State of the Pandemic Union - American Style

Silver Report Transcript (with some creative license to text by the editor)

Welcome to Silver Report uncut, so I wanted to go over a couple of disturbing facts that reveal this economic recovery is mostly just talking points. Bankruptcies in the USA just reached a ten year high, the last time that bankruptcies were running this high was back in 2010. At that time, businesses had gone through the great recession, and there was a severe decrease in available credit.

According to Standard & Poor's Global Market Intelligence Report, they determined as of August 9, 2020, 424 companies have filed for bankruptcy. This number exceeds bankruptcy filings for any comparable period, going back to 2010.

Airlines and regional banks with overexposure to retail and without government assistance could be undone.

Just between July, 27th and August 9th, 31 companies filed for Chapter 11 bankruptcy. Bankruptcies have been rising across various sectors; however, consumer-focused companies are the hardest hit. According to S&P, over 100 consumer-focused companies have filed for bankruptcy this year, but a lot are missing from the list.

The S&P analysis includes public and private companies with public debt. To make it on the list, a public company must have at least $2 million in assets or liabilities. In contrast, private companies must have a minimum of $10 million in assets or liabilities.

American Airline Industry

The day of reckoning is coming to the airline industry

Now speaking of airlines, American Airlines revealed the stunning revelation that there is no such thing as a V-shaped recovery for air travel. American taxpayer handout to the airlines, which are expiring, means massive structural changes are afoot as the airlines grapple with a total loss of demand. This grappling means withdrawal from inefficient markets.

Now the money given to this industry mandated the airlines were not allowed to cut services. However, like American Airlines, the industry is preparing to drop flights to small and medium-sized city markets once financial assistance comes to an end. This end-date is approaching with the full knowledge that the day after, the airlines will immediately begin cutting services and employees.

The major favoured airline carriers that received Washington's largess were required to maintain minimum levels of service through September, 30. Around $25 billion was funnelled to these companies because, of course, it's essential these companies, remain at the top of the food chain. Now, under the agreed terms, the airlines were prohibited from making layoffs. American Airlines itself received $5.8 billion, which the company has just about fully consumed. The purpose of winning this free money was to provide both payroll assistance and continued air service. Many of these planes flew without passengers.

American Airlines said that the cancellations to targeted destinations could begin showing up in the full schedules starting next week. However, they haven't finalized the changes or announced the routes slated for removal. The airlines and their unions seek an additional $25B in relief to continue paying the workers through the end of March 2021, hoping that aviation demand might begin to recover by then.

Currently, there's no demand for not operating profitably

The airline's industry is one of the sectors that has been most impacted by the pandemic. However, the day of reckoning is coming to the airline industry. The American taxpayer can't continue to support the airline industry's pre-pandemic operating infrastructure, in terms of the labour force when demand for services is 25 to 30% of normal levels.

Currently, there's no demand for not operating profitably. The government, via the taxpayer incurring insurmountable debt, is ensuring that these giant corporations maintain their market footprint, rather than allowing for market-driven creative destruction. These companies would not survive without money from these assistance packages.

Talking Heads talked up the post-pandemic market into a state of "speculative enthusiasm."

The USA Federal Reserve and retail investment Talking Heads printed and talked up the post-pandemic market into a state of "speculative enthusiasm." Perhaps, had they been more circumspect by rewarding efficient airline operators, economic principles would have self-corrected inefficient pre-pandemic airlines. The unintended consequence, however, is everyday Americans stampeded into airline stocks one-hundred days before a Presidential election skewing and politicizing investment fundamentals.

Many "big-enough to fail" businesses and corporations would welcome this level of assistance but have no option other than bankruptcy. The Department of Transportation spokesperson said the department did not propose to extend the obligations. Still, they're going to use the authority they have under the Cares Act to monitor ongoing access by the travelling public to the national air transportation system. The way they worded their announcement, one would infer their perception of the airline industry as a public service rather than a private business. In this new economic parlance, the big airlines are social enterprises masquerading as for-profit businesses.

At what point does the spigot get turned off and the free market allowed to value assets?

Residential Real Estate

As for real estate, a shocking revelation came out from a survey by ApartmentList.com. They found that a third of Americans for the fourth consecutive month did not pay their rent or mortgage payments in full. 

32% of American renters and homeowners entered August with unpaid housing bills

People's finances are quickly drying up, most have consumed their savings, exhausted their credit cards, and banks are cutting limits. Deferment programs are coming to an end, and they need to come up with some money now.

The unemployment rate remains shockingly high, and it's at a level where one would be hard-pressed to surmise an economic recovery is in the offing. The unemployment rate remains above 10%, and the average American consumer doesn't expect it to decline. In short, we're in an economic crisis, the unpaid bills continue to pile up, and consumers continue to fall into delinquency. Quite plainly, we're facing an employment crisis not experienced since the Great Depression.

An employment crisis not experienced since the Great Depression

ApartmentList.com has found 32% of American renters and homeowners entered August with unpaid housing bills. At least 20% of respondents owed more than $1,000. Forty-nine per cent of respondents who rent owe back payments and are actively renegotiating their lease agreements or planning to do so.

Landlords dependant on monthly rents and caught with unpaid rent obligations are flooding the rental market in major cities around the nation with supply. For example, vacant apartments in New York City just reached the highest level in recorded history. ApartmentList.com's survey found that roughly one in three Americans failed to make their full rent or mortgage payments in the first week of this month.

"Landlords and lenders are showing a willingness to negotiate housing security is currently in jeopardy for an unprecedented number of Americans"

Before this crisis came into our lives, the majority of Americans had a ton of debt, minimal savings. Many people didn't even have enough disposable income to save, and then tens of millions of people lost their jobs. Many are unable to service their bills to buy food or even afford housing. The real concern for many Americans is how am I going to keep a roof over my head right now. That's the hard reality and most of them, aren't paying attention to what shape this recovery will take while waiting in a mile-long foodbank line.

Washington's Congressional Houses have abdicated their sworn responsibilities

With protections and benefits put in place at the outset of the pandemic now expiring, social angst around evictions and foreclosures mount. Thrust into this mix of uncertainty, America's unemployed are being used as cannon fodder by political charlatans. Their malevolent animus and desire for power are greater than offering succour to their citizenry in need today and not December. Both Washington's Congressional Houses have abdicated their sworn responsibilities, and the American people should contemplate who their real oppressors are as they head to Xurbia in caravans. 

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