January 2020 - New Decade, Same Old Recovery

Happy New Year and Happy New Decade to everyone!

As we enter a new year and a new decade, we stand back in absolute awe of the irrepressible nature, sheer toughness and massiveness of the U.S. economy. The previous decade, from 2010 through 2019, was the first calendar decade of continued expansion without any economic contraction or recession in modern U.S. history. Wow and wow again.

And as we have turned the calendar to a new year and a new decade, we note that it may be a new decade, but it is the same old economic recovery in the U.S.

“How much longer can this last?” is the question that has been ceaselessly asked in commercial credit departments for the past umpteen years. As credit officers and commercial underwriters in all corners of the corporate finance world continue to climb a wall of worry, the endless expansion of credit continues onward, with still no end in sight.

A brief and temporary flirtation with rising interest rates has become such a distant memory that even the most ardent market-watchers can barely remember such a foolish notion. How silly of us to think that someday interest rates might rise again!

In fact, rather than any chance of higher interest rates, the new decade seems much more likely to see interest rates in North America break through the very Japanese, Scandinavian and Germanic barrier of negative interest rates. Yes, it’s true! With any luck, over the coming years and months all of us in the U.S. may be able to actually have the privilege paying our friendly neighborhood bankers to hold our checking and savings deposits. What a warm and comforting thought on a cold winter day!

Interest rates have such a penchant for negativity in future periods that many long-term interest rates forecasts should probably go see a therapist! (OK, OK, that one was too much).

All this means that it is going to be harder than ever for banks to make money. However, it also means that for the time being, it will remain a borrower’s market. There seems to be tremendous and powerful forces that are working to make sure that the after-hours credit party keeps going and going like the Energizer bunny, lending out money, banging that drum and refusing to stop.

Leverage and/or credit is like the oxygen in our lungs – we don’t think about it much until it is gone. Thankfully, as long as this never-say-die, Rocky Balboa of a sluggish, old and weary economic expansion continues in the U.S., we all still have plenty of air in our lungs, deals in our pipelines and credit card offers in our mailbox.

All the best to you in 2020!