Companies are defaulting on their loans and filing for bankruptcy in what is expected to be a record wave of insolvencies and defaults.
Interventions from the Fed and Congress and excitement about the removal of lockdown orders have boosted equity and debt markets, the real economy is quietly collapsing.
So far this month, 27 firms that report at least $50 million in liabilities have sought bankruptcy protection, Bloomberg reports.
- That’s the highest monthly total since May 2009.
What to watch: Already this year, 88 companies globally have defaulted on their debt, according to S&P Global. That’s nearly double the number of corporate defaults to this point in 2019 (49) and more than double 2018’s total (43).
- Of the 88 defaults, 59 have been the result of missed interest and principal payments or bankruptcy.
Distressed debt investors and law firms are gearing up for the onslaught of bankruptcies, insolvencies and liquidations expected this year–congressional leaders were warned that federal bankruptcy courts are likely to “be overwhelmed by this flood of cases.”
- Centerbridge Partners recently activated a roughly $3 billion capital pool that had been on standby for four years to direct at distressed assets, the firm’s co-managing partner Jeffrey Aronson told the Wall Street Journal.
“You have to recognize that this recession, as tough as it is, has just started,” Aronson said.
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As happens each time we have these “stimulations,” the stimulations make the rich even richer while the poor get to pay the freight:
MARKETWATCH Market Snapshot
“Dow closes up 500 points, tests 25,000 level, on recovery hopes and vaccine news”
By Chris Matthews and Joy Wiltermuth
Published: May 26, 2020 at 4:42 p.m. ET
Sahak Manuelian, managing director of equity trading at Wedbush Securities, called the global monetary and fiscal stimulus aimed at blunting the economic carnage from the coronavirus “something we’ve never seen,” adding that the trillions “sloshing around today, just in the U.S.” has helped push equities higher.
“The money has to find a home.”
MARKETWATCH Market Snapshot
“Dow closes 267 points higher as Wall Street focuses on easing coronavirus lockdowns amid civil unrest”
By Chris Matthews and Joy Wiltermuth
Published: June 2, 2020 at 4:42 p.m. ET
“Most people on Main Street think it’s crazy where the stock market is trading, especially on a day where you have major protests happening in the U.S.,” Sam Hendel, president of Levin Easterly Partners, a New York asset management firm, told MarketWatch.
He pointed to the unprecedented fiscal and monetary stimulus to the coronavirus crisis as benefiting stocks.
MARKETWATCH Market Snapshot
“Nasdaq ends 1.4% off record close as stock-market lurches higher, following economic data pointing to less severe COVID-19 downturn”
By Mark DeCambre and Joy Wiltermuth
Published: June 3, 2020 at 4:50 p.m. ET
Meanwhile, hope for success in businesses reopening has been credited with pushing stocks higher, while analysts also say that an unprecedented dose of stimulus from the Federal Reserve has provided a floor for assets considered risky.
MARKETWATCH – The Fed
“Fed’s Powell says he’s sleeping better than at start of the COVID-19 outbreak”
By Greg Robb
Published: May 29, 2020 at 2:56 p.m. ET
Asked whether the Fed’s policies during the pandemic were worsening existing income inequality, Powell replied, “Absolutely not.”
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MARKETWATCH Market Snapshot
“Dow ekes out longest win streak in 5 weeks as investors see signs bad economic”
By Mark DeCambre and Andrea Riquier
Published: June 4, 2020 at 4:38 p.m. ET
Trillions of dollars in stimulus from the Federal Reserve and the U.S. government, underpinning financial markets, also have helped to drive the value of assets sharply higher from their March lows.
God bless the federal reserve of the S&P 500, what would the ONE PERCENT do without them:
MARKETWATCH Market Snapshot
“Nasdaq closes at all-time high, Dow less than 7% off record, as Wall Street looks for Fed to keep support intact”
By Joy Wiltermuth and Sunny Oh
Published: June 8, 2020 at 4:50 p.m. ET
The Federal Reserve has been wildly successful in terms of keeping credit flowing during the pandemic, with major U.S. equity and debt benchmarks already recouping significant lost ground since the COVID-19 pandemic forced the nation into lockdown.
Despite civil unrest and rising Sino-American trade tensions, markets have been kept afloat and even made significant gains on the back of trillions of dollars in support from the U.S. government and the Fed, whose balance sheet has ballooned to $7.21 trillion from around $4 trillion in March.
Meanwhile, over on the other side of the ledger:
MARKETWATCH
“Nearly 10 million people lost their jobs in April due to coronavirus, new report shows”
By Jeffry Bartash
Published: June 9, 2020 at 10:46 a.m. ET
Nearly 10 million people lost their jobs in April after a record 14.6 million were thrown out of work in March, a government report shows, underscoring the widespread devastation to the U.S. labor market from the coronavirus.
The unprecedented back-to-back increases in people losing their jobs in March and April reflects the cumulative damage of a nationwide economic shutdown as the U.S. tried to stop the spread of COVID-19.
More than 20 million Americans are receiving jobless benefits and it may be awhile before most return to work.
Job openings also fell to 5 million in April from 6 million in the prior month, according to a Labor Department report that’s released with a one-month delay.
Yet even that figure overstates how many companies are willing to add workers.
The number of people hired in April fell to the lowest level on record at 3.5 million.
Before the pandemic, job openings were running well above 7 million and had hit a record high.
Hotels and restaurants cut 1.75 million jobs in April as they coped with stay-at-home orders that kept customers away.
In March and April, some 6.5 million people lost their jobs in those two industries alone.
Retailers also took another heavy hit.
They let go or furloughed 1.2 million workers after jettisoning 1.7 million employees in April.
Job losses were also heavy in health care and professional and business services.
Job openings fell in most segments of the economy.
The coronavirus turned a extremely tight labor market virtually overnight into a jobs wasteland.
More than 20 million people were laid off or furloughed at least temporarily and it’s still unclear how many will be able to return to their old jobs.
Most economists predict a return to normal could take several years.
Laying low, seeking out the poorer quarters
Where the ragged people go
Looking for the places
Only they would know
Lie la lie, lie la la la lie lie
Lie la lie, lie la la la la lie la la lie
Asking only workman’s wages
I come looking for a job
But I get no offers
Just a come-on from the whores
On Seventh Avenue
And in the meantime, thanks to the federal reserve of the S&P 500, the ONE PERCENT are doing just fine!
MARKETWATCH – The Fed
“Dovish Fed sees no interest-rate hikes for years, will keep buying assets”
By Greg Robb and Jeffry Bartash
Published: June 10, 2020 at 4:58 p.m. ET
Powell (fed chief) pushed back on criticism that the Fed has put too much money into the economy and is fueling a bubble in stock prices.
“The concept that we would hold back because we think asset prices were too high…what would happen to the people (the ONE PERCENT) we’re supposed to be serving?” he added.