For the fifth week in a row, millions of Americans filed for unemployment insurance, and there is no respite in sight. 4.4 million people filed for jobless benefits in the week ending April 18. Economists consensus had been 4.2 -5 million. Over 26 million people have now filed for UI, since state-at-home measures began due to the COVID-19 public health and economic.
Democratic legislators’ concerns over BlackRock’s role in the Coronavirus Aid, Relief, and Economic Security Act (CARES Act) and Federal Reserve facilities are mounting. BlackRock is the world’s largest asset manager with over $6.5 trillion assets under management. Had the Financial Stability Oversight Council (FSOC) continued its original mandate under the Wall Street Reform and Consumer Protection Act(Dodd-Frank), BlackRock should have been designated as a systemically important financial institution which would have led to higher levels of capital, liquidity and risk management requirements than under which it operates presently.
A decade of job creation has been wiped out in four weeks. Over 22 million Americans are out of work. Unemployment in the U.S. is now about 15%, a level not seen since 1940
Every single day we are seeing unemployment data, market signals, default data, and anecdotal information, that as I wrote in March, the COVID-19 economic crisis will be more painful than the 2008-2009 financial crisis. Banks need to reduce dividends and share buybacks as well as improve risk management capacity.
Junk bonds, also known as below investment grade or high yield, have been showing significant signs of credit deterioration in the last few weeks due to the intensifying COVID-19 crisis. The junk bond market now stands at a record, $1.3 trillion.
Today’s Unemployment Insurance (UI) claims in the United States of 6.6 million demonstrate that this economic crisis will be prolonged. The claims were much higher than economists’ consensus of 5.5 million.
March saw a wave of corporate credit rating downgrades. Unfortunately, along with ratings, multiple macroeconomic and market signals show that a wave of company defaults is coming our way, both in 2020 and 2021.
I am more and more convinced that the COVID-19 crisis will be far worse than the 2008 financial crisis. With any luck, it will be shorter lived. Given that COVID-19 positive test results and deaths have not hit their apex yet and not all cities are on lockdown yet, more bad news about GDP and unemployment are unfortunately headed our way.
As the COVID-19 crisis expands globally, the rising number of zombie companies could endanger financial stability.
The intensifying COVID-19 crisis will expose why covenants in leveraged loans are important. Leveraged loan markets are in distress and this is spilling into collateralized loan obligation markets.
Today’s unemployment insurance (UI) data and the junk bond market sell-off are very negative macroeconomic and market signals that will adversely affect banks. Banks are lenders both to individuals and corporations, and they also invest in corporate bonds as well as in bonds called asset backed securities, which are pools of assets such as residential and commercial mortgages, credit card debt, and student loans. As individuals and corporations default on loans and bonds, banks’ profitability and capital levels will decrease substantially.
When we look back in a few months, this may very well be the week when it should be clear to all, that the coronavirus unemployment tsunami has begun. With thousands of restaurants, bars, hotels, and small businesses closing down voluntarily or due to state government executive orders, jobless claims are rising at unprecedented levels. All sectors of the economy are vulnerable to varying degrees.
This week, labor data, market prices, and experts’ forecasts, are clearly showing that the coronavirus pandemic is causing an unprecedented synchronized, global economic shutdown. Ordinary people must be rescued now. Millions around the world are already feeling the pain of layoffs and reduced working hours.
When President Trump’s own U.S. treasury secretary talking about 20% unemployment unless legislators finally start implementing some type of fiscal stimulus, what more of a signal do you need to know that the U.S. is in trouble? We have not had 20% unemployment since 1935 during the Great Depression.
Significant vulnerabilities in the global leveraged loan and collateralized loan obligations (CLOs) markets have grown since the 2008 financial crisis, especially since there are numerous supervisory and data gaps in these markets. According to analysis in the just released report “Vulnerabilities associated with leveraged loans and collateralised loan obligations,” the Financial Stability Board found that “the degree of borrowers’ leverage has increased.” Moreover, “although loans tend to have lower credit ratings, there is some evidence that certain changes to loan documentation that weaken creditor protection are not fully priced in by market participants and investors.”
Foreign exchange and interest rate derivatives markets are bigger than ever before. This level of growth means investors and regulators should look carefully at the level of credit, market, liquidity, and operational risks these instruments pose.