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A Surge in Small Business Bankruptcies is Underway
A Surge in Small Business Bankruptcies is Underway
The new rules make it easier for small businesses to file for chapter 11. And they are.
Small Businesses Walking Away
In 2008, homeowners walked away from mortgages.
Thanks to the Small Business Reorganization Act of 2019 (SBRA), in effect as of February 19, 2020, small businesses have an easier shot at doing the same.
For example, the Twisted Root Burger grew quickly, but co-founder now says ‘I’m gonna walk away’ from some locations.
Twisted Root Burger was a Texas success story, expanding from one casual restaurant in 2006 to 24 sites including restaurants, bars, a brewery and a theater. Now, the company is moving fast in another direction—into bankruptcy.
“I’m not gonna open that restaurant at half the revenue,” said co-founder Jason Boso. “I’m gonna walk away from those restaurants. I’m not gonna set myself up for failure.”
More than 500 companies filed for bankruptcy under the small-business bankruptcy rules since February, according to the American Bankruptcy Institute. June was the top month for filings with 131 cases; many were filed in states hit hard by the pandemic like Florida, Texas, California, New York and Illinois.
“It was somewhat prescient,” said Ryan Wagner, a restructuring and bankruptcy attorney with international law firm Greenberg Traurig LLP. “It was passed without the foresight of the pandemic.” The law is the most significant change to the bankruptcy code since 2005.
SBRA Highlights
- Applies to businesses with $2.7 million in liabilities, raised to $7.5 million under coronavirus stimulus
- Owners continue operating their business while in court
- Owners can retain equity after exiting bankruptcy
- Owners can modify residential mortgages if home was collateral for a business loan
- Faster turnaround to save time and minimize legal fees
- Owners generally have three to five years to repay creditors
- Creditors can be paid based on a business’s projected income
Walking away gets a new lease on life, this time for small businesses.
Industrial Production Declines Most in 101 Years
Industrial Production Declines Most in 101 Years
On the heels of miserable retail sales numbers comes the worst ever industrial production numbers.
The Fed’s Industrial Production report provides another grim look at the Covid-19 wrecked economy.
Total industrial production fell 11.2 percent in April for its largest monthly drop in the 101-year history of the index, as the COVID-19 (coronavirus disease 2019) pandemic led many factories to slow or suspend operations throughout the month.
Manufacturing output dropped 13.7 percent, its largest decline on record, as all major industries posted decreases. The output of motor vehicles and parts fell more than 70 percent; production elsewhere in manufacturing dropped 10.3 percent.
The indexes for utilities and mining decreased 0.9 percent and 6.1 percent, respectively. At 92.6 percent of its 2012 average, the level of total industrial production was 15.0 percent lower in April than it was a year earlier.
Capacity utilization for the industrial sector decreased 8.3 percentage points to 64.9 percent in April, a rate that is 14.9 percentage points below its long-run (1972–2019) average and 1.8 percentage points below its all-time (since 1967) low set in 2009.
No V-Shaped Recovery
As noted earlier today Retail Sales Plunge Way More Than Expected
Despite talk from hopers, even the fed understands there will not be a V-Shaped recovery.
Instead they are promoting a helicopter drop of money. For details, please see Panic Sets In: Fed Promotes More Free Money
Panic Sets In: Fed Promotes More Free Money
Panic Sets In: Fed Promotes More Free Money
Lawmakers need to do more says Minneapolis Fed President Neel Kashkari.
Free Money for 18 Months
The Fed cannot directly give money away so that burden falls on Congress. Kashkari follows Fed Chair Jerome Powell in seeking Congressional Action.
“They are going to need more. If this is a slow recovery, the way I think it is — I think we’re in this for months, a year, 18 months — there are going to be a lot of families that are going to need direct financial assistance,” Kashkari said Thursday during a virtual event with CBS. “I think a V–shaped recovery is off the table.”
“Putting money directly in the hands of laid-off Americans is, I think, the most direct way to get assistance, and then they will spend the money where they need it,” Kashkari said. “I just think money in the pockets of people who have lost their jobs is what we need right now until we can get the health care system to catch up and get control of this virus.”
I case you were wondering what sent the S&P in a huge 70-point S&P 500 U-Turn today, that reason is as good as any.
Powell’s Message
Yesterday, Powell made similar statements, just not as forceful.
Recall that the Fed has lending powers, not spending powers. A loan from a Fed facility can provide a bridge across temporary interruptions to liquidity, and those loans will help many borrowers get through the current crisis. But the recovery may take some time to gather momentum, and the passage of time can turn liquidity problems into solvency problems. Additional fiscal support could be costly, but worth it if it helps avoid long-term economic damage and leaves us with a stronger recovery. This tradeoff is one for our elected representatives, who wield powers of taxation and spending.
…click on the above link to read the rest of the article…
Negative Rates Are Not an Option
Negative Rates Are Not an Option
Today, Fed Chair Jerome Powell reiterated the Fed’s position on negative rates and gave his economic assessment as well.
Economic Outlook “Highly Uncertain”
In a live economic interview with PIIE, Jerome Powell discussed the Fed’s outlook for the economy and the advisability of negative interest rates.
The video interview is above and here is Here is Powell’s Prepared Transcript.
Key Transcript Snips
The scope and speed of this downturn are without modern precedent, significantly worse than any recession since World War II. We are seeing a severe decline in economic activity and in employment, and already the job gains of the past decade have been erased. Since the pandemic arrived in force just two months ago, more than 20 million people have lost their jobs. A Fed survey being released tomorrow reflects findings similar to many others: Among people who were working in February, almost 40 percent of those in households making less than $40,000 a year had lost a job in March.
While the economic response has been both timely and appropriately large, it may not be the final chapter, given that the path ahead is both highly uncertain and subject to significant downside risks. Economic forecasts are uncertain in the best of times, and today the virus raises a new set of questions: How quickly and sustainably will it be brought under control? Can new outbreaks be avoided as social-distancing measures lapse? How long will it take for confidence to return and normal spending to resume? And what will be the scope and timing of new therapies, testing, or a vaccine? The answers to these questions will go a long way toward setting the timing and pace of the economic recovery. Since the answers are currently unknowable, policies will need to be ready to address a range of possible outcomes.
…click on the above link to read the rest of the article…
Eurozone Collapse: V-Shaped Recovery Mirage Is Gone
Eurozone Collapse: V-Shaped Recovery Mirage Is Gone
Eurozone Economy Collapses 3.8% in the first quarter, the worst on record. Spain (-5.2%) and France (-5.6%) GDP were much worse than Italy (-4.7%).
Economist Daniel Lacalle offers his thoughts on the European economy in a YouTube video.
EUROZONE COLLAPSE
The V-Shaped Recovery Mirage Is Gone.
https://www.youtube.com/watch?v=kO_RxjESCk4 … YouTube at 🏠 @YouTube
What LaCalle says about the Eurozone also applies to the US.
What’s Next for America?
For a 20-point discussion of what to expect, please see Nothing is Working Now: What’s Next for America?
No V-Shaped Recovery
Here’s the correct viewpoint: The Covid-19 Recession Will Be Deeper Than the Great Financial Crisis.
Simply put, a quick return to business as usual is not in the cards.
Inflation or Deflation?
Meanwhile, the debate over inflation or deflation continues.
Will it be Inflation or Deflation?
If you believe the answer is inflation, then you do not understand the importance of credit and demand shocks. Click on the link for discussion.
Rate of Contraction Exceeds the Global Financial Crisis
Rate of Contraction Exceeds the Global Financial Crisis
The US is suffering the fastest deterioration in operating conditions for over 11 years.
Markit reports Output Contracts at Fastest Pace in Survey History amid COVID19 pandemic .
Key Findings
- Flash U.S. Composite Output Index at 27.4 (40.9 in March). New series low.
- Flash U.S. Services Business Activity Index at 27.0 (39.8 in March). New series low.
- Flash U.S. Manufacturing PMI at 36.9 (48.5 in March). 133-month low.
- Flash U.S. Manufacturing Output Index at 29.4 (46.5 in March). New series low.
Adjusted for seasonal factors, the IHS Markit Flash U.S. Composite PMI Output Index posted 27.4 in April, down from 40.9 in March, to signal the fastest reduction in private sector output since the series began in late-2009.
Services companies registered the steepest rate of decline in the survey’s history, while manufacturers recorded the sharpest fall in sales since the depths of the financial crisis in early-2009.
The cancellation and postponement of orders led firms to reduce their workforce numbers at a rate far exceeding anything seen previously over the survey history at the start of the second quarter.
Chris Williamson, Chief Business Economist Comments
- “The COVID-19 outbreak dealt a blow to the US economy of a ferocity not previously seen in recent history during April. The deterioration in the flash PMI numbers indicates a rate of contraction exceeding that seen even at the height of the global financial crisis, with jobs also being slashed at a rate far exceeding anything previously recorded by the survey.”
- “The large swathe of non-essential business that has been shut down temporarily amid efforts to contain the virus means the blow has been most heavily felt in the service sector, and especially for consumer facing companies in the recreation and travel industries. Those companies still actively trading meanwhile reported the steepest drop in demand seen since data were first available, and are also struggling against twin headwinds of staff shortages and supply chain delays.”
…click on the above link to read the rest of the article…
As Unemployment Claims Rise, So Do Missed Mortgage Payments
As Unemployment Claims Rise, So Do Missed Mortgage Payments
Over 22 million people have filed for unemployment benefits in the past 4 weeks. Many struggle with payments.
Black Knight reports More than 2.9 Million in Forbearance, 5.5% of All Mortgages
Key Details
- As of April 16, more than 2.9 million homeowners – or 5.5% of all mortgages – have entered into COVID-19 mortgage forbearance plans
- This population represents $651 billion in unpaid principal and includes 4.9% of all GSE-backed loans and 7.6% of FHA/VA loans
- At today’s level, mortgage servicers would be bound to advance $2.3 billion of principal and interest payments per month to holders of government-backed mortgage securities on COVID-19-related forbearances
- Another $1.1 billion per month in lost funds will be faced by those with portfolio-held or privately securitized mortgages
Forbearance Totals
Payment Forbearance Under Cares Act
On March 27, 2020, President Donald Trump signed the Coronavirus Aid, Relief, and Economic Security Act (also known as the CARES Act) into law. A provision of the CARES Act allows borrowers with federally backed mortgages to request temporary loan forbearance for up to 180 days. Borrowers also have the right to apply for an extension of another 180 days of forbearance.
Once a borrower requests hardship forbearance due to the COVID-19 pandemic, the act requires the servicer to offer a CARES Act forbearance.
Pitfalls
Forbes warns of Mortgage Forbearance Pitfalls.
John Ulzheimer, an Atlanta-based credit expert formerly of FICO and Equifax, warns of a potential balloon payment.
“If the lender or servicer demands that you pay back the deferred amount all at once or in an otherwise expedited manner, that could be impossible for the borrower.”
Unfortunately, having a mortgage servicer ask for a “balloon” payment once your forbearance period ends is a very real possibility. Borrowers from multiple national banks have reportedly been informed of the need to repay any delayed payments in a lump sum at a future date.
Three Things Not to Do
…click on the above link to read the rest of the article…
Hyperinflationists Come Out of the Woodwork Again
Hyperinflationists Come Out of the Woodwork Again
CoinDesk asked me to share my opinions on the chance of hyperinflation. My thoughts are below.
From CoinDesk
Hi Mish,
I am working on an article for CoinDesk about recent fiscal and monetary splurge by governments and central banks across the globe and the impact on gold and bitcoin. As I see, a majority of analysts and economists are calling for hyperinflation and rally in gold.
Could you please share your take?
Thanks
CoinDesk
Matter of Definitions
Before there can be a rational debate on anything, people must agree on definitions.
I believe most people would accept this definition: Hyperinflation is the complete collapse in currency against every other asset.
Pick a currency, say the US dollar. To bet on hyperinflation and be correct, the dollar would have to go nearly worthless vs the Euro, the Pound, the Yen.
Alternatively, 50% in a single month would quality. Professor Hanke defines Hyperinflation as a 50% Currency Collapser in a Month.
Q: How likely is that?
A: Close to zero.
Replay Discussion
Curiously, this is a replay of my 2010 article Williams Calls for “Great Hyperinflationary Great Depression”.
Williams is John Williams of Shadowstats. He was not alone. Here is a snip changing the name Williams to “Hyperinflationsists” in the first word of these four points.
- Hyperinflationists focus on money supply, ignoring credit although credit is far more important.
- Hyperinflationists ignore numerous global interconnections. Calling for hyperinflation in the US alone ignores happenings in Europe, Japan, and China. I remain amazed at how US-centric hyperinflationists in general are.
- Hyperinflationists ignore US gold holdings, the largest in the world.
- Hyperinflationists ignore the massive influence of consumer attitudes and bank attitudes towards lending.
To expect the US dollar to go to zero vs the Euro, Yen, Food, gold, Yuan, etc., was then and is now pure silliness.
…click on the above link to read the rest of the article…
50,000 New Coronavirus Infections Per Day in China
50,000 New Coronavirus Infections Per Day in China
Prof. Neil Ferguson, Vice Dean Faculty of Medicine, Imperial College in London, estimates 50K new infections per day.
Please consider the following video by Prof. Neil Ferguson.
10 Key Video Points
- 50,000 new cases a day in china
- Infections doubling every 5 days
- Death rate is still unknown
- China likely to peak in March
- Epidemic peak is still a month away
- It will be very hard to control this epidemic the say way we did with SARS 15-20 years ago
- Cases are always underestimated
- Death delays are as long as three weeks
- Reported deaths outside China are not reassuring because of delays
- We still don’t know the full effects
Tweet on Containment Strategies
Building on @ChristoPhraser et al’s work, @coreypeak‘s model examining the impact of disease dynamics on the relative benefits of symptom monitoring v quarantine seems relevant for thinking through #nCoV2019 containment strategies. https://www.pnas.org/content/114/15/4023.abstract …
Jim Bianco’s Latest Update
…click on the above link to read the rest of the article…
“Made in China” Economic Hit Coming Right Up
“Made in China” Economic Hit Coming Right Up
Economic contagion due to the coronavirus is underway. Hyundai halted production. Sony, Apple, and Ford issued warnings.
If you can’t get parts, you can’t build cars.
And due to a coronavirus-related manufacturing halt in China, Hyundai to Shut Down Some Production.
Hyundai, the world’s fifth-largest carmaker, announced Tuesday that it was suspending production lines at its car factories in South Korea, one of the first major manufacturers to face severe supply-chain issues because of the coronavirus.
Many auto plants in China have already shut down because of the virus, including factories run by Hyundai, Tesla, Ford and Nissan. Hyundai plants in South Korea would be the first to shut down lines outside of China, and comes as Hyundai has ramped up production in China over the past two decades.
Economic Contagion
The Wall Street Journal comments on China’s Economic Contagion
More than 20,000 coronavirus cases have been confirmed worldwide—an eight-fold increase over the last week—and experts say hundreds of thousands may not yet have been diagnosed. Two dozen or so countries have reported cases, and many have restricted travel from China to limit the contagion. Companies are evacuating employees from China.
U.S. manufacturers such as Ford, Apple and Tesla have temporarily halted production. One-sixth of Apple sales and nearly half of chip-maker Qualcomm’s revenues come from China. So do 80% of active ingredients used by drug-makers to produce finished medicines. Because China is the world’s largest manufacturer and an enormous consumer market, the economic freeze will disrupt supply chains and reduce corporate earnings.
China’s GDP growth was already almost certainly lower than the official figure of 6%, and it is likely to fall by a third or more.
…click on the above link to read the rest of the article…
Hundreds of Virus Carrying Planes Headed for US, London, Paris, Vancouver
Hundreds of Virus Carrying Planes Headed for US, London, Paris, Vancouver
Lockdowns are for the peasants, not those with money.
What Does Halt All Traffic Mean?
This morning, I Decided to Research this Question:
I don’t Know Jim, good question.
China statements say “tours”
Other sources suggest “individuals”
So … Is it Tours or Individuals?
And what about those who visited China from other countries?
Not covered at all IMO. https://twitter.com/biancoresearch/status/1221573171515678722 …Replying to @MishGEA97:21 PM – Jan 26, 2020
Results below.
Lockdown? What Lockdown?
There is no lockdown in China, if you are wealthy.
Check out this Beijing Flight Schedule for today. Here’s the Wuhan Flight Schedule for today.
Lockdowns are for those with no money, not the wealthy.
Beijing Departures
- 25 flights on a page
- 5 pages for the 00:00-06:00 departures
- 26 pages for 06:00-12:00 departures
- 22 pages for the 12:00-18:00 Beijing departures
- 20 pages for the 18:00-00:00 departures
That’s about 1825 flights out of Beijing.
Wuhan Departures Today
How easy is it to escape Wuhan?
You can still catch a flight from Wuhan to Anchorage, Tokyo, Seoul, Bangkok, Singapore, Taipei and countless cities in China including Beijing and Shanghai.
- There are 8 pages of flights out of Wuhan today. That’s about 200 flights. Most of the flights are within China, but that hardly stops containment.
- In the 00:00-06:00 slot one flight left for Anchorage. Another left for Bangkok, Thailand and another went to Tokyo.
- In the 06:00-12:00 slot, two planes left for Tokyo and three to Hong Kong.
- In the 12:00-18:00 slot, three planes left for Seoul, South Korea and two went to Taipei, Taiwan.
- In the 18:00-00:00 slot, one plane went to Bangkok , three went to Taipei, three went to Hong Kong,
Wuhan Departures Tomorrow
Tomorrow, there are four flights from Wuhan to Singapore, three to Taipei, two to Bangkok, three to Tokyo, three to Paris, and six to Hong Kong, three to San Francisco,
…click on the above link to read the rest of the article…
Bubbles Everywhere: All Dressed Up and Nowhere to Hide
Bubbles Everywhere: All Dressed Up and Nowhere to Hide
Economist Robert Shiller says there is no alternative to riding out bubbles.
Please consider Stock Market Crash Near? Nobel Laureate Sees ‘Bubbles Everywhere’
When Nobel Laureate and “Irrational Exuberance” author Robert Shiller says he sees bubbles in the financial markets — you’d better listen up. He literally wrote the book on stock market crashes and bubbles after all.
“I see bubbles everywhere,” Shiller, economics professor at Yale University and author of just-published “Narrative Economics” told investors gathered in Los Angeles Wednesday. “There’s no place to go. You just have to ride it out. You invest even though you expect the price to decline.” Shiller famously predicted the 2000 stock market crash and the 2007 crash of the housing market.
Shiller says the housing market is in a bubble phase, not unlike 2005. That was the point the housing bubble was inflated, but yet to go parabolic. “It’s like 2005 again,” Shiller said. “San Francisco and L.A. are already slowing down.” That’s a “bad indicator,” he said, as those markets have been going up for years.
No Place to Go?!
I do not care about books or past predictions.
I care about logic of the moment.
For starters, if housing was like “2005 again“, San Francisco and LA would not be “already slowing down.” But that is nitpicking.
Here’s the important issue: On an individual basis, It is absurd to say there is “no place to go“.
Places to Hide
- Gold
- US Dollar
- Foreign Currencies
- US treasuries 5-year or less
It is impossible for all of those to decline at the same time. Heck it is impossible for 2 and 3 to decline at the same time except compared to gold or some other asset, which of course implies somewhere else to hide.
…click on the above link to read the rest of the article…
What the Hell is the ECB Doing?
What the Hell is the ECB Doing?
Danielle DiMartino poses an interesting question regarding the ECB. I have a set of answers.
What is the ECB Doing?
I started thinking about that question weeks ago.
I have a set of answers and even started writing this post before DiMartino brought it to the forefront.
There are only two answers. One of them is very unsettling.
- Ignorance
- On Purpose
Occam’s Razor
Occam’s razor is a principle from philosophy. Suppose there exists two explanations for an occurrence. In this case the one that requires the least amount of assumptions is usually correct. Another way of saying it is that the more assumptions you have to make, the more unlikely an explanation.
Occam’s Razor typically eliminates most conspiracy theories. It’s not that conspiracies don’t happen, but that simpler solutions are far more likely.
My corollary to the theory is very easy to understand: If stupidity is one of the possible answers, it is the most likely answer.
I am a normally a big fan of Occam’s Razor.
But this is so bizarre that I have my doubts.
Importantly, this may not be a conspiracy at all. Mario Draghi can easily be acting alone.
My Lead Question
How stupid can things get before one starts believing something else is in play?
I had already been thinking about that question when not only did ECB president Mario Draghi further push interest rates into negative territory but he also said it was a good idea for the ECB to think about MMT.
Shocking ECB Dissent
Dissent at the Fed happens all the time. It is rare at the ECB. The ECB builds a consensus and it is typically unanimous.
…click on the above link to read the rest of the article…
Lagarde Praises Negative Rates, Study Shows They Reduce Lending
Lagarde Praises Negative Rates, Study Shows They Reduce Lending
Incoming IMF chief Christine Lagarde says negative rates have helped Europe more than they’ve hurt. I disagree.
The nearly always wrong Christine Lagarde is wrong once again.
Today she claims Negative Rates Have Helped Europe More Than They’ve Hurt.
The next head of the European Central Bank, Christine Lagarde, appears to be as much of a fan of negative interest rates as the current chief, Mario Draghi.
European banks have complained about the impact on profitability, but even there the current managing director of the International Monetary Fund defended the move.
“On the one hand, banks may decide to pass the negative deposit rate on to depositors, lowering the interest rates the latter get on their savings,” she wrote. “On the other hand, the same depositors are also consumers, workers, and borrowers. As such they benefit from stronger economic momentum, lower unemployment and lower borrowing costs. All things considered, in the absence of the unconventional monetary policy adopted by the ECB – including the introduction of negative interest rates – euro area citizens would be, overall, worse off.”
Negative Rates Actually Cut Lending
Research shows Negative Rates Actually Cut Lending.
Central banks’ negative interest rates were supposed to increase spending, stop deflation and stimulate the economy. They may have done the exact opposite.
According to research from the University of Bath, central banks charging commercial banks to hold excess cash reserves have actually decreased lending. That’s because the additional costs reduce banks’ profit margins, leading to a drop in loan growth.
“This is a good example of unintended consequences,” said Dr. Ru Xie of the university’s School of Management, one of the study’s authors. “Negative interest rate policy has backfired, particularly in an environment where banks are already struggling with profitability.”
…click on the above link to read the rest of the article…
Barron’s Nonsensical Idea: Cut Rates Like Mad to Avoid Recession
Barron’s Nonsensical Idea: Cut Rates Like Mad to Avoid Recession
Barron’s writer Matthew Klein proposes to stop the recession by cutting interest rates like it’s 1995.
Klein says How to Avoid a Recession? Cut Interest Rates Like It’s 1995.
One of the most reliable harbingers of U.S. recession—short-term interest rates on U.S. Treasury debt higher than longer-term yields—has been flashing warning signs for months. That doesn’t mean the economy is doomed to a downturn.
So-called yield-curve inversions have preceded every U.S. downturn since the 1950s, with only one false positive in 1966. This past week, the yield on two-year Treasuries briefly surpassed the yield on 10-year notes for this first time since 2007. The most straightforward explanation is that traders…
Absurd Notion
The rest of the article is behind a paywall, but I can tell you with 100% certainly Klein’s notion is absurd.
Inverted yield curves do not cause recessions. They are symptoms of a buildup of excess debt or other fundamental problems.
Those problems will not not go away if the Fed “cuts rates like 1995” or even like 2008.
If a zero percent interest rate stopped recessions, Japan would not have had a half-dozen recessions in the past decades that it did have, many without inversions.
Not even negative rates can stop recessions.
The Eurozone, especially Germany, has negative rates. Yet, it’s highly likely the Eurozone is in recession now and even more likely Germany is (with the rest of the Eurozone to follow).
Monetary Madness
As a prime example of global monetary madness, witness Inverted Negative Yields in Germany and Negative Rate Mortgages.
Even if the Fed made a 100 basis point cut (four quarter point cuts at once), what the heck would that do?
Stop recession for how long? Zero months? Six months? And at what expense?
What Then?
Yes, what then? Negative mortgages? A 10-year yield of -1.0% like Switzerland.
And if that doesn’t work?
…click on the above link to read the rest of the article…
