The Major Corporate Solvency Crisis

Published on
December 14th, 2020
Duration
40 minutes

Bubblicious Markets and Big Tech’s Monopolistic Behavior


The Major Corporate Solvency Crisis

Daily Briefing ·
Featuring Peter Cooper, Jack Farley, and Ed Harrison

Published on: December 14th, 2020 • Duration: 40 minutes

Real Vision managing editor Ed Harrison is joined by editor Jack Farley to break down the growing corporate debt crisis. Ed and Jack discuss the latest report from the Group of Thirty, which finds that balance sheet impairment will complicate economic recovery and persist long after this pandemic ends. Ed crystallizes the risks into three separate categories—pandemic-related, economic, and financial—and incorporates these risks into Raoul’s framework on the “insolvency phase." Ed and Jack also discuss fiscal aid, sector rotation, and lockdowns in the U.S. and Europe. In the intro, Real Vision's Peter Cooper discusses the joyous news of the beginnings of vaccine distribution in the U.S., AstraZeneca's announcement to acquire Alexion Pharmaceuticals, and the sterling's rally on renewed Brexit trade negotiations.

Comments

Transcript

  • JM
    Jason M.
    16 December 2020 @ 16:47
    Can you please send a link to the Corp Solvency crisis report?
    • JF
      Jack F. | Real Vision
      18 December 2020 @ 04:27
      Sure Jason, here it is: https://group30.org/publications/detail/4820
  • TS
    Tao S.
    16 December 2020 @ 22:42
    Hope phase giving way to the Solvency phase. That spells global Crisis.
  • AS
    Ananth S.
    16 December 2020 @ 21:21
    Es didnt you famously say that the RECESSION was over a few months ago?
  • TM
    Tommy M.
    16 December 2020 @ 01:16
    Can we get the transcript, please?
  • LF
    Liam F.
    15 December 2020 @ 03:54
    Soon to be rid of the CoronaV and even sooner to be rid of the disgraceful Trump. What is not to like and celebrate?
    • DB
      Danielle B.
      15 December 2020 @ 06:46
      The reason the market has been buoyant post election, is because the vaccine + the republican held senate will block corporate tax increases, will block monetary policy changes and will support considerable but not excessive stimulus.
    • LF
      Liam F.
      15 December 2020 @ 22:14
      Yes, the Trumpublicans will do anything to disgrace Democracy and to grab power by any means necessary.
  • TE
    Thomas E.
    15 December 2020 @ 21:51
    Whatever happened to letting these companies file Chapter 11 and just restructure? Yes, debt holders may face a loss for have to accept new terms but so goes life for investors. Governments shouldn't have taxpayers pay the bill. I get the short term help due to government mandated shut downs but most of the insolvent companies were heading towards insolvency BEFORE the pandemic. Corporate debt is at all time highs and still going up. Let them restructure. Tired of this Socialism being passed off a Capitalism - crony capitalism at that.
  • JH
    Jacqueline H.
    15 December 2020 @ 21:48
    The report from the Group of Thirty is still just talk at this point. Too often I've seen such groups say one thing and do another. I'll wait to see what they do.
  • BR
    Bret R.
    15 December 2020 @ 21:05
    Government can help a liquidity problem but they can't stop insolvency issues. We don't need more zombie companies.
  • JN
    Jason N.
    15 December 2020 @ 17:23
    Anyone here want to share some stocks that fit Ed's profile of not counting on the re-opening?
  • DB
    Daren B.
    15 December 2020 @ 03:02
    Does anyone have a link to the paper they discuss in this video? TIA
    • ML
      Michele L.
      15 December 2020 @ 04:06
      https://group30.org/publications/detail/4820
    • RM
      Richard M.
      15 December 2020 @ 16:11
      Michele, thanks so much for the link, really appreciate it! [*** Ed/Jack/RVDB, please, in the future when you devote so much time to a particular report/paper please post the document (or at least a link to it) in the descriptor field. Fortunately your devoted followers/audience can sometimes pick up the slack but it would be nice if you just made it standard practice to do it yourselves. Many thanks, Rick.]
  • SR
    Steve R.
    15 December 2020 @ 14:59
    Gentlemen, Very interesting episode. I have a question / counterpoint: Is corporate insolvency bad? I admit, I am a CPA and not an investment manager, but when I put this discussion together with Grant Williams' discussion of a "debt jubilee," I see upside. Past episodes of RV have discussed the debt overhang, the use of corporate debt for stock buybacks, and excess compensation based on stock options. At one time (prior to 2009), corporations that declared bankruptcy had their equity holders take a significant (up to 100%) loss and their creditors assume equity positions. How much would General Motors, the company, be better off if it could have eliminated its historical debt and focused on making cars for its new owners? The problem with a debt jubilee is that one person's debt is another person's asset. The rules for stock market ownership was "you pays your money and takes your chances." If we have massive corporate insolvency, it doesn't mean that the companies go away, it means that the stockholders took their chances.
  • JM
    Jason M.
    15 December 2020 @ 00:12
    Wheres Raoul, need update on the unfolding...
    • ss
      safsafsaf s.
      15 December 2020 @ 02:54
      He’s too busy trolling bitcoin maximalists on Twitter. Teehee
    • CB
      Clifford B.
      15 December 2020 @ 13:41
      @KddKdkk ... LOL
  • DO
    DIOGO O.
    15 December 2020 @ 10:47
    or.... Russel Napier is correct... The Magic Money Tree of commecial banks credit is going to be used to exaustion... That is, not by conventional Government Debt
  • BS
    Benjamin S.
    15 December 2020 @ 02:15
    Thanks for this discussion. Great work. Also enjoyed Peter Cooper’s delivery of the news. Solvency - agree that we need to get Raoul Paul needs to come back and and update the unfolding. Cant wait to hear from him. Some highlights : “There is a new business reality.” How do we let companies fail - and which ones make the cut to save. Goal is to make the dislocations as non-systemic as possible. Great points about inflation. Seeing inflation while we are still short 10M jobs seems very unlikely. Is the political will present to have enough fiscal support to bridge the gaps? Great discussion, could have stayed with it for another hour.
    • AI
      Andras I.
      15 December 2020 @ 07:01
      Raoul was on RV Pro a few days ago, he said there was no change to his thesis. (Not my opinion, I'm just passing the message)
    • DG
      David G.
      15 December 2020 @ 07:41
      There are two versions of inflation. New loans, new debt, and new currency chasing the same number of goods. And the inflation that comes home to roost from all the dollars sitting around as reserves, that are doing nothing, that people may feel the need to get something for, if they feel like(or realize) the dollar will have significantly less value in the future. Also, you don't need employment to get fiscally driven inflation.
  • SL
    Sean L.
    15 December 2020 @ 01:58
    Good discussion - liked the fact you used it to breakdown the G30 report. More of this type of analysis would be great. I do think Ed's being a bit pessimistic about the opening & the affect the vaccine should have on economies. This virus is pretty specific in who it harms & as long as old people with pre-existing conditions and aged care home occupants are targeted this thing should be done & dusted. All we should be worried about is hospitalizations and deaths & this should be dramatically reduced with targeted vaccinations. The data says that if you under 70 years of age with no co-morbitities this virus is less dangerous than the flu
    • ST
      Sam T.
      15 December 2020 @ 05:24
      Irrespective of how deadly the virus is, this year has created a massive hole in the balance sheets of households and corporations. 30% of people at risk of foreclosure or eviction. The financial media won’t stop talking about the re-opening boom but I think it’s fair to question whether the dollars even exists for the boom to happen.
  • AD
    Antonio D.
    15 December 2020 @ 02:30
    Ed likes companies with strong balance sheets, free cash flow, and low leverage - translated - he likes the only companies that can afford to buy Bitcoin. Why? Because with the reliable cash flow, they can weather any ups-downs in price action. Now, buying Bitcoin might not be what they will do, however, interesting that it is the same idea for what makes a "good company". Excited for the potential of a new "value investing" paradigm at the other side of this solvency crisis.
  • DS
    David S.
    15 December 2020 @ 01:57
    Concerning the new normal, IMO it will take longer than currently thinking to get there. When people have two injections of the vaccine and they feel safe, even cruise ships will fill up and face the normal cruise ship viruses. Everyone I know wants to go to restaurants, bars, movies, fly, cruise, whatever. I think we will be surprised how quickly the middle class and wealthy will be having a great time after being in lockdown with COVID – Roaring Twenties. The less fortunate will be in a lot more trouble but will also be happy to be free. The federal, state, and local governments will be in poorer than the poor. Many states showed their preference for business over health care. Tesla moving to Texas is only one of many examples to come. There will be a hollowing out and a filling up. The movement to warm weather states with low taxes will intensify. Katie bar the door; everyone will be celebrating before the next crisis. DLS
  • TC
    Tim C.
    15 December 2020 @ 01:43
    Flows (passive) and leverage are amplifying literally everything (kudos to Mike Green for his research on this). The move in the Russel is an example of this. When insolvency hits sectors in the rotation, it's likely to amplify winners and losers (assuming flows don't change). Arbor research has some great data on flows that Liz Ann Sonders tweeted today.
  • RB
    Richard B.
    15 December 2020 @ 01:26
    Ed, implicit in your comments is that something has to be done to reduce the savings rate. Couple that with your other good points and see where that leads.
  • NE
    Nathan E.
    15 December 2020 @ 01:16
    The insolvency here we goooo
  • JJ
    John J.
    15 December 2020 @ 00:26
    That was awful. It could have been reduced to 5-6 minutes.