The Economic Wall Dead Ahead Is Hidden Behind False Signs Of “Recovery”
This morning I had left the TV mistakenly tuned to CNBC with the sound on—-and unavoidably caught another bullish strategist jawing about the US economy’s awesome strength. This one was peddling as exhibit #1 the recent surge in C&I loans, arguing that it is a sure sign that business is gearing up for a post-winter boom.
It turns out that the $1.8 trillion of C&I loans outstanding at the end of February, in fact, were up by 14% since January 2014. But then again, when are they going to find a guest which wasn’t born yesterday. That is to say, an analyst who is capable of looking at the historic context in which the latest data points are anchored, the quality of the numbers at issue and the deeper implications of the indicators.
In this case, like most of the blizzard of bullish factoids spewed out each day on bubble vision, the purported business lending boom is not all that. The upward blip during the last 13 months was from a level which had first been reached way back in October 2008. In other words, it had taken 63 months to dig out of the deep crater that had resulted from the liquidation of the mountains of bad debt that existed on the eve of the financial crisis.
Next consider the quality and content of the purported “surge” in business lending. The skunk in the woodpile is patently obvious in the graph below.
The “surge” is almost entirely due to financial engineering and LBOs. In fact, virtually all of the growth in business lending during the past two years is due to a dramatic rise in leveraged loans from the deal business. Thus, overall C&I loans are up a modest $220 billion since October 2008, but 100% of that gain is accounted for by the 37% rise in leveraged loans outstanding since 2008.
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