Both the US and Europe have seen massive drops in demand for bank loans. Meanwhile, the Fed just said they no longer expect a recession. 
Here’s a Tweet that caught my eye today.
Why are Companies Slamming the Brakes?
Senior Loan Officer Opinion Survey on Bank Lending Practices
Please consider the Fed’s latest Senior Loan Officer Opinion Survey on Bank Lending Practices.
- Survey respondents reported, on balance, tighter standards and weaker demand for commercial and industrial (C&I) loans to firms of all sizes over the second quarter.
- Banks reported tighter standards and weaker demand for all commercial real estate (CRE) loan categories.
- For loans to households, banks reported that lending standards tightened across all categories of residential real estate (RRE) loans, especially for RRE loans other than government-sponsored enterprise (GSE)-eligible and government loans.
- Demand weakened for all RRE loan categories.
- Banks reported tighter standards and weaker demand for home equity lines of credit (HELOCs).
- Standards tightened for all consumer loan categories; demand weakened for auto and other consumer loans, while it remained basically unchanged for credit card loans.
Supply and Demand for Commercial and Industrial Loans
Measures of Supply and Demand for Commercial Real Estate Loans
Attitude Change
Q: Why are Companies Slamming the Brakes?
A: Recession risk and profit risk
It’s not just companies who are slamming the brakes. Tighter lending standards across the board shows banks are doing the same.
Large and small banks alike are getting clobbered on rising yields. This led to the collapse of Silicon Valley Bank (SVB).
Banks raise lending standards, the economy slows a bit, corporations get fearful of falling profits so they do not want to expand.
The cycle feeds on itself until something breaks. And it’s breaking now.
The Inflation Reduction Act dampened the cycle impact with huge subsidies, but that band-aid is about to fall off.
Soft Landing?
A crashing demand for loans does not add up to the now widely believed soft landing thesis.
For further discussion, please see China Exports and Imports Collapse, Harbinger of the Global Economy?
Free money is a lot more compelling that money you have to borrow.
2020 was the PPP loans so the data is not comparable. Everyone took the PPP loan as it was forgivable and the banks had no risk – just profit.
Loans are less this year because rates are higher. When rates were very low companies borrowed rather than use internally generated funds. Now that has switched.
I think you can find figures to support any hypothesis. Here, it’s that a recession is coming soon. Now for well over a year. It’s always just around the corner. Eventually, we will have a recession and no one really knows when. In the mean time, people look for facts to support their views.
Bingo!
Well stated.
A recession will come eventually, but trying to time it or predict it, is very difficult.
And whether the economy is in recession or not, every situation provides an opportunity to profit. The short but steep pandemic recession provided an opportunity to load up on oil stocks that were left for dead. Ka-ching!
Many industries and individuals are already in recession. Just because the economy as a whole can be portrayed as stable does not mean that significant portions of the economy are not in fact struggling.
The unregulated non banks will run everybody into the ground before they have a coronary incident themselves from gorging on others. Then it will be called a recession. It is a natural cycle of human greed that cannot be stopped. Higher interest rates will slow down the greed.
Yep. The same as it always is. Winners and losers. Sounds like you are invested in the losers.
Got oil?
Obviously you don’t. You’ve been running it down for 3 years. Lol!
Its another good day for my oil stocks. As always, I will sell a little bit into the strength and raise a little more cash to be deployed later. God Bless America! Land of opportunity for those who want to take advantage of it.
It is not a matter of me picking winning and losing investments, but it is God investing in me.
God did not tell me to invest in oil so I didn’t.
I have done well in the last 3 years and it was not done by predatory speculation. Your system does not create wealth but transfers and consolidates wealth. I have only been running oil down for 18 months, and since then it has been flat to declining. One thing that people don’t realize is that wells do not pump oil, but pump money. There is always plenty of oil, and this is why it is such a volatile investment ( excuse the pun) with many swings. Most of the gains are in inflation diluted dollars; in actual terms many investments are just flat, and barely keeping up with inflationary currency devaluation. Wells will continue to pump money at any price, high or low as they have always done.
PaPa, you always act like oil is the only game in town. Not every Smurf has to invest in the same thing to do well.
Some choose to create in ways that profits and blesses others as well as themselves. It is called creating wealth with Love and Human dignity.
Papa, give yourself a little Grace. Life is more than money. I am sure you are a nice guy whether you become rich or poor.
What does God tell you to invest in? And how good is his/her track record? One would think it would be perfect.
Biden’s infrastructure spending boost the econ like FDR, Mussolini and Stalin.
I seem to recall a man named Adolph used infrastructure (Autobahn) to boost Germany’s economy.
To boost anything, the spend would have to result in a meaningful improvement to existing infrastructure. Adolf and friends accomplished that. I’m still waiting for free-speed quality of freeways in Bidenstan.
Of course, to idiotonomists, the spending is allthat matters. It “boosts” some impressive sounding (to those easily so) three letter jargon’y acronyms and all. Never mind actually improving anything. That’s, like, hard and stuff..
Non Bearing interest deposits are down, but the spreads of loans rates over bank’s
cost of funds is the second highest.
The regional banks cut cost, lend less, but their profit margin is high.
Demand for bank loans is down, but the gov spends trillions on roadwork,
industrial RE, fabs, pharma… on blue collar jobs, in the south and the mid west.
First on Mish : lines, lines with breaks, dots, different colors.
Yet the will “FEIGN SURPRISE” long after we into the “RECESSION”!!!
5% of GDP is Spent on Stock Buybacks. At Today’s interest rates, it is far too speculative to borrow money for buyback stocks with the intent of stabilizing stock prices up when insiders with stock options cash out. The FED is reigning in unregulated Non Banks by raising interest rates. Keep up the good work.
Although “some” companies will take on some debt for buybacks, most buybacks occur from excess free cash flow.
As I have repeated many times over the last 3 years, oil companies are using their prodigious free cash flow to buyback shares, increase dividend payouts, AND pay down or even pay off their debt. Many companies that I own shares in are now debt free or have extremely low debt levels, and have no need to borrow going forward (unless they plan an acquisition).
Regrettably “prodigious free cash flow” will not be the right form of prodigious necessary in the future mine shaft situation.
What does that mean? That you are going to hide in the bottom of a mineshaft to ride out the end of the world that you are so worried about? What’s wrong with the typical survivalist bunker?
My guess would be no one wants to pay the higher interest rates.
But consumers keep carrying credit card debt at usurious interest rates.
Exactly. Commercial loans are almost all floating rate, so any corporation borrowing today would still expect to be paying a higher rate sometime in the near future.
No, nothing, nil, zip.
No one sees coming.