Why IMU is a multi multi bagger, page-20820

This is an interesting read. While I do not believe the signs are pointing to a recession, this is definitely a red flag for the global economy. An interesting side view of how high interest rates are affecting economies. Concentration has always focused on housing but no one really looks at the impact on businesses other than rising borrowing costs.

Recession Outlook: First Credit Slump Since Global Crisis Flashes Warning (*.com)

Bank credit is shrinking for the first time since the Great Recession –and that's a red flag for the economy

George Glover

Jan 20, 2024, 12:54 AM AEDT

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Contracting bank credit levelscould be a sign a recession is coming.Lucky-photographer/Shutterstock

• Bank credit is seeing a sustained contraction for the first time since the Great Recession, according to Fed data.
• That means businesses are borrowing less, as high interest rates chip away at confidence levels.
• The US economy avoided a recession last year, but some Wall Street analysts and investors are still pessimistic.

Bottom of Form

A key gauge of economic health in the US has sunkinto negative territory, adding credence to some of Wall Street's morepessimistic growth predictions.

Bank credit levels have now fallen for threequarters in a row, according to the Board of Governors of the Federal Reserve System – the first sustained contraction since 2010.

This is only the second such decline in more thanhalf a century. The last one was during the Great Recession, brought about bythe global financial crisis of 2008-2009.

The extended slump in bank lending comes as manyWall Street experts continue to project a pessimistic outlook for the economy,despite the surprisingly upbeat trend seen in 2023. High-profile investor Jeffrey Gundlach sees a 75% chance of recession this year, while private-equity billionaire Henry Kravis has warned of heightened economicuncertainty.

Economists David Rosenberg and Steve Hankealso expect a sharp downturn, while market guru Gary Shilling has suggested a US recession may already be underway.

US banks are seeingthe second sustained credit contraction in more than 50 years. St. Louis FederalReserve

"Bank credit is contracting for only the 2ndtime in 50 years," Tilo Marotz, head of liquid assets at German insurerContinentale Versicherungsverbund, pointed out in a LinkedIn post this week.

The credit contraction means that companies areborrowing less, with higher interest rates making it more expensive to take outloans. When it's harder to raise debt, businesses are less likely to pressahead with spending projects, which can further drag on economic growth.

Between March 2022 and July 2023, the FederalReserve jacked up interest rates from near-zero to around 5.5% in a bid toclamp down on soaring consumer prices.

The central bank has signaled that it'll startloosening monetary policy once it's confident that inflation will fall in linewith its 2% target, but until then it'll be tougher for businesses to accesscredit.

Recession warnings

The US economy defied forecasters' gloomypredictions by dodging a recession last year, with strong consumer spending helping to prop up growth. The country's gross domestic product expanded by a better-than-expected 4.9% in the third quarter – although that's predicted to have slowed to just 1.3% over the final three months of 2023, according to a survey of forecasters by the Philadelphia Fed.

Some Wall Street gurus believe central bankers arenow in a position to engineer a so-called "soft landing," which refers to the dreamlike scenario where they manage to bring inflation down to 2% without triggering a spike in unemployment or a severe recession.

Treasury Secretary Janet Yellen said the US economy was "seeing now what I think we can describe as a soft landing" earlier this month – while the Fed's own officials haven't mentioned the dreaded r-word since July, according to minutes from policymakers' last three meetings.

But not everyone on Wall Street is so cheerful.

JPMorgan Chase CEO Jamie Dimon said earlier this month that he's still "a little skeptical of the Goldilocks scenario" – referring to an economy where the levels of growth, inflation, and unemployment look "just right".

"I still think the chance of it not being asoft landing are higher than other people," the billionaire bankertold Fox Business.

"It's not terrible. It might be a mildrecession or a heavy recession," he added, noting it's possible that thedownturn bites in 2024.

Top economists like Hanke and Rosenberg haverepeatedly flagged the possibility that the US suffers a severe slump ingrowth. Hanke said this week that he believes a recession will soon "start to bite", while Rosenberg warned in August that it'd take a "miracle" to avoid a downturn.

The pessimists' outlook tends to hinge on acombination of factors – including the fact the economy is yet to feel thebrunt of the Fed's aggressive rate increases and the potential for the ongoingwars in Ukraine and Gaza to drive up inflation and disrupt global trade.

Contracting bank credit is another sign they couldbe proven right.