Wednesday, July 29, 2020

Chart of the Day: Anti-gravity

In client review meetings these days I find myself often proposing, then dispelling the "this time is different" notion.  

The proposition this time around is that the Fed is explicitly unfettered in what it's willing to do to "save the system."

The dispelling goes like this:
"The only difference this go round is the difference between "explicit" and "implicit." The fact that "TARP" was capped at, as I recall, ~$800 billion, and that the Fed's "quantitative easing" program was limited to $80 billion a month in '08 was utterly meaningless. If the stock market hadn't bottomed for good (57% below its prior peak) on March 9, 2009, and the economy 3 months thereafter, Congress would've absolutely approved another $800 billion, then another then another then another, and the Fed would've printed unabated until, lo and behold, the market and the economy bottomed, which -- then -- would've had the Fed warmly accepting all the credit."
Now, that said, there is indeed something that is absolutely different this time around: Neither the corporate debt/free cash flow ratio (left-side), nor the corporate interest expense/operating income ratio (right side) historically-speaking -- and for obvious reasons -- go up as the economy goes down (red-shaded areas highlight past recessions). I mean, that would mean companies actually pile on more debt -- or, at a minimum, don't refinance at recession-level interest rates, or, don't default on a mountain of it -- at a time when their ability to service what they already have is severely compromised -- so of course they don't (further [purposely] weaken their balance sheets), right? Well, alas, not so fast. That, believe it or not, is precisely what's occurring this time around:

click to enlarge...


H/T Hedgeye Risk Mgmt

Yes, it's what you think it is: The powers-that-be are literally facilitating -- funding even -- the further inflation of the massive corporate debt bubble that had us begin hedging against a potentially worse-than-2008 credit collapse late last summer. And, yes, you're right to think that this'll likely make matters worse before it's all said and done...


No comments:

Post a Comment