Welcome to Thoughts on the market. I'm Mike Wilson, Chief Investment Officer and Chief

U.S. Equity Strategy for Morgan Stanley. Along with my colleagues bringing you a variety

of perspectives, I'll be talking about the latest trends in the financial marketplace. It's

Monday, March 23rd at noon eastern. So let's get after it. We are entering a sharp

recession in the US economy. So is the global economy.

Most pundits will blame the unfortunate and unforeseen coronavirus

as the reason.

And while the virus played a major role in tipping us

into a recession, mainly due to the response of using quarantines and temporary lockdowns

of the economy, the recession we are experiencing was 10 years in the making.

Recessions are always about removing the excesses that built up during the prior expansion.

And in my view, there were two areas in particular that were vulnerable to an economic

contraction, corporate credit and the Shadow Banks.

First on corporate credit, we've never seen corporate leverage as high as it is now,

and much of this credit was added because credit markets have rarely been so inviting to issuers.

This is a direct result of the financial repression era orchestrated by central banks post the financial crisis.

In short, the abnormally low cost of borrowing has encouraged companies to lever up and use this financial leverage to drive better earnings growth in what has been a sluggish economic recovery.

It's important to note that low growth is very different from negative growth and so now that we have entered a recession the corporate bond market knows

the risk of default is much greater hence the dramatic moves we have seen in

credit spreads in the past month. As an aside the correction in stocks really took a turn for the worst

when tensions between Russia and OPEC caused a collapse in oil prices.

This is what really triggered the stress in corporate credit markets, which is why stocks seem to have no bottom despite numerous efforts from

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