THE meteorologists of the global credit markets are fretting that the balmy weather investors have basked in for much of this decade is about to turn stormy. It's tricky, however, to identify the rods that might draw down lightning from the clouds.Calling the turn in the credit cycle has been a losing strategy in recent years. War, pestilence, leveraged buyouts and the collapse of the US subprime mortgage market have all been unable to derail the rally in corporate debt. As the reasons for concern accumulate, strategists are starting to reach for their furry bear suits.

"We are growing extremely negative on credit markets, which we see as in a bubble," Tim Bond, head of asset allocation at Barclays Capital in London, wrote in a research note this week. "US companies are re-leveraging aggressively in an attempt to substitute earnings-per-share growth for earnings growth. 2008 should see a fairly savage bear market for credit, a large rise in defaults and an end to easy liquidity conditions."

Dresdner Kleinwort's analysts, led by London-based head of credit strategy Willem Sels, scrutinized this quarter's US earnings growth. They concluded that the 12.5 percent average figure is misleading because it measures earnings per share and is distorted by stock buybacks.

Profit growth for the companies in the Standard & Poor's 500 Index is just 9 percent, and 3 percent for all US ones. "With net debt growing at 10 percent, leverage ratios are deteriorating," the Dresdner team wrote in a report this week. "Clearly this is not in line with unchanged credit spreads."

US corporate bonds yield an average of about 96 basis points more than government debt, down from as high as 246 basis points in October 2002 and a five-year average of 111 basis points, according to indexes compiled by Credit Suisse Group.

Spreads on high-yield debt are down to a record low of about 300 basis points, compared with a 20-year average of more than 550 basis points, the indexes show. Spreads on euro- denominated bonds are also near their lowest ever, at about 31 basis points.

Investor appetite for junk bonds shows no signs of waning. Seven years ago, Thai Petrochemical Industry PCL defaulted on its bonds and was declared insolvent with debts of $3.5 billion in Thailand's biggest bankruptcy. This month, the company, now called IRPC PCL, the nation's biggest petrochemicals maker, plans to sell $400 million of new bonds.

The chorus of senior bankers warning that there's danger ahead grows almost daily, with Bank of America Corp. chief executive officer Ken Lewis adding his voice this month.

"We need a deal to go bad, as long as we're not in it," he told the Swiss-American Chamber of Commerce in Zurich last week. "We are close to a time when we'll look back and say we did some stupid things. We need a little more sanity in a period when everyone feels invincible and thinks this is different."

The 2007 value of global mergers and acquisitions topped $2 trillion this week, some 60 percent ahead of the total at this time last year, which ended with a record $3.5 trillion. Investors, though, don't seem to get spooked by takeovers any more.

"Credit spreads continue to go tighter with the market seemingly learning to live with the constant speculation surrounding possible bid targets," says Suki Mann, the senior credit strategist at Societe Generale SA in London. "We're either heading for a spectacular collapse, which would likely be brought about by a major event impacting the global financial system, or we are going to stay like this for a while. We go for the latter."

Economists' forecasts and the shape of the US Treasury yield curve, not to mention former Federal Reserve chairman Alan Greenspan, are still suggesting there's a risk of US recession this year, which would typically hurt creditworthiness and corporate-bond spreads.

The performance of the equity market, however, indicates the economic porridge is still fit for Goldilocks. The Dow Jones Industrial Average is at a record, up almost 8 percent this year, while the S&P 500 index has gained more than 6 percent.

It might not last. "You are seeing mergers and acquisitions tittle-tattle that makes me concerned," Fidelity International Ltd.'s Anthony Bolton said this week. "I can't tell you when it's coming, but I can tell you the precursors are there."

Bolton has successfully called the turn in equity markets twice previously, dumping telecommunications stocks in the first quarter of 2000 and protecting his fund from a decline in UK stocks that ran from April to June last year.

Will company earnings collapse as central-bank efforts to restrain inflation crimp economic growth? Will overly indebted borrowers seduced by central banks' easy-money policies at the start of the decade begin to default in droves? Does the current merger mania, with everyone bidding at premium prices for everyone else, erode lending standards to dangerously low levels?

"To everything (turn, turn, turn), there is a season (turn, turn, turn)," sang Pete Seeger, channeling the Bible's Ecclesiastes text. "A time to gain, a time to lose."

When the credit markets finally turn, there will be plenty of time to lose the gains of recent years.

(Mark Gilbert is a Bloomberg News columnist. The opinions expressed are his own.)