Goldman: Fed Lift Off “Comes At An Awkward Time”

Naturally, this time is different, posits that Goldman strategist who queries as to why the Fed is hiking rates now.

He knows it’s wrong; but for some reason, he just can’t get himself to cast aspersions at the all mighty Fed. They must have some sort of New World Order agreement in place that the Vampire Squid and Fed Mothership can never be at odds with one another.

Liftoff by the Federal Reserve “comes at an awkward time for U.S. credit markets,” writes Charles Himmelberg, chief credit strategist at Goldman Sachs.

That’s because high-yield credit spreads are flashing a warning sign, rising to levels that have been historically consistent with a U.S. recession:

“In our view, oil prices remain the epicenter of both credit risk and credit risk sentiment,” the strategist wrote.

“It is true that corporate leverage has risen over the past 4-5 years to levels that have not prevailed since the 1990s but, absent elevated recession risk, this does not justify current spread levels,” wrote Himmelberg.

“And even if rates rise much faster than we anticipate, these low long-term rates are locked in, and debt maturities over the next few years are unusually low due to the high pace of refinancing activity over the past several years,” the strategist added.

The pain will be contained to these energy and materials sectors, Goldman suggests. Any broader reduction in access to credit will ultimately support the asset class as the market will not be forced to digest more supply from new issues, and further down the road, refinancing activity.

As such, elevated high-yield spreads aren’t a sufficient cause to halt the U.S. economy’s forward progress, concludes Goldman.

“For the broader economy, while developments in credit markets bear close monitoring, we do not yet see a case for a more far-reaching credit crunch,” asserts Economist Zach Pandl.

In summary, it will be contained to the energy markets, the fuckery that is. Also, we must keep a watchful eye on those pesky credit markets. But, rest assured, there will be no credit crunch.

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