Albert Edwards at Societe General.
History shows that, to the (limited) extent economists do actually predict a recession, its tardiness usually means they give up waiting just at the point it arrives (the bus stop dilemma). The resilience of corporate profits has been a key reason this recession has been delayed – especially as companies in aggregate are now a net beneficiary of higher rates. Yet beneath the mega-caps the vast bulk of companies are in big trouble.
One thing is certain: the US corporate sector in aggregate is a massive net borrower. We can see that clearly from the Fed’s Z1 (table L103). Hence normally when interest rates rise, so too do net debt payments, squeezing profit margins and slowing the economy. BUT NOT THIS TIME. Corporate net interest payments have instead collapsed (see chart below, H/T my derivatives colleague, Jitesh Kumar). What on earth is going on?
