Regrettably, I think, in some cases corporations then decided to borrow in the bond market and from bank credit lines in order to build up their treasury. That might appear to be a great thing, but it also altered the debt to equity structure, which is a measure of financial strength. Then to support high (and leveraged) share prices, many of those corporations decided to use the debt as well as current cash flow to buy back shares, and in some cases to make big dividend payments. The leverage increased, which certainly may not have been the right thing for some companies.

So far so good for traders (and private equity firms) who have been very happy with the total returns. But what happens if the latest debts incurred by these corporations were short-term ones, and (i) the economy now turns down so much so that future corporate cash flows fall away, and (ii) interest rates move higher?

Where will these once "rich" companies stand then?

You may laugh, but Donald Trump, a gazillionaire who deals daily in multi-million dollar loans, and many experts like him in the real estate development business, never foresaw the capital markets environment change as quickly as it did in 1990. They were too busy "doing" and not spending enough time "thinking". Many of those 800-pound gorillas soon became 98-pound weaklings and some even died off.

So I think it behoves all traders to have another look at what actions their favorite companies have taken with respect to cash management in the past couple years. Some of these companies may have sprung a leak and don't even know their boat is sinking.

It is always amazing to me to see how nasty one's long-time bankers can turn when credit quality starts to sink. That's why I started pointing traders to the data on foreclosures on homes. I wanted you to think about it.

The weakest credits go down first, but the underlying factors are always there to affect many other individuals and companies.

For proof of that, just look at what happened to Trump during the early 1990's period. Quoting from Wikipedia, "By 1994, the effects of recession left him unable to meet loan payments."