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Editor's Note: Below is an excerpt from Market Edges, our weekly big picture Macro newsletter with investing implications. Click here to learn more about Market Edges.

Short Junk Bonds: Inside The $8 Trillion Corporate Credit Bubble - Fed bubbles cartoon 07.09.2 14

This is probably the most important thing that you could be doing right now and that’s shorting Junk bonds (JNK). The junkier the worse it’s going to be. There are a lot of levered companies, in fact, they are the most levered they’ve ever been with $8 trillion in corporate credit outstanding.

Just look at this chart. We’ve calibrated the size of the dot to U.S. non-financial corporate credit outstanding as a percentage of GDP. There’s never been this much credit and as credit spreads start to rise they move on and to the right. When these bubbles start to move from the bottom left and go up and to the right, and you’re long speculative corporate credit or those portfolios reaching for yield like CLOs, you could lose a tremendous amount of capital.

Short Junk Bonds: Inside The $8 Trillion Corporate Credit Bubble - credit

BEFORE YOU GO... An $8,000,000,000,000 Corporate Credit Bubble

Here's a video digging more deeply into our call to short Junk bonds (JNK) and why the chart above is so alarming.

A viewer asked Hedgeye CEO Keith McCullough on our inaugural Mega Market Trends webcast his thoughts on how the current shorting opportunity in the market compares to previous setups in 2001 and 2008. 

McCullough explains that while there are some similarities to prior cycles, each economic cycle is different. Currently, one key factor could make the next downturn very different.

Short Junk Bonds: Inside The $8 Trillion Corporate Credit Bubble - market edges