Eq: Total Market
(Houston)
Is the oil market a leading indicator of what is to come in the economy? Do we have way more supply and infrastructure to deliver it than there is demand to gobble it up? Oil was at $11 a barrel this morning, a mind boggling price. Stocks, on the other hand, have rallied hugely, to the point where it sometimes seems like investors have forgotten the country is shut down. Oil is obviously an idiosyncratic market, but if you really take a look at the situation, it is falling because of a big plunge in demand.
FINSUM: Is the oil market just smarter than equities right now? It does seem entirely possible that given the inevitable contraction in consumer spending, we may have more infrastructure to produce and delivery goods and services than we do demand, which means stocks could be in for a very rough patch.
PLEASE HELP SMALL BUSINESS OWNERS BY FILLING OUT THE SURVEY
COVID Loan Tracker was started by small business owners Duncan and Rita MacDonald-Korth to help their fellow small business owners understand when and where PPP and EIDL advance money starts flowing. The site works by crowdsourcing knowledge on applications and loan disbursements. Our goal is to help the small business community and empower journalists with the data they need to keep the government accountable.
Retail is one of the largest sectors of the US economy. Tens of millions of workers earn their living in the sector and millions of small business owners employ them. However, this group—at once the most visible and vulnerable victims of the lockdown—are being left out in the cold by the PPP initiative. It has already been well established that “large” small businesses have fared much better in the Paycheck Protection Program, but retail small business owners may have even more to lose.
The common practice in commercial leasing to small businesses in the US is that landlords require tenants to put up personal guarantees in order to execute a lease. That means that if a business is unable to afford the rent, their own personal assets are the on hook to pay the landlord. Small business owners usually have no choice but to accept the terms—if they do not, they cannot lease the space. Since almost all landlords require this, small business owners are left with a stark choice: commit to a personal guarantee, or don’t open a business.
While it is clear at this point that smaller small business owners have not been helped by this program, that is doubly true for retail owners, for whom payroll is usually a minority expense compared to rent, utilities, and inventory. Accordingly, the small shop owners of America—hardware stores, clothing boutiques, nail salons, dry cleaners, cobblers, bar owners etc are at grave risk of losing not just their business, but their own assets, such as savings, houses, future income. They stand to lose everything.
This is likely to be the hardest weekend ever for millions of small business owners around the country. The SBA ran out of money on Thursday after just 1.6 million business had loans been “approved”—the vast majority of which have not been paid, according to COVID Loan Tracker. There are 30 million small businesses in this country. Even discounting for shell companies, that means tens of millions of small businesses got nothing from the program and are now facing doom. Forbes estimates the program only funded 5% of small businesses in the country.
PLEASE HELP SMALL BUSINESSES BY FILLING OUT OUT THE COVID LOAN TRACKER SURVEY.
Congress needs to urgently refund the program to help these businesses, but it is also worth noting that there were vast discrepancies in those who received PPP money. “Those who had pre-existing credit relationships with banks did much better”, says Duncan MacDonald-Korth, cofounder of COVID Loan Tracker. “And ‘big’ small businesses are much more likely to have those credit relationships”, he continued. Accordingly, COVID Loan Tracker found that over 81% of those who received PPP had pre-existing lending relationships with small banks! That means the millions of small businesses who fund themselves by making more money than they spend were boxed out of this program.
COVID Loan Tracker was started by small business owners Duncan and Rita MacDonald-Korth to help their fellow small business owners understand where PPP and EIDL money is flowing. We are empowering the business community and journalists with the data they need to keep the government accountable.
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(New York)
A famous contrarian fund manager, Alan Lancz, put out a very interesting quote today. He said that “The next 45 days may just become the most critical period in U.S. financial history”. He argues that the manner in which the US economy is reopened will dictate the direction of the next several years of the recovery. In his view, even the best case scenario is a U-shaped recovery where it will take a long time to get back to where we were. In his words, “The much talked about ‘V’ shaped recovery is no longer in the equation because of the unprecedented combination of negatives with this crisis”.
FINSUM: We can’t help but agree. This lockdown has lasted so long—and will likely continue for a while longer—that we can’t imagine we will be back to February 2020’s economic output level until 2022.
(Washington)
While many readers often accuse us of having one political persuasion or another (we get accused by both sides all the time!), we try to be pretty neutral about politics here at FINSUM. On this particular topic, we want to weigh in very clearly (even though we don’t, have a clear position). Earlier this week, the President said what was easily the most heartfelt, eloquent and “presidential” comment of his presidency, and given this topic, we think it is worth sharing. He said “I have it make the biggest decision of my life, and I only hope to god I get it right”. Well, his view was made more clear today, which is that he is favoring a quick reopening.
FINSUM: In our view, nobody knows the right answer to the question about balancing the risk to life versus the imperative of providing economic security. In many ways it is a catch-22. We think a really well-considered strategy is needed.
(New York)
New data emerging today is for the first time showing the scale of the devastation that has occurred to the US economy. Industrial production fell 5.4% in March, the worst fall since 1946. Headline retails sales fell a whopping 8.7%. Both data points were worse than economists predicted.
FINSUM: What is really worrying here is that large parts of the US were not even shutdown until the very end of March. This means April’s numbers are likely to be a complete washout. Judging by indexes, this scared markets.