At Bloomberg Sarah Halzack has noticed the same thing that I have about the apparel industry:
Instead of dressing up for vacations, weddings, church services and board meetings, many shoppers are going to spend the rest of 2020 in sweatpants or their comfy, sartorial cousins. Yes, retailers have spent years making their supply chains speedier and more flexible to react more nimbly to trends. But this situation requires a change in assortment far more profound than adding more off-the-shoulder tops or animal prints, and I fear many of them will end up with piles of blazers, dresses and glittery high heels that they can’t sell.
and
Moody’s estimates that Ebitda [ed. “Ebitda” means earnings before interest, taxes, depreciation, and amortization] will decline by at least 50% for most apparel retailers this year, and that even by 2021, earnings will be 15% to 35% below what they were in 2019. It seems inevitable that some chains won’t survive those conditions. Last month, J. Crew Group Inc. filed for bankruptcy protection, becoming the first major coronavirus casualty, and was followed soon after by Neiman Marcus Group Inc. and J.C. Penney Co. In the past week, Bloomberg News has reported that both Ascena Retail Group Inc., the corporate parent of Ann Taylor and other stores, and Tailored Brands Inc., parent of Men’s Wearhouse, are also considering bankruptcy.
The clothing business is just beginning to unravel. It may be nearly unrecognizable by the time this crisis fully takes its toll.
The apparel sector is important to both New York and Los Angeles—for New York it’s right after finance and, as I pointed out, finance has become extremely portable over the last couple of decades.
Without apparel or retail more generally, hospitality, or aerospace, it’s hard to see where a robust recovery might emerge. The financial sector is already overbuilt and it’s laying off employees not bringing them on. When the dust settles I suspect that it will become apparent that we already have more retail and office space than is needed so construction is out. Maybe a lot more. Health care? Go back and read up on “the cat and rat farm”. Perpetual motion doesn’t work.
That’s why I keep harping on the need to shorten supply chains which probably means more suppliers in Canada and Mexico as much as more in the U. S. The consumer-oriented stimulus packages to which Congress has become accustomed may spur more consumer spending but unless companies start buying from U. S., Mexican, Canadian and other suppliers it won’t do much to stimulate the U. S. economy.
3 words for 2021; Green new deal.
Portfolio company A – bakery goods. What virus?
Portfolio Company B – oil related hydraulic equipment. Virus or a Russian – Saudi cabal? Probably both. Recovering.
Portfolio Company C – infrastructure. What virus?
Portfolio company D – aerospace. Record year through March. Then splat. Problematic.
Portfolio company E – premium packaging. Global. Mixed but slowly recovering.
Portfolio company F – FL residential construction. Two bad months. Recovered. Thank you IL and the NE.
Policy intentionally destroyed hospitality, aero, retail and entertainment. Uselessly.
Others will recover. Probably slowly.
The best business stimulant is law and order. If people and businesses don’t feel safe living and doing business in a venue, giving them stimulus money is just p***ing up an unfrozen rope.
The rebellion against the Republic of the United States has officially begun. Seattle now has effectively an anarcho-salafist enclave set up within its borders. Their demands include the resignation of the lawfully elected idiot of a mayor and the defunding of the police department. They ain’t going down without a fight. Especially since they effectively have hundreds of hostages, residents now unwillingly living within their jurisdiction. If they’re not squashed peacefully expect to see dozens more enclaves like it springing up everywhere in America. I don’t expect them to be squashed peacefully.
People dress up to be seen. No social life, no new wardrobe.
I don’t think you can stimulate it directly. People need to feel safe, but in the present political climate they will need to feel welcome as well or they will just stay home in their old clothes.
Somewhat related, I wonder what you all think of this:
https://www.theatlantic.com/magazine/archive/2020/07/coronavirus-banks-collapse/612247/
It’s sounds like a reasonable view, but then these essays always do to non-experts like me. This is too far outside my wheelhouse to judge.
I’m not a banking expert or on CLOs in particular. Guarneri may be better equipt to comment than I. However, to use the numbers provided by the author uncritically, although $1 trillion sounds like a lot there is presently about $20 trillion of business credit outstanding. Does the author expect ALL CLOs to collapse like dominos or just some? Let’s speculate it’s just some—say half. That’s about 2% of outstanding credit. Is that really enough to produce a collapse of the banking system?
I read the article three times just to make sure I had really absorbed his points. And then I asked myself, “where do you really start, this is why I can’ deal with the generally weak, weak articles published at the Atlantic.”
So I usually don’t read it. Let me make my case just by commenting on this article’s various sections. As always, we have snippets of truth cleverly woven into sensationalist opinion.
“Over the course of the crisis, more than 13,000 CDO investments that were rated AAA—the highest possible rating—defaulted.”
The first piece of sophistry, which he subsequently refutes himself:
“…a CLO has multiple layers, which are sold separately. The bottom layer is the riskiest, the top the safest. If just a few of the loans in a CLO default, the bottom layer will suffer a loss and the other layers will remain safe. If the defaults increase, the bottom layer will lose even more, and the pain will start to work its way up the layers. The top layer, however, remains protected: It loses money only after the lower layers have been wiped out.”
A point I have made ad nauseum, and never (willfully) understood by the steves of the world, and I don’t think even Dave got it. Grandma was in the upper tranches unless her financial advisor was a crook. She was spared. High risk taking capital was in the bottom tranches, and they knew damned well what they were doing. No tears that they were wrong. CLO’s are no different.
“The list contains the categories of safe assets you might expect: U.S. Treasury bonds, municipal bonds, and so on. Nestled among them is an item called “collateralized loan and other obligationsâ€â€”CLO’s.”
No shit. Every corporation in America has a tiered (by risk) capital structure. CLO’s are fairly liquid, but more importantly, contra a later claim about the issuers, they aren’t all going to become insolvent simultaneously. More on that later.
“Remember: CLOs are made up of loans to businesses that are already in trouble.”
Complete, unadulterated bullshit. This is where this character completely lost me. The leveraged loan market has been around since the very early 90’s at least. Its a function of managing underwriter’s balance sheets (they can underwrite more than they can hold) and fully employing the balance sheets of banks who cannot underwrite, and investors seeking the risk commensurate yields. They come into existence almost exclusively at the beginning of a deal, not in some workout situation as lender of last resort. This guy if he really wasn’t just a two-bit bond sales man knows this. He’s lying. Its not even exotic finance. Its basic.
“Banks do not publicly report which CLOs they hold, so we can’t know precisely which leveraged loans a given institution might be exposed to. But all you have to do is look at a list of leveraged borrowers to see the potential for trouble. Among the dozens of companies Fitch added to its list of “loans of concern†in April were AMC Entertainment, Bob’s Discount Furniture, California Pizza Kitchen, the Container Store, Lands’ End, Men’s Wearhouse, and Party City. These are all companies hard hit by the sort of belt-tightening that accompanies…………..”
This is actually a reasonable point. It accompanies downturns incurred upon the advice and political power of idiots like Anthony Fauci and his acolytes who have no perspective outside their narrow expertise, and who apparently don’t care. Ferguson and Fauci et all should be taken to the public square and have hot pokers stuck up………well. Good intentions are not good enough. They have done incalculable damage to Mr and Mrs Average Joe. With no consequences. May they go into the dustbin of history as the narrow minded fools they were.
And as for Mr Partnoy, he is well placed in legal academia, where he can hold court among other know nothings. Some people are easily satisfied.
Thanks for the comments. Sounds like it’s not much to worry about on that front.
” Grandma was in the upper tranches unless her financial advisor was a crook. She was spared. High risk taking capital was in the bottom tranches, and they knew damned well what they were doing. ”
But her adviser didnt need to be a Snidely Whiplash crook, they just needed to put their own financial interests first, and that looks to have been awfully common. Most people buying a house dont get a financial adviser to help out, they rely upon their own judgment and the advice of the bank. Really, what financial adviser or banker would advice someone to take out a liars loan if they really had the clients interest at heart. For that matter, how many of those people giving out loans had the bank’s interest at heart? (Clearly more than you would think because the beans made tons of money on those loans.)
But suppose you are right. Then how come so many Grandma’s lost their homes? Around 10 million foreclosures.
Steve
https://www.aarp.org/content/dam/aarp/ppi/2016-03/AARP756_ConfidentialForeclosure_WEB_optimized.pdf
“As of December 2011, approximately 3.5 million loans of people age 50+ were underwater—meaning homeowners owe more than their home is worth, so they have no equity; 600,000 loans of people age 50+ were in foreclosure, and another 625,000 loans were 90 or more days delinquent. From 2007 to 2011, more than 1.5 million older Americans lost their homes as a result of the mortgage crisis.
To date, public policy programs designed to stem the progression of the foreclosure crisis have been inadequate, and programs that focus on the needs of older Americans are needed.
Key Findings
„ Among people age 50+, the percentage of loans that are seriously delinquent increased 456 percent during the five-year period, from 1.1 percent in 2007 to
6.0 percent in 2011. As of December 2011, 16 percent of loans of the 50+ population were underwater.
„ Serious delinquency rates of borrowers age 50–64 and 75+ are higher than those of the 65–74 age group. People in the 75+ age group are facing increasing mortgage and property tax expenditures and decreasing average incomes. Serious delinquency rates of the <50 population are higher than those of the 50+ population.
„ Of mortgage borrowers age 50+, middle-income borrowers have borne the brunt of the foreclosure crisis. Borrowers with incomes ranging from $50,000 to $124,999 accounted for 53 percent of foreclosures of the 50+ population in 2011. Borrowers with incomes below $50,000 accounted for 32 percent.
„ The foreclosure rate on prime loans of the 50+ population increased to 2.3 percent in 2011, 23 times higher than the rate of 0.1 percent in 2007. The foreclosure rate on subprime loans of the 50+ population increased from 2.3 percent in 2007 to 12.9 percent in 2011, a nearly sixfold increase over the five-year period."
Steve