“…consumer confidence doesn’t ‘go gently into the night,’ but rather ‘screaming into the abyss’…”… Earnings held up during the first quarter — it may not last as loan losses mount.

This Time Might Be Different: Lance Roberts

“…consumer confidence doesn’t ‘go gently into the night,’ but rather ‘screaming into the abyss’…”

We are just entering into what will likely be a longer, deeper, and more damaging recession than what we saw in 2008. Credit conditions and yields spreads are still a long-way from normalized, and defaults and bankruptcies are likely only in the very early stages. Liquidity from the Fed has suspended bankruptcies for the time being, but the longer this recession/depression drags on, the greater the risk is the Fed only delayed the inevitable.

While the Federal Reserve has certainly moved quickly to assist the credit markets in remaining operational, as discussed here, those “emergency measures” don’t translate into stronger economic prosperity, revenues, or corporate profits.

What this all means is there will be no “V-shaped” recovery.

It also suggests there is a possibility that “buying the dip,” doesn’t work this time.

Record Amount of Risky Debt Is Coming Due, Highest in a Decade: Barron’s

Another worrying sign has popped up in the high-yield bond market: A record amount of risky debt is coming due within two years.

How Will Covid19 Lockdowns Hit the Housing Market? It Gets Clearer

“In May, what market? I don’t see no market”: Realtor.

‘This Is Going to Hurt’: Pain Is on the Way for the Four Big U.S. Banks

Earnings held up during the first quarter — it may not last as loan losses mount.

The four largest U.S. banks posted profits in the first quarter, even though they set aside billions of dollars for expected loan losses. Some analysts referred to the hit on earnings as “noise” because the banks simply moved money from one bucket to another.

Chris Kotowski, a bank analyst at Oppenheimer, referred to large quarterly provisions for loan losses (that is, additions to loan loss reserves) as “reserve noise” that lacks “economic substance” in reports April 14 and 15 for the simple reason that the largest banks haven’t yet taken significant credit losses from the economic turmoil caused by the coronavirus outbreak.

Kotowski also pointed out that the first quarter didn’t result in the largest banks taking significant trading losses as the Federal Reserve’s 2019 stress tests predicted in their “severely adverse” economic scenario.

Edward Jones analyst James Shanahan said in an interview that the trading business has been serving the banks well in a difficult environment because “it diversifies their sources of earnings.”