While 6 of the 49 inputs to our proprietary macro index saw their scores change this week, they essentially balanced each other out: Our overall score remained stuck at -6.12 for the third consecutive week:
Confirming evidence that the distance to "normalcy" is greater than some might have us believe shows up in much of data that we don't formally score, yet we assess nonetheless. Like the Fed's Senior Loan Officer Survey...
Respondent's said that "on balance, they tightened their standards on Commercial and Industrial Loans on firms of all sizes", plus they reported weaker demand from their customers for the same. They also reported tighter standards and weaker demand for all major categories of commercial real estate loans.
"It is virtually impossible for general conditions to get back to pre-covid levels, if general conditions include the balance sheet condition of US institutions.
We carried history’s largest, and worst quality, corporate debt bubble into 2020 -- pre-covid, that is. The setup was for an economy that was already exhibiting notable fragilities to inspire a significant amount of central bank intervention that may very well have carried financial markets through the election year, while effectively delaying the inevitable demise of the longest economic expansion on record.
However, the market-friendly tools at the Fed's disposal were highly unlikely to suffice in keeping markets afloat much beyond 2020, given the fact that with trillions on its balance sheet and having already pushed interest rates to nearly the zero lower bound, its actions would likely have done little more than temporarily extend what was by then an illusion of economic strength. And the end of expansions (read recessions) are virtually always attended by painful contractions in asset prices.But then came Covid-19, which essentially pulled reality forward, and, at the same time, gave world central banks political cover to literally breach all market and capitalist convention, even break the law in the case of the U.S. Federal Reserve -- as it resorted to buying corporate bonds; something prohibited, and for good reason (read moral hazard), by the Federal Reserve Act of 1913."
And have a great weekend!