If you buy into the idea that a lot of this investing is pretty divorced from reality, then the question is how long this lasts. For now, the music’s still playing, so people are dancing.
To put it plainly, the stock market is not representative of the whole economy, much less American society.
Traditional loans generally have protective covenants built into the contract that protect the lender, including financial maintenance tests that measure the debt-service capabilities of the borrower. The issuance of covenant-lite loans means that debt is being issued to borrowers with less restrictions on collateral, payment terms, and level of income. Covenant-lite loans place less restrictions on the borrower in terms of requiring collateral and a certain level of income.
No matter how many times we keep on saying the stock market is not the economy, people won’t believe it, but it isn’t. The stock market is about one piece of the economy — corporate profits — and it’s not even about the current or near-future level of corporate profits, it’s about corporate profits over a somewhat longish horizon.
After all, you only find out who is swimming naked when the tide goes out.