The Nation's Financial Condition

[cradleandshoot]

Do i remember correctly that the LAST time we attempted an infrastructure bill was that the Republicons wanted the money spent on tax breaks and concessions to the private sector contractors..."Big Construction" if you will...as opposed to a more direct program that would have benefitted the working-level employment situation at a more grass-roots level...? I probably mangled that, but does anyone remember WHY we couldn't seem to get an Infrastructure Bill done the last time around...?

..

Maybe the same reason your buddy GWB could not get social security reform. Everybody knows both things need to get done. It is the age old DC dilemma there Dis. Why solve a problem when the problem is what you want to claim needs fixin when your running for re-election? " You need to re-elect me so I can help fix our nation's infrastructure..blahh, blahh, blahh, yada, yada, yada.. vote for me and I'll help fix it... More blahh, blahh, blahh, yada, yada, yada. Same old story, same old song and dance.

[CU88]

February 8, 2021
By David Leonhardt

Good morning. Biden pushes for full employment.


Full employment

Over the past two decades, the people who make economic forecasts for a living have repeatedly made the same mistake: They have been too optimistic.

Wall Street economists have done it, as have officials at the Federal Reserve and other government agencies. I recently dug through the past 15 years of G.D.P. predictions from professional forecasters — all made two years in advance — and you can see the results here:


By The New York Times | Source: Federal Reserve Board
In 12 of the 15 years, the average forecast was too rosy. And the eight largest errors were all in the direction of overexuberance.

These mistakes have had real costs. Policymakers, believing the economy was stronger than it was, have done too little to stimulate growth and have worried too much about whether an overheated economy might spur inflation. Fed officials, for example, have been less aggressive in reducing interest rates than they later acknowledged was appropriate. Officials in Congress and the White House have sometimes obsessed over the deficit and failed to stimulate job growth.

As a result, the U.S. has rarely reached a stage that economists describe as full employment, when the economy is operating close to capacity and virtually everybody who wants a job has one.

The economy spent large parts of the 1940s, ’50s and ’60s near full employment, with the unemployment rate at about 4 percent or less — and wages surged. The country also approached full employment in the late ’90s and briefly did so again before the pandemic began. Again, incomes rose, not just for the wealthy.

“In recent years, the U.S. has spent little time in this hallowed place economists call ‘full employment,’” The Wall Street Journal wrote last week. If the Biden administration has one early economic goal, it’s to return the country to that place.

Why economists are fighting
The goal helps explain an argument that has broken out recently among top economists.

Several who normally support aggressive government action to stop an economic downturn — like Olivier Blanchard, a former International Monetary Fund official, and Larry Summers, the former Treasury secretary — have criticized President Biden’s proposed $1.9 trillion virus relief bill as too big. They argue that the economy can recover strongly on its own once many people are vaccinated later this year.

Why? Consumer debt is relatively low, and many households are in good financial shape, thanks to a mixture of a high saving rate, rising home values and rising stock prices. And Congress just passed a $900 billion stimulus package in December.

Given all of this, the critics say that Biden’s $1.9 trillion stimulus program is unnecessary and may cause inflation, which would then lead the Federal Reserve to raise interest rates. “Why force the Fed to in effect cancel some of the Biden package?” Blanchard has written. (Summers made the longer version of the case in a Washington Post op-ed.)

Biden aides counter that normalcy — when a vast majority of Americans have been vaccinated — remains months away. Last week’s jobs report shows that the economy has stalled, and some coronavirus benefits programs are scheduled to expire next month. Without a big new package, Janet Yellen, the Treasury secretary, said on CNN yesterday, the economy would suffer through “a long, slow recovery.”

The risk that Biden accepts

It’s impossible to know which side is right. Both make credible cases, and the future is inherently uncertain.

But the strongest part of the Biden argument may be its recognition of recent history. The U.S. economy has struggled to grow at a healthy pace for most of the past two decades, and policymakers have repeatedly done too little to help it. Biden is choosing not to make that same error again and instead to make full employment his No. 1 goal, even with the risks that approach brings.

“The idea that we should pare back now, out of a future fear that maybe we might possibly do too much, just doesn’t seem consistent with the economic evidence we have in front of us,” Heather Boushey, a member of Biden’s Council of Economic Advisers, told Reuters. “The cost of inaction far outweighs the costs of perhaps doing a little bit too much.”

Full employment brings benefits that are very difficult to achieve otherwise. It lifts incomes — and the national mood, as happened in the late 1990s. It reduces poverty without relying on government spending. It helps workers develop skills that improve their long-term prospects.

As Boushey and Jared Bernstein, another Biden adviser, wrote in a recent White House blog post, “Getting back to full employment, as quickly as possible, will make a major difference in the lives of tens of millions of people, particularly those most at risk of being left behind.”

[Brooklyn]

Such an accurate portrayal of the truth about capitalist greed.

[foreverlax]

Do i remember correctly that the LAST time we attempted an infrastructure bill was that the Republicons wanted the money spent on tax breaks and concessions to the private sector contractors..."Big Construction" if you will...as opposed to a more direct program that would have benefitted the working-level employment situation at a more grass-roots level...? I probably mangled that, but does anyone remember WHY we couldn't seem to get an Infrastructure Bill done the last time around...?

..

Essentially, we are going to get ripped off because of the way government spends - Trump wanted his friends to get rich and us eat the risk/debt, the Ds just wanted us to eat the debt.

Been saying this for a while,everything is OPM for real estate people-other peoples money. Transferring this concept of risk transference to other areas, hes going to risk everyone else lives for the optionality in the upside which he would take.

Can I get an AMEN!!?

OPM started when Goldman went public....we used to joke about how big our balls were, when trading PM a.k.a. partner money.

[Farfromgeneva]

Well, Goldman was actually the last major holdout, really started with consolidation in the late 70s and early mid 80s. Shearson Lehman White Weld Etc, Morgan Stanley Dean Witter, Merrill Lynch Pierce Fenner Smith, etc.

[Farfromgeneva]

Well, Goldman was actually the last major holdout, really started with consolidation in the late 70s and early mid 80s. Shearson Lehman White Weld Etc, Morgan Stanley Dean Witter, Merrill Lynch Pierce Fenner Smith, etc.

But that was a dramatic change from pure advisory and capital markets support to becoming factories producing financial products to sell. Not ironically securitization grew heavily in the 1990s as the originate and distribute model began to evolve and more financial assets were guaranteed by the government (mortgages and student loans)

[Farfromgeneva]

This is very much true that banks are awash in liqudity these days. Been good for one small corner of my business setting up warehouse lines for a shohp that buys and owns life insurance premium finance receivables, banks are happy to commit chunks on high quality collateral even though Libor + 160bps doesn't even cover their overhead expense (which is typically 3-4% of assets for a bank below $25-$50Bn in assets) but not good for the economy. It's also bad for all community banks and serves the money center top 4-6 banks best as they make more money off fee and service income than they do on buying and selling money (taking deposits and lending them for a spread, what's referred to on CNBC as Net Interest Income, equivalent to gross proft margin). Yet another unintended consequence of ZIRP and monetary easing without any responsible fiscal activity for like a decade or more. Big banks do better, left cries about big banks while demanding the politicians and Federal reserve spray more money into the system.

MARKETS
America Went on a Borrowing Binge, but Banks Were Left Out
Lenders are flush with cash they want to put to use, and banks hope loan growth will pick up in 2021
By Ben Eisen
Feb. 10, 2021 5:30 am ET

Last year was a banner one for debt, but it didn’t look that way for America’s big banks.

Large U.S. lenders saw their loan books shrink in 2020 for the first time in more than a decade, according to an analysis of Federal Reserve data by Jason Goldberg, a banking analyst at Barclays. The 0.5% drop was just the second decline in 28 years.

Bank of America Corp.’s BAC +0.68% loans and leases dropped by 5.7%. Citigroup Inc.’s C +1.06% loans dropped by 3.4% and Wells Fargo WFC +0.26% & Co.’s shrank by 7.8%. Among the biggest four banks, only JPMorgan Chase JPM +0.26% & Co. had more loans at the end of the year than the start.

Lenders are flush with cash that they want to put to use, and executives say they are hopeful loan growth will pick up in 2021. Brisk lending typically suggests there is enough momentum in the economy to give companies and consumers the confidence to borrow. But the current weakness suggests questions remain about the vigor of the economic recovery.

For banks, this weighed on profit. Net interest income, the spread between what banks charge borrowers and pay depositors, fell 5% across the industry last year—a consequence of shrinking loan portfolios and near-zero interest rates. It was the biggest drop in more than 80 years of record-keeping, according to research by Mike Mayo, a banking analyst at Wells Fargo.

At the start of last year, it didn’t look like this would happen. When the pandemic first hit, big companies rushed to draw down credit lines from their banks, fearful they wouldn’t be able to raise money from investors in the bond market. The loans on bank balance sheets spiked.

But government intervention came in the form of looser monetary policy and gargantuan fiscal stimulus. The Federal Reserve enacted a series of measures that calmed markets and allowed companies to start issuing their own debt again. Congress passed a bill to dole out money to small businesses and households.

Markets thawed, and companies including Mondelez International Inc., VF Corp. and Whirlpool Corp. rushed to issue bonds to repay the credit lines they drew down. The record-breaking bond boom moved debt from bank balance sheets into the hands of investors. The initial growth in banks’ commercial and industrial loans almost entirely reversed as the year wore on, Mr. Goldberg said.

Other companies paid back credit lines because business held up better than expected and they didn’t want to pay the interest costs, said Tom Hunt, a director at the Association for Financial Professionals, an industry group for corporate treasurers. “This was more of a liquidity crisis than anything,” he said.

Some banks have large businesses underwriting debt, and growth in those units served as an offset when companies tapped the bond market. Bank of America, Citigroup and JPMorgan all posted higher revenue from debt underwriting.

Among the four biggest U.S. banks, only JPMorgan Chase had more loans at the end of 2020 than at the start.

But a deep recession meant that companies weren’t turning to banks as much for loans to build new warehouses, finance new product development or otherwise spur growth. What’s more, some banks tightened lending standards as they battened down the hatches during the pandemic.

Loan books would have shrunk more if not for government support for small businesses. Banks doled out hundreds of billions of dollars in loans through the Paycheck Protection Program. Those loans have stacked up on bank balance sheets, but are slowly being whittled away as the government forgives them.

Banks are also footing fewer bills for individual customers. Many, like Kelly LaBanco, a makeup artist living in Chicago, have tried to buy less on credit cards so they don’t risk overspending. Work trailed off for her during the pandemic, and she has used unemployment benefits for most everyday expenses.

Ms. LaBanco estimates that she charges about half as much on her airline-branded credit card as she did before the pandemic. When she thinks about splurging on something using the card, she said, “There’s that little devil on your shoulder like, ‘Girl, you’re not working.’”

Americans also used stimulus checks and expanded unemployment benefits to pay down their credit-card balances. Credit-card debt declined sharply through the first nine months of last year, according to data from the Federal Reserve Bank of New York.

Low rates propelled a bonanza in the mortgage market, leading to a record year for the home-lending industry. But for banks, the benefit was limited. For one, most mortgages get packaged into debt securities and sold off to investors, meaning the initial lender isn’t typically the party that collects interest on the debt.

What’s more, nonbank mortgage firms grew disproportionately over the past year, picking up market share as banks tightened lending. In the first nine months of 2020, nonbanks made two thirds of mortgages, according to industry research group Inside Mortgage Finance.

Bank executives say they expect loan growth to pick back up this year, but the timing depends on the pandemic and the government’s response to it. Executives at Citigroup, for example, indicated that a key factor will be when another round of stimulus is passed in Congress, as is currently being discussed.

“If we see that take hold sooner, we could see higher levels of volume and loan growth and obviously that would be beneficial,” Citigroup Chief Financial Officer Mark Mason said on a call with analysts last month.

Write to Ben Eisen at [email protected]

SHARE YOUR THOUGHTS
What do you think explains the fact that loan books shrank last year for the big banks? Join the conversation below.

[PizzaSnake]

This is very much true that banks are awash in liqudity these days. Been good for one small corner of my business setting up warehouse lines for a shohp that buys and owns life insurance premium finance receivables, banks are happy to commit chunks on high quality collateral even though Libor + 160bps doesn't even cover their overhead expense (which is typically 3-4% of assets for a bank below $25-$50Bn in assets) but not good for the economy. It's also bad for all community banks and serves the money center top 4-6 banks best as they make more money off fee and service income than they do on buying and selling money (taking deposits and lending them for a spread, what's referred to on CNBC as Net Interest Income, equivalent to gross proft margin). Yet another unintended consequence of ZIRP and monetary easing without any responsible fiscal activity for like a decade or more. Big banks do better, left cries about big banks while demanding the politicians and Federal reserve spray more money into the system.

MARKETS
America Went on a Borrowing Binge, but Banks Were Left Out
Lenders are flush with cash they want to put to use, and banks hope loan growth will pick up in 2021
By Ben Eisen
Feb. 10, 2021 5:30 am ET

Last year was a banner one for debt, but it didn’t look that way for America’s big banks.

Large U.S. lenders saw their loan books shrink in 2020 for the first time in more than a decade, according to an analysis of Federal Reserve data by Jason Goldberg, a banking analyst at Barclays. The 0.5% drop was just the second decline in 28 years.

Bank of America Corp.’s BAC +0.68% loans and leases dropped by 5.7%. Citigroup Inc.’s C +1.06% loans dropped by 3.4% and Wells Fargo WFC +0.26% & Co.’s shrank by 7.8%. Among the biggest four banks, only JPMorgan Chase JPM +0.26% & Co. had more loans at the end of the year than the start.

Lenders are flush with cash that they want to put to use, and executives say they are hopeful loan growth will pick up in 2021. Brisk lending typically suggests there is enough momentum in the economy to give companies and consumers the confidence to borrow. But the current weakness suggests questions remain about the vigor of the economic recovery.

For banks, this weighed on profit. Net interest income, the spread between what banks charge borrowers and pay depositors, fell 5% across the industry last year—a consequence of shrinking loan portfolios and near-zero interest rates. It was the biggest drop in more than 80 years of record-keeping, according to research by Mike Mayo, a banking analyst at Wells Fargo.

At the start of last year, it didn’t look like this would happen. When the pandemic first hit, big companies rushed to draw down credit lines from their banks, fearful they wouldn’t be able to raise money from investors in the bond market. The loans on bank balance sheets spiked.

But government intervention came in the form of looser monetary policy and gargantuan fiscal stimulus. The Federal Reserve enacted a series of measures that calmed markets and allowed companies to start issuing their own debt again. Congress passed a bill to dole out money to small businesses and households.

Markets thawed, and companies including Mondelez International Inc., VF Corp. and Whirlpool Corp. rushed to issue bonds to repay the credit lines they drew down. The record-breaking bond boom moved debt from bank balance sheets into the hands of investors. The initial growth in banks’ commercial and industrial loans almost entirely reversed as the year wore on, Mr. Goldberg said.

Other companies paid back credit lines because business held up better than expected and they didn’t want to pay the interest costs, said Tom Hunt, a director at the Association for Financial Professionals, an industry group for corporate treasurers. “This was more of a liquidity crisis than anything,” he said.

Some banks have large businesses underwriting debt, and growth in those units served as an offset when companies tapped the bond market. Bank of America, Citigroup and JPMorgan all posted higher revenue from debt underwriting.

Among the four biggest U.S. banks, only JPMorgan Chase had more loans at the end of 2020 than at the start.

But a deep recession meant that companies weren’t turning to banks as much for loans to build new warehouses, finance new product development or otherwise spur growth. What’s more, some banks tightened lending standards as they battened down the hatches during the pandemic.

Loan books would have shrunk more if not for government support for small businesses. Banks doled out hundreds of billions of dollars in loans through the Paycheck Protection Program. Those loans have stacked up on bank balance sheets, but are slowly being whittled away as the government forgives them.

Banks are also footing fewer bills for individual customers. Many, like Kelly LaBanco, a makeup artist living in Chicago, have tried to buy less on credit cards so they don’t risk overspending. Work trailed off for her during the pandemic, and she has used unemployment benefits for most everyday expenses.

Ms. LaBanco estimates that she charges about half as much on her airline-branded credit card as she did before the pandemic. When she thinks about splurging on something using the card, she said, “There’s that little devil on your shoulder like, ‘Girl, you’re not working.’”

Americans also used stimulus checks and expanded unemployment benefits to pay down their credit-card balances. Credit-card debt declined sharply through the first nine months of last year, according to data from the Federal Reserve Bank of New York.

Low rates propelled a bonanza in the mortgage market, leading to a record year for the home-lending industry. But for banks, the benefit was limited. For one, most mortgages get packaged into debt securities and sold off to investors, meaning the initial lender isn’t typically the party that collects interest on the debt.

What’s more, nonbank mortgage firms grew disproportionately over the past year, picking up market share as banks tightened lending. In the first nine months of 2020, nonbanks made two thirds of mortgages, according to industry research group Inside Mortgage Finance.

Bank executives say they expect loan growth to pick back up this year, but the timing depends on the pandemic and the government’s response to it. Executives at Citigroup, for example, indicated that a key factor will be when another round of stimulus is passed in Congress, as is currently being discussed.

“If we see that take hold sooner, we could see higher levels of volume and loan growth and obviously that would be beneficial,” Citigroup Chief Financial Officer Mark Mason said on a call with analysts last month.

Write to Ben Eisen at [email protected]

SHARE YOUR THOUGHTS
What do you think explains the fact that loan books shrank last year for the big banks? Join the conversation below.

The unwillingness or inability to meet capital reqs for stress tests. Low confidence in economic outlook in the face of the pandemic means loans will continue to be conservative.

[Farfromgeneva]

It’s really more of a denominator problem as one measurement of efficiency and capacity is the loan/deposit ratio. There’s been a flood of deposits since Covid hit. Capital isn’t so much the issue, most are fine even if harsher scenarios occur for asset values and cash flows it wouldn’t be a solvency problem like the financial crisis only make them retrench a bit to preserve and rebuild capital then, which would likely include a suspension of dividends at worst requires by the FDIC.

But there’s not a huge demand for traditionally underwritten loans where the bank now lends at 3-6% and expects full and timely repayment since they have no upside. Stressed borrowers either need more equity of subsidies and PPP is going on now again. It’s a poor system but it’s something.

The Fed needs to take some liquidity out of the market by hook or crook. I’m strongly of that opinion. That will solve this concern/situation prettY quickly.

[jhu72]

LearJet (currently owned by Canadian Bombardier) announces they are shutting down.

[Farfromgeneva]

Bombardier has been a junk/high yield company since at least the early 2000s so they’ve been on the precipice for a long time.

[Farfromgeneva]

Since this is the only financial thread and it’s tangentially related and I haven’t expressed my degeneracy here in a while...been digging Kate Rooney on CNBC lately. At this point I don’t know why anyone would even talk about Bartiromo,she was at best “finance hot” when her only complaint was Lauren Bassett until JFK Jr killed her in that plane crash.

Her CNBC profile pic sucks, doesn’t even look much like he r but this one is closer to what you see today.
https://www.pinterest.com/pin/96334879518205722/

[PizzaSnake]

Perpetual motion machine?

https://www.bloomberg.com/news/articles ... nd=premium

[runrussellrun]

"In the bag"? "Beneficence"? I didn't agree with most of what Obama did or didn't do and should have done...it's that simple. Why is that so hard for you to understand?

You are a piece of work. You tell me "why is that so hard for you to understand", right before you hammer me for criticizing the details as to how Trump has done something. Pot meet kettle much?

Once again I have to spell out for you...I wish Trump wasn't POTUS, I hate the Tweets and many times don't like how he says things. That doesn't mean I can't appreciate the long overdue stance toward China, despite all your criticism as to how it should be done. You get so bogged down in the left side of your brain, you fail to see the big picture.

Pot meet kettle.

Once again you spelled out that tech37 has a job, so he doesn't care that others are losing their jobs over Trump starting a trade war without preparing first. Do you REALLY not see what a selfish tw*t you sound like here?

I might as well say that I don't care about rising Health Care costs in America because no matter what happens, I can personally afford it. Or better still, that I don't care about the Iraq or Afghanistan War one way or another because my family isn't in the military.

Stop saying that standing up to China is all that matters, and making fun of my stance that the details as to HOW we stand up to them matters.

I gave you the easy metaphor, and you brushed it off. What would you have thought if when you protested Obama's leaving Iraq too soon---I simply responded, "when" we leave Iraq is just a "meaningless detail"...you should just focus on the fact we are leaving Iraq, and stop whining.

That's what you're doing here. Cut it out.

In general, I'm certainly not seeing any alternatives to Trump right now that generates any confidence. So until 2020, I will try to remain optimistic and make the best of things where/when reasonable. If that puts me "in the bag" so be it.

I think Trump will get elected, too.

That's not what makes you in the bag. What makes you in the bag is when someone criticizes something Trump, and gives a logical, well thought-out, and wholly correct criticism, you STILL jump all over them for having TDS. Stop doing that, and concede solid points....and no one will call you a Trumpist.

Again, if you think I sound like Doc "sometimes", consider that your point of view might be the problem. So when you asked why don't I hammer the "resistance", you've failed to notice how much I spar with runrussellrun---the biggest lefty on the board. You've also failed to notice the "resistance", as you put it, is filled with moderates and actual conservatives. Your perspective as to where you sit on the political scale is off, imho.

"Spat" is more accurate than "war' but I like "negotiations." These negotiations aren't over yet (despite your cynicism) and I remain optimistic

That's fine, and commendable. I'm discussing the damage that's occurring RIGHT NOW as a result of HOW Trump has executed his Trade War.

You seem to think Trump is immune from criticism over China simply because you're so overjoyed that Trump stood up to the Chinese. I don't understand why you think this is the case.

Suicide is up everywhere...you want to blame Trump? I blame our culture, lack of solid family values, and the internet.

Oh FFS, dude. You think the suicide rate is in many case twice as high for farmers as it is in urban America because of Netflix?

Farmer goes bankrupt. Farmer loses farm dad and granddad owned. Farmer tops himself. At no point does the internet come into play.

I'm trying----desperately----to tell you that the actions of our President has pretty serious consequences. You understood that with Obama with no trouble whatsoever. I haven't the slightest clue as to why you think Trump's decisions and policies don't affect Americans.

afan, rightfully so, declared me the biggest LEFTY on these threads. Yet, THAT net has moved where silence, from myself and others, IS preferred, because, apparently, I am a tRumpist.

HUH?

(love your comment in blue/bold. AFan. so classy )

[Farfromgeneva]

MARKETS
Borrowing Binge Reaches Riskiest Companies
Demand for corporate debt has offered lifelines to struggling firms that can borrow at interest rates once reserved for the safest type of bonds

Until recently, mainstream debt investors were unwilling to lend to USA Today publisher Gannett because of shrinking subscription and advertising revenue.


Investors’ near-insatiable demand for even the riskiest corporate debt is fueling a Wall Street lending boom, offering lifelines for struggling companies even as the coronavirus pandemic still drags on the economy.

Companies such as hospital operator Community Health Systems Inc. and newspaper publisher Gannett Co. Inc. have issued a record $139 billion of bonds and loans with below investment-grade ratings from the start of the year through Feb. 10, according to LCD, a unit of S&P Global Market Intelligence. More than $13 billion of that debt had ratings triple-C or lower—the riskiest tier save for outright default—about twice the previous record pace. (my note, CCC default probabilities are pretty high - cumulative default rate for CCC rated companies for the 10yr period of 2009 - 2019 was 49.09%, about 5%/yr vs. a BBB- cumulative default rate for that period of 0.6%, BBB is actually higher at 1.06%, but using the lowest investment grade rating before a credit becomes high yield/junk as a comparison, long term historical recovery rate is around 60 cents on the dollar and declining over time as assets become less tangible, so the "expected loss if you were to invest in the CCC cohort would be around 4.9% x 60% or a shade below 3% which means if you are buying at 4% rounded from 3.97% you expect to make 1% basically, net of losses, investing in all CCC rated universe) Despite the onslaught of new bonds, riskier companies can now borrow at interest rates once reserved for the safest type of debt.

As of Friday, the average yield for bonds in the ICE BofA US High Yield Index—a group that includes embattled retailers and fracking companies—was just 3.97%. By comparison, the yield on the 10-year U.S. Treasury note, which carries essentially no default risk, was as high as 3.23% less than three years ago. The 10-year Treasury yielded around 1.2% Friday.

“At a high level, you have a meaningful imbalance between supply and demand,” said David Knutson, head of credit research for the Americas at Schroders, the U.K. asset management firm. “The demand exceeds the supply for bonds.”

The most striking aspect of the current lending boom is its timing. Typically, it can take years after recessions for the market to reach its present level of exuberance, analysts said. In this case, it has taken less than 12 months and has arrived just as economic data has revealed a winter slowdown in the recovery.

Debt investors are hardly alone in their enthusiasm. Investors across a range of asset classes have poured money into risky wagers, even as the frenzy around videogame company GameStop Corp. and other popular stocks for individuals calms. Commodities such as oil and copper have surged lately, and more than $58 billion went into mutual and exchange-traded funds tracking global stocks during the week ended Wednesday, the largest such inflow on record, according to a Bank of America analysis of data from EPFR Global.

Investors’ optimism rests largely on the idea that current economic challenges aren’t normal and can be resolved quickly once coronavirus vaccines are more widely distributed. The combined efforts of the Federal Reserve and Congress have also helped by depressing benchmark interest rates and pumping trillions of dollars into the economy,

Investors this week will weigh data on January retail sales and industrial production, figures that will offer the latest gauge of U.S. economic activity. The latest flurry of earnings results from bellwether companies like Walmart Inc. will also be in focus, as will any progress in Washington toward a new coronavirus relief package. Congress has also scheduled a hearing on the GameStop volatility for Thursday.

Strong demand from investors for riskier debt can create a positive feedback loop for companies. Struggling ones can refinance their debt, holding down the overall corporate default rate. That then further boosts investors’ demand.

In recent weeks, three businesses have financed dividends to private shareholders by issuing so-called PIK toggle notes—bonds that give the issuer flexibility to pay interest in additional bonds rather than cash. Such deals are hallmarks of hot credit markets, rising to prominence in the years leading up to the 2008-2009 financial crisis.

Regulators have previously warned banks and investors against providing debt to companies in excess of six times earnings before interest, taxes, depreciation and amortization, or Ebitda. Still, about 53% of mergers and acquisitions paid for with below investment-grade loans in January exceeded that guardrail, the highest ratio since August 2017, according to data provider LevFin Insights.

One company that is capitalized on current market conditions is Community Health Systems, one of the country’s largest for-profit hospital operators.

For years, Community Health has struggled with the challenges of serving low-density, lower-income populations and the fallout from a 2014 acquisition, which handed it a portfolio of struggling hospitals and a burdensome debt load. Even after arresting a decline in earnings, the company was positioned last year to burn about $200 million to $250 million of cash annually in a normal environment, said Eric Axon, a senior analyst at the research firm CreditSights.

Yet investors have snapped up a series of secured bond sales from the hospital chain during the past two months, enabling the company to both substantially reduce its interest expense and pay down bonds due in 2023 and 2024. In effect, the company seized on the strong market rally “to deal with problems that almost looked unsolvable six months ago,” Mr. Axon said.

The surge of new money is also rewarding some hedge-fund managers who specialize in lending to companies in financial stress. Gannett, the country’s largest newspaper chain, borrowed a $1 billion loan in January with a 7.75% interest rate to repay an existing loan with an 11.5% rate, boosting its stock price and benefiting Apollo Global Management LLC, one of its largest investors.

Gannett was able to “take advantage of the current credit market and refinance into a widely syndicated public loan at significantly better terms,” Chief Executive Officer Mike Reed said in an email.

Mainstream debt investors were unwilling to lend to Gannett until recently because of its shrinking subscription and advertising revenue, so the company relied on hedge funds like Apollo for capital. But last month—as risk appetite rose and after Apollo exchanged a loan it had made into bonds that convert into Gannett stock—roughly 35 debt funds lent to Gannett at the lower rate, people familiar with the matter said. The company’s stock has jumped about 80% since Jan. 1 and its annual debt expense has dropped by about $90 million during the past year, a company spokeswoman said.

Some investors and analysts say there are legitimate reasons why the market should be as open as it is now, beyond optimism about the near-term economic outlook.

Among those factors are the nearly 40-year decline in U.S. Treasury yields, which has fueled demand for higher-yielding assets. Some are also hopeful that Congress and the Federal Reserve could be nearly as aggressive in fighting future recessions as they were the most recent one.

Still, some analysts aren’t convinced that lower-rated debt is less risky than in the past, arguing that struggling companies will eventually default on their debt when interest rates rise or their own problems worsen.

“The way the market is viewing this right now is basically saying, if all these triple-Cs can access funding, they’re not going to default,” said Oleg Melentyev, head of U.S. high-yield strategy at BofA Global Research. The problem, he said, is investors are “hoping that this argument will work longer than it probably will.”

—Amrith Ramkumar contributed to this article.

Write to Sam Goldfarb at [email protected] and Matt Wirz at [email protected]

[Typical Lax Dad]

Ouch: https://amp.cnn.com/cnn/2021/02/16/busi ... index.html

[Farfromgeneva]

Ouch: https://amp.cnn.com/cnn/2021/02/16/busi ... index.html

That one is funny. Couldn’t believe Brigade just said, nope that’s our dough. Big picture though is that Citi is the only bank to fail stores tests and have internal control issues. Wells Fargo has been shedding assets and business units because the Federal Reserve put them under an asset cap like nearly two years ago now from the account scandal plus some other Mgt problems. I have to think Citi could get clipped in terms of their ability to do business for a while over these issues.

[Farfromgeneva]

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Pandemic Continues to Bring Increases to Chapter 11 Filings, Q4 Highlights
February 16, 2021

Source: Polsinelli

COVID-19 Brings Highest Chapter 11 Index Since Q1 of 2011

The continued acceleration in Chapter 11 filings is a clear sign that business owners should prepare for the pandemic’s impact to last longer than was originally planned, even as the COVID-19 vaccine becomes more available. Chapter 11 bankruptcy filings increased again in the fourth quarter, as seen in the newest Polsinelli-TrBK Distress Indices Report.

“We always knew the ongoing pandemic would create a rapid rise in Chapter 11 filings, but we didn’t expect that the filing data would look so similar to the recession of 2011. However, we do anticipate more general filings and distress throughout 2021, with spikes in real estate and health care,” said Polsinelli shareholder Jeremy Johnson, a bankruptcy and restructuring attorney and co-author of the report. “We recommend that companies avoid filing unless it’s a defense matter (disallowing a creditor from taking enforcement action) or offensive (to implement a deal with lenders or other creditors).”

The report, released today by Am Law 100 firm Polsinelli, also highlights economic distress in both the real estate and health care industries. In the fourth quarter, the Real Estate Distress Index remained relatively steady, possibly due to the potential halt in rent collection. Distress in health care remains high, but showed signs of slowing in the last two quarters of 2020, likely due to the significant financial support health care providers received during the pandemic.

The Polsinelli-TrBK Distress Indices are the backbone of a quarterly research report series that uses Chapter 11 filing data – bankruptcies with more than $1 million in assets – as a proxy for measuring financial distress in the overall U.S. economy and breakdowns of distress specifically in the real estate and health care services sectors. It is the only current measurement that tracks both Main Street and Wall Street statistics.

Other significant updates in the report include:

• The Chapter 11 Distress Research Index was 86.74 for the fourth quarter of 2020. The Chapter 11 Index increased just over five points since the last quarter. Compared with the same period one year ago, the Index has increased more than 36 points and compared with the benchmark period of the fourth quarter of 2010, it is down nearly 14%. The Index has increased six of the last seven quarters, with the highest amount of distress since Q2 2011.

• The Real Estate Distress Research Index was 28.09 for the fourth quarter of 2020. The Real Estate Index has remained steady since the last quarter. Compared with the same period one year ago, the Index increased just one point and compared with the benchmark period of the fourth quarter of 2010, it is down nearly 72%. The Index displayed an upward trend in the last three quarters; 2020 was generally much higher than 2019.

• The Health Care Services Distress Research Index was 416.67 for the fourth quarter of 2020. The Health Care Index was down more than 51 points since the last quarter. Compared with the same period one year ago, the Index has increased 191 points and compared with the benchmark period of the fourth quarter of 2010, it is up 216%. This Index has experienced 15 quarters of continual distress (more than 100 points in a quarter) and continues to track significantly higher than the other indices.

The Polsinelli-TrBK Distress Indices track the increase or decrease in all Chapter 11 filings with more than $1 million in assets since the fourth quarter of 2010. Unlike the public markets, the Polsinelli-TrBK Distress Indices include both public and private companies, creating a broader economic view and one that may show developing trends on Main Street before they appear on Wall Street.

To access the full report, graphs and all past analysis, visit www.distressindex.com.

About Polsinelli

Polsinelli is an Am Law 100 firm with 900 attorneys in 21 offices nationwide. Recognized by legal research firm BTI Consulting as one of the top firms for excellent client service and client relationships, the firm’s attorneys provide value through practical legal counsel infused with business insight, and focus on health care, financial services, real estate, intellectual property, middle-market corporate, labor and employment and business litigation. Polsinelli PC, Polsinelli LLP in California.

[Typical Lax Dad]

Ouch: https://amp.cnn.com/cnn/2021/02/16/busi ... index.html

That one is funny. Couldn’t believe Brigade just said, nope that’s our dough. Big picture though is that Citi is the only bank to fail stores tests and have internal control issues. Wells Fargo has been shedding assets and business units because the Federal Reserve put them under an asset cap like nearly two years ago now from the account scandal plus some other Mgt problems. I have to think Citi could get clipped in terms of their ability to do business for a while over these issues.

Why back when, we were in a lot of McAndrews & Forbes deals. Old guy I worked for was friends with Perlman and some other guys that were “BSD” in the 80’s and 90’s. Ron treated those French ex-pats like crap when he took over Revlon. Standing on a desk screaming and dropping cigar ashes on their Persian rugs....a barbarian inside the gate! Best story is his deal guy told him they had no deal in pipeline and he was going to take a two week vacation because they had been full out for a couple of years and if was ok with Ron he would take vacation.... the night before he was to leave he got a call from Perlman....he says “your vacation is canceled”....he said canceled? “What’s the issue?” Ron told him “the issue is I am your boss and you ain’t going”....the guy was broken. People worked like dogs back then...I was a young guy. I remember when Ron ran Marvel Entertainment into the ground. Bought it too soon and paid too much and then compounded the problem with the Marvel Restaurants concept....going for a Hard Rock Cafe type market.

[Farfromgeneva]

Just because Drexel, Shearson Lehman or Bear could finance your deal doesn’t mean the person could run a business well. Predators Ball suggested a lot of those sponsors like Peltz, Perelman, Haft family (Dart Drugs, bought a supermarket chain w Rickels), Irwin Jacobs, Carl Icahn were just basic folks who inherited suboptimally run and declining businesses which they used the equity in to leverage these new business acquisitions. That’s the joke of Jacobs or Icahn being considered elder statesmen in finance but it applies to every industry and why I get circumspect about these great people older generations talk about-seen enough of life now to know it’s a lot of bs.