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Increasing evidence from credit markets is showing, that as I wrote in March, this recession will be worse than the 2007-2009 Great Recession. Credit markets are a very good place to see where the economy is headed. Unfortunately, the default rate, of corporate companies rated by credit rating agencies, continues to rise.

Taxpayers in America’s ten most populous cities are facing significant taxpayer burdens. Unfortunately, as the COVID-19 economic crisis intensifies, without significant fiscal reforms at these cities and without a federal bailout, taxpayers’ burden will rise precisely at a time that millions are losing their jobs and are having incomes and savings significantly reduced.

In less than two months, we have gone from an unemployment rate of 3.5%, a 50-year low to probably over 20%, the worst level since the Great Depression. Today’s Unemployment Insurance filings were 3.2 million, higher than economists’ consensus expectations. The number of jobs created since the Great Recession that ended in 2009 have been wiped out.

As the COVID-19 economic crisis continues to worsen, current and recently laid-off employees in the hotel sector globally will continue to struggle, and in many cases, suffer severely.   According to Martin Leary, Director of Research at labor union, UNITE HERE, “Hotels were one of the first businesses to lay off people in the U.S. in mid-March. Big hotel chains had an understanding of what was going on with COVID-19, because they have a presence in China. They quickly drew down lines of credit and started laying off people.”

In an almost unnoticed letter to Senator Mike Crapo, the Chairman Of the Committee on Banking, Housing,  and Urban Affairs, The Federal Reserve Board’s Vice Chair for Supervision Randal Quarles, is asking that “Congress should consider modifying section 171 of the Dodd-Frank Act (“the Collins Amendment”) to allow regulators to provide flexibility under Tier 1 leverage requirements as banks respond to increased credit demands.” The purpose of Tier I leverage requirements is for banks to allocate high quality capital, that is, common equity and retained earnings, to help them sustain unexpected losses, especially during a crisis.

22% of the American labor force is now unemployed; that is about almost 36 million people out of work. This figure includes the 3.5% who were already unemployed before the COVID-19 pandemic and the over 30 million new jobless who joined just in the last six weeks. This unbelievably high level of unemployment has not been seen since 1934.

The quality of syndicated leveraged loan covenants deteriorated to a record low the last quarter of 2019. Leveraged loans are typically defined as loans to companies, which carry debt levels of five times or more than their stated Earnings Before Interest Tax and Depreciation (EBITDA). Leveraged loans with fewer covenants, known as covenant-lite, have grown enormously since 2013, since interest rates have been low and lenders were chasing yield.

In the week ended April 18, 204,716 New Yorkers filed for Unemployment Insurance (UI). This number of jobless claims is 48% less than filed the previous week, 395,494. However, just in the last five weeks, data from the New York Department of Labor shows that the total number of New Yorkers filing new jobless claims has reached 1.4 million. This very high level of jobless claims is about 2/3 of the total jobless claims filed during the entire time of the Great Recession in June 2007-November 2009.

Default rates are likely to rise sharply in the months ahead as the COVID-19 economic crisis intensifies, especially for private equity-backed family companies that are very leveraged. According to Moody’s Assistant Vice President Julia Chursin “The US speculative-grade default rate will rise in the year ahead as unprecedented credit shocks from the coronavirus pandemic, plunging oil prices and mounting recessionary conditions all take a toll.’

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.