“America must see that riots do not develop out of thin air. Certain conditions continue to exist in our society which must be condemned as vigorously as we condemn riots. In the final analysis, a riot is the language of the unheard.”
Illustration: Sarah Grillo/Axios
Even with trillions of dollars in loans, grants and government support — with markets having absorbed a record $1.22 trillion of corporate debt in just five months — a slew of companies are defaulting on their loans and filing for bankruptcy in what is expected to be a record wave of insolvencies and defaults.
Why it matters: While equity and debt markets have rallied thanks to massive interventions from the Fed and Congress and excitement about the removal of lockdown orders, the real economy is quietly buckling, with many companies threatened by issues that predate the coronavirus pandemic.
What's happening: So far this month, 27 firms that report at least $50 million in liabilities have sought bankruptcy protection, Bloomberg reports.
Stay woke: "As we have seen in previous times of economic stress, companies facing unforeseen financial burdens do not immediately resort to bankruptcy," Sudeep Kesh, head of S&P Global credit market research, says in a new report.
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).
What's next: Distressed debt investors and law firms are gearing up for the onslaught of bankruptcies, insolvencies and liquidations expected this year, with legal scholars warning congressional leaders in a recent letter that federal bankruptcy courts are likely to "be overwhelmed by this flood of cases."
The last word: “You have to recognize that this recession, as tough as it is, has just started,” Aronson said.
The House passed a bill to reduce the level of PPP funds that must be used for payroll to 60% and extended the period for borrowers to use the funds to 24 weeks from eight. (WSJ)
President Trump's announcement on Thursday that he would hold a news conference “on China” today without further details sent the Dow tumbling 300 points, giving up its gains for the day. (CNBC)
As temporary restrictions on evictions expire in some states and millions remain unemployed, activists are warning of "an avalanche of evictions across the country.” (N.Y. Times)
Both Dollar Tree and Dollar General beat Wall Street's earnings estimates by a country mile in the first quarter, but Dollar Tree's stock jumped by 11.6% while Dollar General's declined by 1.7%.
What happened: Dollar General had seen its stock rise during coronavirus lockdowns as visits increased thanks to its status as an essential business. Dollar Tree, however, had seen its numbers and stock price plunge.
Details: Dollar General visits in January and February 2020 were up 8.2% and 14.8% year-over-year, data firm Placer.ai found. The number of visits continued grow, up 31.4% in March and 19.2% in April, showing "a massive year-over-year increase in a time when most brands were struggling."
Dollar Tree saw year-over-year increases of 7.7% and 11.9% in January and February 2020. However, in March and April, the brand saw declines of 7.8% and 31.0% year-over-year.
Between the lines: Dollar General’s customer loyalty was 34.2% higher than that of Dollar Tree, according to the data.
Revised data from the Commerce Department showed the U.S. economy shrank by an annualized 5% — which is 0.2% more than the initial estimate — in the first quarter as business investment fell even more sharply.
The number of Americans filing first-time claims for unemployment benefits was 2.1 million last week, the lowest number since the coronavirus crisis began, but still three times higher than the peak during the global financial crisis.
What they're saying: "The jobless claims 'curves' are bending," Ellis Phifer, managing director of fixed income research at Raymond James, says in a note to clients. "I’d say that’s pretty encouraging."
But, but, but: "To get a more complete picture, we need to take into account the number of people claiming benefits under the CARES Act," Phifer notes.
What it means: Heidi Shierholz, director of policy at the Economic Policy Institute, notes that 19.1 million workers were on continued claims as of May 16, and 4.1 million more have filed initial state unemployment claims since then.
The Fed's balance sheet rose to $7.1 trillion as of this week, having now committed a record $2.2 trillion in quantitative easing purchases since chair Jerome Powell's pledge to buy unlimited Treasury bonds and mortgage-backed securities in March.
Watch this space: The massive increase comes despite the fact that many of the central bank's special purpose vehicles set up to buy corporate bonds and loan to businesses are not yet operational.
Details: The Fed's Secondary Market Corporate Credit Facility has so far purchased only investment grade bond ETFs, with holdings rising to $35 billion this week from just $1.8 billion last week, analysts at TD Securities note.
What's next: Goldman Sachs analysts expect the Fed to soon move to "a steady pace" of roughly $80 billion to $120 billion of Treasuries and $25 billion to $35 billion of MBS purchases per month, as well as instituting yield curve control for shorted-dated Treasuries.
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Quote: “America must see that riots do not develop out of thin air. Certain conditions continue to exist in our society which must be condemned as vigorously as we condemn riots. In the final analysis, a riot is the language of the unheard.”
Why it matters: The King Center, operated by Martin Luther King Jr.'s daughter Bernice King, tweeted a video clip of the Rev. Dr. King's 1967 speech "The Other America" early on Thursday.