Dan Fuss: 'We passed the best time of the credit cycle'
By Matthew Wurtzel | December 12, 2012 10:10 am
Very little keeps Dan Fuss up at night, but the Loomis Sayles & Co. LP vice chairman is concerned about interest rates, the state of pension funds, credit risk and the so-called fiscal cliff.
Low interest rates are pushing more investors — especially public pension plans — to high yield and emerging market debt, he noted. Because public pension plans still have assumed rates of return over 7%, they are desperately chasing higher yields but also are taking on more risk.
"Credit risk is rising, and it is not reflected in the market," Mr. Fuss warned. "We passed the best time of the credit cycle sometime in the summer of 2011."
Nonetheless, Mr. Fuss' outlook for 2013 remains relatively positive. Although he thinks chances are good for an economic slowdown, it should fall short of a recession. Meanwhile, the low interest rates are likely to lead corporations to continue issuing bonds.
"Big corporations are borrowing money they don't need," Mr. Fuss said. Some are using the proceeds to fund their pension plan. Others are using the fresh issuances to repay older, higher interest rate bonds.
"If you are going to borrow, and put it in the pension plan, I'll be cheering," he quipped.
But the chances for a good year also depend on Washington, which must address the fiscal cliff. When asked for his thoughts on the matter, he said: "The problem is real, it is big, it is growing and it is understated."