Hi Johnny,
The PPP gave equity funding to businesses who continued to pay their employees.
In most cases that potential loan and its repayment has been waivered.
This resulted in short term low commercial loan demand after the program's inception to the banking institutions.
As these loan's repayments have been waivered, the funds have been re-allocated to debt repayment of the firm, or very often tax free distributions to the partners/owners of the company!
Time has passed , debt has been reduced for the conservative companies, as they have benefitted from a "waivered loan" that ended up being a tax free equity injection.
That was last year, and now commercial loans are growing again, as the freebies have reduced debt or been spent on Ferraris - as the extreme opposite of what is going on - but it is not too far off of the "high rollers".
Principals could pay down debt or make a tax free distributions to themselves (if the loan was waivered).
Now with a year long delay, commercial loan demand begins to grow. Buy the banks!
Looks like a lot of business owners bought nice new rides!
That was last year, and now commercial loans are growing again, as the freebies have reduced debt or been spent on Ferraris - as the extreme opposite of what is going on - but it is not too far off of the "high rollers".
Either way the banks now have a higher rates to charge and their rates are going up.
Sounds to me like a formula for less after tax profits, and less government tax receipts In the macro way of thinking.
Unless your company has no debt and cash in the bank or other investments, it's a profit headwind into 2022.
I suspect that we are in a rotation, a rotation from non-earnings companies to companies without debt and real products with real margins and profits.
The paradigm shift involves companies with profits and cash that will earn more money as rates increase vs the companies with revenue growth and no profits AND debt that bleeds them in the long term.
It's much like 2000 all over again, to me.
Time to scale out of speculative MOMO like stocks, and invest in those that will be around after the dip runs its coarse. Could probably buy them back in a year or two at lower prices, unless they pay a dividend. JMHO
Bob |
