☀️☕️ Brits not Paying Up

📝 Focus

• Brits not Paying Up

📊 In the Markets

• Land of the Rising JGB Yield?

• WeBankrupt

📖 MoneyFitt Explains

🎓 Trade Credit Insurance

📝 Focus

Brits not Paying Up

Insolvencies in England and Wales have surged back up to Global Financial Crisis levels, reflecting the pain felt by businesses due to high borrowing costs and sluggish demand.

Insolvency Service data shows that in the quarter ending in September, there was a 10% year-on-year increase in registered company insolvencies. This was barely down from the previous quarter, which had been the highest since 2Q 2009.

The Insolvency Service noted that these last two quarters had the highest numbers since Q2 2009 

..... ▷ Related to this, trade credit insurance🎓 payouts to suppliers for unpaid business debts exceeded £100 million in the first half of 2023. 

This was 23% higher than the same period in 2022, marking the worst start to a year since 2018. 

This increase was driven by collapses in the construction and retail sectors, including companies like Wilko and the Buckingham Group.

..... ▷ In another troubling statistic, the period saw the most creditors' voluntary liquidations since 1960. 

A CVL is a formal insolvency process initiated by a company's directors when they recognise the company is insolvent. 

It involves appointing a liquidator to wind up the company's affairs and distribute its assets among creditors to ensure a fair distribution of assets according to the legal hierarchy of debt priority. 

After completing the liquidation process, the company is dissolved, bringing its operations to an end.

Insolvency vs Bankruptcy - a Mini-Explainer

Insolvency refers to a financial state where an individual, company or organisation is unable to meet its financial obligations and pay off its debts as they become due.

It signifies a lack of liquidity or sufficient assets to cover outstanding liabilities. Insolvency is a broad term encompassing various financial difficulties, such as cash flow problems or inability to meet financial obligations.

Bankruptcy, on the other hand, is a legal process initiated by an insolvent entity to restructure or liquidate its assets, often under the supervision of a court, to settle outstanding debts and achieve financial recovery or closure.

What We’re Reading 📚

📊 In the Markets

Wall Street's major indexes closed higher on Wednesday, led by tech-heavy Nasdaq. The US Federal Reserve kept interest rates unchanged for the second time in a row, preferring to give past hikes more time to feed through, though Fed Chair Jerome Powell acknowledged the economy's surprising strength and kept the door open to a further increase in future. Markets mostly ignored that part. 

Investor confidence also rose on the US Treasury Department's reduced pace of longer-term debt auctions, sending bond prices up. Yields go the other direction, so the 2-year Treasury yield, which reflects interest rate expectations, dropped 0.11 percentage points to 4.96%. The 10-year yield, which reflects growth and inflation expectations, fell by the same amount to 4.76%.

The September Job Openings and Labor Turnover Survey (JOLTS) report revealed a nine-month low in layoffs while job openings rose, highlighting ongoing labour market tightness. The US labour market continues to bolster the economy with 1.50 job openings for every unemployed person. This is slightly up from 1.49 in August and far above the pre-pandemic ratio of 1.2. 

This supports the view that the Fed will maintain higher interest rates to temper demand. Hiring increased, though fewer job resignations could help mitigate wage inflation.

Chipmaker Advanced Micro Devices saw a nearly 10% surge due to an optimistic sales forecast for AI chips, with both AMD and arch-rival Intel talking up the potential for AI PCs (and Tim Cook of Apple saying the same for its “scary fast” M3 powered MacBooks.) 

Most S&P 500 companies that have reported have beaten analyst expectations for the quarter. But when they miss, the punishment has been ruthless. 

Estee Lauder plummeted 18.9% after lowering its annual profit outlook, and Tinder-parent Match Group fell 15.3% due to a fourth-quarter revenue forecast below expectations.

The same thing happened across the pond, where Aston Martin plunged 13% on a wider-than-expected quarterly loss and a volume target cut.

European markets were firm on Tuesday after data showed October euro zone inflation falling to a two-year low of 2.9%, lower than the 3.1% expected. 

But Japan was the standout market, with the broad market Topix up 2.5%, taking it to a 24% gain for the year… though with the 15% appreciation of the USD against the JPY, that’s a smaller gain in USD terms. 

Land of the Rising JGB Yield?

The Bank of Japan (BOJ) maintained a 1% band around its 0% target yield for 10-year Japanese Government Bonds, but -importantly- will use it as a "reference" point rather than a strictly enforced cap.

This increase in flexibility around its yield curve control (YCC) policy disappointed Yen watchers who were hoping for more, but stock market buyers were out in force. 

The decision is also largely a response to the soaring US Treasury yields of late, which makes defending the previous cap harder and more costly. 

..... ▷ While it represents another step toward fully market-driven interest rates for long-term Japanese debt, the BOJ remains hesitant to fully let go of the YCC policy just yet in its decades-long epic kaiju battle with deflation.

But this decision does pave the way for an unwinding of Japan’s ultra-loose monetary policy, which has been affected by the weakening yen, rising bond yields and persistent imported inflation (the wrong type.)

..... ▷ The yen remained weak at a one-year low against the USD, the lowest since late October 2022.

..... ▷ Japan started its ultra-loose monetary policy in the late 1990s to deal with a prolonged post-bubble period of deflation and stagnation.

But this has left Japan as the only major economy to maintain a loose monetary policy stance through the high global inflation of the last few years. 

When will the BOJ finally tighten up… and will an unwinding carry trade lead to a tsunami of Japanese capital now hiding abroad to rush home? 

WeBankrupt

Flexible co-working space provider WeWork is planning to file for bankruptcy next week due to its substantial debt and ongoing losses, according to the Wall Street Journal. 

For anyone who bought on Monday, thinking “WeWork is a big and familiar brand. How much worse can it get? It’s already down 96.01% since the end of 2022!” WE have news for you…

WE collapsed another 46.5% on Wednesday, worse even than the 32% it fell on Tuesday’s extended trading following the Journal's initial report, bringing its losses for the year (so far) to 97.8%.  

..... ▷ You may recall that WeWork had a “meme stock rally” in August, a day after warning that it may have difficulty staying solvent.

The stock surged a record 153% on August 10th, likely fueled by retail investors drawn to the stock's low price, big name and short squeezability.

The rally came with a surge in options activity, a hallmark of meme stock rallies.

Caveat emptor. 

..... ▷ WeWork is considering a Chapter 11 filing in New Jersey, and it recently reached an agreement with creditors to temporarily delay debt payments. 

The company's long-term debt stands at $2.9 billion, with over $13 billion in long-term leases, amidst rising borrowing costs in the commercial real estate sector.

..... ▷ This bankruptcy plan signifies a remarkable fall for WeWork, once valued at $47 billion in 2019. 

It also represents a significant setback for investor SoftBank, which has invested billions.

WeWork's troubles persisted after its failed 2019 IPO, and it eventually went public in 2021 at a reduced valuation. 

Despite SoftBank's support, the company continued to lose money and raised doubts about its operational sustainability in August, experiencing several high-level departures.