Jan 6, 2021

Axios Markets

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🚨 Situational awareness: U.S. Treasury yields rose above 1% overnight for the first time since March. (Bloomberg)

🎙“The bitterest tears shed over graves are for words left unsaid and deeds left undone.” - See who said it and why it matters at the bottom.

1 big thing: World Bank president warns of "red alert" for debt

Malpass speaks during a press conference. Photo: Mandel Ngan/AFP via Getty Images

More countries will soon face serious debt problems and likely defaults this year if swift action is not taken, World Bank president David Malpass said Tuesday, calling for debt restructurings and a focus on inequality and investment in the "post-COVID economy."

Why it matters: Malpass is the latest to issue a stern warning about the state of the global economy, calling on creditors, such as China and the Paris Club group of wealthy nations, to share the burden.

Where it stands: Malpass, a former Treasury Department official under President Reagan and Bear Sterns economist who was nominated by President Trump, called the current levels of debt in many countries “unsustainable" and said a growing number were currently on "red alert" for defaults.

  • "Given the sharp decline in short-term and long-term interest rates, we need to find ways to adjust the debt burden process so that the burden of debt on people in poorer countries can be reduced dramatically."

What we're hearing: In addition to the risk of increased debt defaults and rising poverty in developing economies, the World Bank's goal of increasing median incomes in countries "is not being met under the current environment," Malpass said.

  • This is "in part because the stimulus mechanisms that are out there are working toward concentrating the wealth rather than adding wealth from the bottom up," Malpass told Axios during a Q&A session with reporters.
  • "One thing that I think is important is that we recognize that creative destruction is important, meaning small businesses that fail due to the severity of the recession. But even more important is the creation of new small businesses, innovation."

Keep it 💯: "And so, that's going to mean countries actually allowing that process to happen and not simply working through their big structures to give funding to big companies."

One level deeper: "The risk is that it may take years for people at the bottom of the income scale to see a sustained improvement in their circumstances."

2. Catch up quick

Democrat Raphael Warnock defeated Republican Kelly Loeffler in the runoff election for U.S. Senate in Georgia and Democrat Jon Ossoff appears to have the advantage in remaining precincts against opponent David Perdue, likely giving Democrats control of the Senate. (AP)

President Trump banned all Americans from transactions with eight Chinese software applications, including payment titans Alipay, Tencent and WeChat Pay, by an executive order that will take effect in 45 days. (Press release)

"It is very difficult to imagine out of control inflation, even with the large debt that fiscal authorities have been running up," Chicago Fed president Charles Evans said Tuesday. (Reuters)

3. Exclusive: Goldman CEO says "I'd be cautious" of stock market

Goldman Sachs CEO David Solomon is preparing for more stock market volatility, particularly in the near term, and currently sees some "excess in markets," he told Axios' Mike Allen in a phone call on Tuesday.

Why it matters: Solomon is the latest in a long list of high-profile CEOs, fund managers and investment strategists to warn that stock prices may be running away from reality.

What he's saying: "The markets have been quite ebullient as of late. You know, I think there's some excess in markets."

  • "I think there's a lot of retail participation in markets that's certainly making markets a little bit more ebullient. I'd be cautious about some of that."

Driving the news: U.S. equity indexes bounced back strongly from Monday's selloff and are again trading near all-time highs, despite coronavirus cases and deaths in the U.S. and around the world rising to new record highs.

By the numbers: Analysts at Bank of America Research noted Tuesday that S&P 500 earnings are estimated to have fallen by 15% but the index finished 2020 up 18.4% and set 33 record highs during the year.

  • Stocks have risen 56% in two years.

The big picture: "I do think the recovery just won't be a straight line, and you know, I think the markets are pricing in, you know, just everything working perfectly as we come out of this, and I'm sure there'll be bumps along the way."

4. Majority of Americans pulled money from retirement in 2020
Data: Kiplinger; Chart: Axios Visuals

Nearly 60% of Americans withdrew or borrowed money from their IRA or 401(k) during the coronavirus pandemic, a new survey from Kiplinger and digital wealth management company Personal Capital found.

Why it matters: Most U.S. retirement accounts were underfunded already and the survey shows that the pandemic caused a significant number of Americans to pull money out, potentially setting them back even further.

Details: Nearly one in three (32%) respondents said they withdrew $75,000 or more from a retirement account, while 58% of those who took loans borrowed between $50,000 and $100,000.

  • Pandemic-induced market volatility also left nearly three-quarters of respondents (74%) somewhat to very worried about their investments.
  • More than 50% of respondents said they planned to work longer or delay retirement in order to build their nest egg.

The big picture: "The past year rocked the confidence of most Americans saving for retirement,” Mark Solheim, editor of Kiplinger Personal Finance, said in a release.

  • “With many people dipping into their retirement savings or planning to work longer, 2020 will have a lasting impact for years to come.”

Backstory: Even most older Americans report that they don't have enough money saved for retirement, with the median family holding just $7,800 in 401(k)s, IRAs and other self-directed accounts, according to a 2019 study from the left-leaning Economic Policy Institute.

Of note: The CARES Act allowed people under the age of 59.5 affected by the coronavirus to take a distribution of up to $100,000 from an IRA, 401(k), or similar account without penalty. It also permitted loans of up to $100,000.

5. Prices and deliveries send manufacturing index to 2-year high
Data: Institute for Supply Management; Chart: Axios Visuals

The Institute for Supply Management's survey of manufacturing activity jumped to its highest level in 2½ years last month.

  • Much of the jump was attributable to increases in the survey’s measure of supplier deliveries, which rose to 67.6 from 61.7 in November, and prices paid, which jumped to 77.6 from 65.4.
6. U.S. sees fewest bankruptcies since 1986

U.S. bankruptcy filings hit their lowest level since 1986 last year thanks to unprecedented fiscal and monetary support from the Fed and Congress.

By the numbers: Total bankruptcy filings for the year fell to 529,068 filings across all chapters, while total filings in the month of December was 34,304, the lowest monthly total since January 2006, according to a release from legal services company Epiq AACER.

  • The number of total 2020 filings was about 1/3 of the number seen in 2010.

What they're saying: “New bankruptcy filings continue to slide into record territory as the global pandemic spurs regulatory intervention to keep U.S. consumers and businesses afloat,” Chris Kruse, senior vice president of Epiq AACER, said in a statement.

  • "The second stimulus package totaling over $900 billion is getting capital into the market and delaying bankruptcy filings across the country.”

Between the lines: “The peak in Chapter 11 filings for Q2 and Q3 is due to preexisting distressed companies coupled with the onset of a zero-revenue environment. The federal backstop proved a vital lifeline for the stabilization of corporations to protect the US economy,” said Deirdre O’Connor, managing director of corporate restructuring at Epiq.

  • “This federal intervention created record breaking capital deployment fueled by investors chasing yield as companies attempt to ride out this storm.”
  • Chapter 11 filings, which are primarily used to reorganize larger businesses, jumped 29% in 2020 to 7,128, compared to 5,158 in 2019.

Go deeper: Government interventions are masking a growing corporate insolvency crisis

7. Stimulus checks boost consumer confidence
Data; Morning Consult; Chart: Axios Visuals

Consumer sentiment has increased consistently since the passage and signing of the latest coronavirus relief bill, new surveys show.

Driving the news: Morning Consult's Index of Consumer Sentiment rose 1.51 points from the prior week to 87.74.

Watch this space: "The second coronavirus relief package, which President Donald Trump signed into law on Dec. 27, had a more immediate positive impact on consumer confidence than the CARES Act in March 2020, even though the $600 stimulus checks are roughly half the size of what was included in the first aid bill," Morning Consult economist John Leer noted in an email.

  • "One reason for the more immediate impact is that the Treasury Department deposited and sent stimulus checks much faster this time because the agency already had the relevant eligibility and delivery information, meaning consumers can see the money in their bank accounts sooner."

Another confidence reading, the Economic Sentiment Index from data provider CivicScience and Hamilton Place Strategies continued its upward trend, rising to 48.3, the third straight positive reading.

Details: Confidence in the job market rose the most of all the survey's individual indicators, increasing by 2.7 points to 41.1, and has risen 6.3 points over the past four readings.

Thanks for reading!

Quote: "The bitterest tears shed over graves are for words left unsaid and deeds left undone."

Why it matters: On Jan. 6, 1836, author Harriet Beecher married educator Calvin Ellis Stowe, later changing her name to Harriet Beecher Stowe.

  • She went on to write the acclaimed novel "Uncle Tom's Cabin" in 1851, which was embraced by abolitionists and energized anti-slavery forces in the North.