"Something strange is going on" ...An explanation of why the US recession keeps getting postponed.

Friends, today I want to add one of Societe Generale's perspectives on the much-discussed topic of the US recession. One of the oldest banking institutions in France.

I came across an interesting article today and it is also positive, so I thought I must share it with you. We are in a better mood lately and the fear is subsiding thanks to the successful taming of inflation, the market is growing, the economy is strong. On the other hand, there has logically been a lot of talk of recession in the air. However, in recent weeks we have seen analysts' estimates of its removal or even the hope that it might not be there at all, and here is one reason why.

According to Societe Generale, "something very strange has happened" that explains why the US recession has been postponed, and it has to do with some timely moves by corporations. The bank pointed out that if we go back to at least 1975, net interest payments by corporations will increase as the Fed raises interest rates. But for the first time in a long time, that's not happening. Instead, when the Fed has raised rates over the past 15 months, corporate net interest payments have actually fallen or remained unchanged.

"Normally, when interest rates rise, net debt payments rise, squeezing profit margins and slowing the economy. But not this time," said Albert Edwards of Societe Generale.

According to Bank of America data from earlier this year, companies have bought some time to move into higher rates. The debt composition of S&P 500 companies includes just 6% short-term floating-rate debt, just 8% long-term floating-rate debt, 10% short-term fixed-rate debt and a whopping 76% long-term fixed-rate debt.

The low, long-term debt held by corporations, combined with their pricing power in a time of elevated inflation, means that most corporations have been able to achieve strong earnings growth. And they haven't had to resort to an overly large wave of layoffs that would have disrupted the economy and plunged it into recession.

So even though there have been some layoffs, we are still, with some exceptions, seeing corporate profits. And this might not be the case if companies had to refinance their debt at the higher rates that we have now. Given that most of their debt doesn't mature until 2025, 2026, 2027 and beyond, it's possible that interest rates could move lower in the meantime, allowing companies to continue to ride low rates and eventually stave off a recession .

This is quite an interesting view and I like it because we really don't have to face as negative an outlook as we read so many times. Of course, I am not saying, hooray all-in either. Let's be vigilant, and by releasing cash on a regular basis, I don't think anybody is going to mess anything up. 😊 Have a nice Friday and rest for the weekend.🍀