March 25, 2008


Crunch Mythology (Ken Fisher, 03.24.08, Forbes)

If you believe the popular economic myths of the day, you think there's a credit squeeze--less total credit available. This is nonsense. There's indeed less credit available to poor risks, individual and corporate. But that just means there's more for the good borrowers. Blue-chip companies are flush with capital and borrowing power. This is bullish, both for the economy and for stocks, especially stocks of big companies.

Fact: The largest firms have much more credit access in all forms than they did 12 months ago. These are the very firms that can spend it the most and the fastest.

Fact: Total corporate borrowing--that is, total U.S. corporate debt issuance--was higher in 2007 than in 2006. In January 2008 U.S. corporate borrowing was $101 billion, up slightly from the same month a year ago. The majority of this debt was of investment grade, meaning that it was rated BBB or better; within this segment the borrowings were up 12% from a year ago. Some credit crunch!

If there were a squeeze, interest rates would be shooting up. They aren't. [...]

Where do we get all these myths about crises and collapses? From pontificators. The sort of folks who frequent Davos.

...just how much cash corporations have on hand? We have too much savings.

Posted by Orrin Judd at March 25, 2008 5:56 AM
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