed started the US rate cut cycle in Q3 and in this macro outlook we will explore how the rate c...
  • Commodity Outlook: Gold and silver continue to shine bright

    Quarterly Outlook

    Commodity Outlook: Gold and silver continue to shine bright

    Ole Hansen

    Head of Commodity Strategy

  • FX: Risk-on currencies to surge against havens

    Quarterly Outlook

    FX: Risk-on currencies to surge against havens

    Charu Chanana

    Chief Investment Strategist

    Explore the outlook for USD, AUD, NZD, and EM carry trades as risk-on currencies are set to outperfo...
  • Equities: Are we blowing bubbles again

    Quarterly Outlook

    Equities: Are we blowing bubbles again

    Peter Garnry

    Chief Investment Strategist

    Explore key trends and opportunities in European equities and electrification theme as market dynami...
  • Macro: Sandcastle economics

    Quarterly Outlook

    Macro: Sandcastle economics

    Peter Garnry

    Chief Investment Strategist

    Explore the "two-lane economy," European equities, energy commodities, and the impact of US fiscal p...
  • Bonds: What to do until inflation stabilises

    Quarterly Outlook

    Bonds: What to do until inflation stabilises

    Althea Spinozzi

    Head of Fixed Income Strategy

    Discover strategies for managing bonds as US and European yields remain rangebound due to uncertain ...
  • Commodities: Energy and grains in focus as metals pause

    Quarterly Outlook

    Commodities: Energy and grains in focus as metals pause

    Ole Hansen

    Head of Commodity Strategy

    Energy and grains to shine as metals pause. Discover key trends and market drivers for commodities i...


Business Hills Park – Building 4,
4th Floor, office 401, Dubai Hills Estate, P.O. Box 33641, Dubai, UAE

Contact Saxo

Select region

UAE
UAE

All trading and investing comes with risk, including but not limited to the potential to lose your entire invested amount.

Information on our international website (as selected from the globe drop-down) can be accessed worldwide and relates to Saxo Bank A/S as the parent company of the Saxo Bank Group. Any mention of the Saxo Bank Group refers to the overall organisation, including subsidiaries and branches under Saxo Bank A/S. Client agreements are made with the relevant Saxo entity based on your country of residence and are governed by the applicable laws of that entity's jurisdiction.

Apple and the Apple logo are trademarks of Apple Inc., registered in the US and other countries. App Store is a service mark of Apple Inc. Google Play and the Google Play logo are trademarks of Google LLC.