Welcome to Thoughts on the market. I'm Andrew Sheets, Chief Cross Asset Strategy

for Morgan Stanley. Along with my colleagues bringing a variety of perspectives,

I'll be talking about trends across the global investment landscape and how we put those ideas together.

It's Friday, December 4th at 2 p.m. in London.

One of the most unusual elements this year is that corporate default rates have been extremely low relative

to what is likely one of the largest drawdowns in the global economy ever

recorded. This lack of a reset in the corporate sector is often cited as a reason why this can't be the start of an economic cycle.

This argument goes that while recessions are painful, they're really important for clearing out weaker, less productive, and under-capitalized businesses,

making room for stronger, more dynamic ones to prosper in their wake.

But this year, historic levels of policy support prevented this wave of defaults and creative destruction and

without it a dynamic recovery is simply unlikely. Now since we at Morgan Stanley

do think this is the start of a new economic cycle do believe it it will be dynamic, i.e. were above consensus on global growth,

and do not expect a surprisingly high wave of defaults, I'd like to take this moment to explain why we don't

ascribe to the argument that I just mentioned, and why we don't ascribe to the argument that I just mentioned and why we

don't think that a clear out of more defaults is necessary. First, high default rates

are not the only important part of recessions. Recessions also usually involve high unemployment, low inventory levels, high savings rates, and low consumer confidence,

and the recoveries that follow recessions are often about all of these measures improving.

And this time we think the same dynamics will happen,

that high unemployment will fall,

inventory will slowly get rebuilt,

savings rates will get drawn down,

and consumers will get more confident.

...