This Dove’s Not Crying

This Dove’s Not Crying

Dovish Fed Chair Jerome Powell held day 2 of his semi-annual monetary report to Congress today. To summarize, the Fed’s got your back if you are a company of most any size, if you participate in the capital markets, if you are a politician looking for a free lunch, if you desire low interest rates and free-flowing liquidity without so much as a care as to how or when we will begin to square our various debts.

Here are several takeaways from the live conference call this afternoon:

Our favorite quote: “We want to be there for credit worthy companies that are unable to obtain a loan from a bank” – Fed Chair Powell.

The Fed’s lending logic: Under the Main Street lending program the Fed is lending to companies at a 4-6x EBITDA multiple based on 2019 EBITDA. In other words, a company’s current financial reality is irrelevant.

Collateralized Loan Obligations (“CLOs”): When asked about CLO’s in light of yesterday’s article from the Atlantic and today’s piece in the WSJ, Powell does not view CLOs as a significant risk (despite approximately $1 trillion of CLOs outstanding). “We are all over it. We have great visibility into those assets. This isn’t like 2008.” Famous last words.

Main Street program eligibility now includes:

  1. Non-profits;
  2. Small, medium and large businesses;
  3. State and local governments
  • We heard at least one request for funding to state & local governments from Rep. Cindy Axne (IA-03);
  • Rep. Bill Huizenga (MI-02), called for a dedicated program to fund the auto parts industry;
  • Rep Van Taylor (TX-03) asked for CRE loan forbearance for those that play in Indoor Retail, Hospitality and Student Housing.

Political hands are fully extended in the hopes of receiving a Federal Reserve-backed handout.

My comments to the Fed.