Economy -- Rambling -- November 20, 2020

I find the current economy incredibly fascinating. See this article over at Yahoo!Finance: the munchkin might be right -- the end of federal emergency lending programs may no longer be needed. 

Hours after U.S. Treasury Secretary Steven Mnuchin called for emergency lending programs to be allowed to expire, corporate bond investors continued to flood Carnival Corp.’s bankers with more than $11 billion in orders for debt that comes with no collateral protection.

For some, it was a sign that credit markets aren’t so fragile after all. After roughly $2 trillion of borrowing helped U.S. companies bolster their balance sheets with cash to weather the pandemic, investors have grown increasingly confident -- perhaps even complacent -- that the widespread corporate failures predicted by many earlier this year have largely been avoided. Granted, the Fed helped fuel nearly all of that debt issuance, and the investor demand supporting it.

And even if the immediate lifeline of $580 billion in backstop money is returned by the Federal Reserve to the Treasury, traders are betting that markets will fare just fine, anticipating that the government will step in again if new signs of stress emerge.

“The reality is that if things start getting crazy and spreads start widening, the Treasury Secretary can re-authorize the Fed to open the facility again,” said Patrick Leary, chief market strategist at Incapital. “It’s more of a confidence thing for the market, given it may not be the best time with virus surges and shutdowns, but it’s not like these facilities are being used to support market functioning any more.”

Meanwhile, JPMorgan is betting on a one-percent contraction 1Q21. But then after that:

JPMorgan economists said Friday that they expect the economy to contract slightly in the first quarter of next year. 

While most economists have been projecting growth throughout the year in 2021, JPMorgan economists now expect a one percent decline in the first quarter. The economy will then pick up steam, expanding at a 4.5 percent annualized rate in the second quarter, 6.5 percent in the third quarter, and 3.8 in the fourth quarter, the economists forecast. For the full year, they project robust growth of 3.4 percent.

The "conference board" forecast a week ago:

Our base case forecast yields 4Q20 real GDP growth of 2.2 percent* (annualized rate), an annual contraction of 3.6 percent for 2020, and an annual expansion of 3.4 percent for 2021. ... In this scenario US monthly economic output returns to pre-pandemic levels in October 2021.

When you get right down to it, "same ol', same ol', with the exception of wild 2Q20 and 3Q20. 

But I digress. What startles me is that Breitbart-linked article with folks standing in line to buy Carnival Corp.'s bonds.

And, then, of course, same thing for Saudi Aramco's bonds. Oversubscribed, I believe. There seems to be a lot of cash floating around out there looking for a home. 

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CU

Link here. 

Link here to Bloomberg.