Corporations Are Defaulting On Their Debts Like It’s 2008 All Over Again
April 19, 2016 - Michael Snyder The Economic Collapse Blog
The Dow closed above 18,000 on Monday for the first time since July. Isn’t that great news? I truly wish that it was. If the Dow actually reflected economic reality, I could stop writing about “economic collapse” and start blogging about cats or football. Unfortunately, the stock market and the economy are moving in two completely different directions right now. Even as stock prices soar, big corporations are defaulting on their debts at a level that we have not seen since the last financial crisis. In fact, this wave of debt defaults have become so dramatic that even USA Today is reporting on it…
A lot of big companies in this country have fallen on hard times, and it looks like bankruptcy attorneys are going to be absolutely swamped with work for the foreseeable future.
So why are stock prices soaring right now? After all, it doesn’t seem to make any sense whatsoever.
And it isn’t just a few bad apples that we are talking about. All across the spectrum, corporate revenues and corporate earnings are down. At this point, earnings for companies on the S&P 500 have plunged a total of 18.5 percent from their peak in late 2014, and it is being projected that corporate earnings overall will be down 8.5 percent for the first quarter of 2016 compared to one year ago.
As earnings decline, a lot of big companies are getting into trouble with debt, and we have already seen a very large number of corporate debt downgrades. In recent interviews, I have been bringing up the fact that the average rating on U.S. corporate debt has now fallen to “BB”, which is already lower than it was at any point during the last financial crisis.
A lot of people don’t seem to believe me when I share that fact, but it is absolutely true.
One of the big reasons why corporate debt is being downgraded is because a lot of these big companies have been going into enormous amounts of debt in order to buy back their own stock. The following comes from Wolf Richter…
When corporations go into the market and buy back their own stock, they are slowly cannibalizing themselves. But we have seen these stock buybacks soar to record levels for a couple of reasons. Number one, big investors want to see stock prices go up, and so big investors tend to really like these stock buybacks and will generally support corporate executives that wish to engage in doing this. Number two, if you are a greedy corporate executive that is heavily compensated by stock options, you very much want to see the stock price go up as well.
So the name of the game is greed, and stock buybacks have been fueling much of the rise in U.S. stock prices that we have been seeing recently.
However, the truth is that nothing in the financial world lasts forever, and this irrational bubble will ultimately come to an end as well.
Earlier today, I am across an article that included a comment from Michael Hartnett of Bank of America Merrill Lynch. He believes that there are a lot of parallels between what is happening today and the period of time that immediately preceded the bursting of the dotcom bubble…
Like Hartnett, I definitely believe that a major “pop” is on the way, although I would like for it to be delayed for as long as possible.
Someday we will look back on these times with utter amazement. It has been absolutely incredible how the financial markets have been able to defy economic reality for so long.
But they can’t do it forever, and according to a brand new CNN survey Americans are becoming increasingly pessimistic about where the real economy is heading…
If some Americans think that the U.S. economy deserves a “D” or an “F” grade right now, just wait until they see what is in our immediate future.
Personally, I give our economy an “A” for being able to maintain our unsustainable debt-fueled standard of living for as long as it has. Somehow we have managed to consume far more than we produce for decades, and the largest debt bubble in the history of the planet just keeps getting bigger and bigger and bigger.
Of course we are very much living on borrowed time at this point, but I truly hope that the bubble economy can keep going for at least a little while longer, because nobody should want to see what is coming afterwards.
*About the author: Michael Snyder is the founder and publisher of The Economic Collapse Blog. Michael’s controversial new book about Bible prophecy entitled “The Rapture Verdict” is available in paperback and for the Kindle on Amazon.com.*
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Close observers of the anti-Israel Boycotts, Divestment and Sanctions (BDS) movement have long kept a weather eye on California. But that attention has mostly focused on university campuses, including the prominent 10-school University of California system.
Now, the Golden State is the latest battleground in a nationwide effort to draft and pass anti-BDS laws in U.S. state capitols, and pro-Israel advocates hope that success on the state-government level will curb the boycott movement's momentum on campus. At a Los Angeles conference on fighting BDS that was hosted earlier this month by the pro-Israel education group StandWithUs, California Assemblyman Travis Allen had a message for the movement's proponents: "Boycotting a trade partner of ours doesn't make sense."
A Republican from Huntington Beach, Allen has styled himself as an early adopter of a trend now sweeping state legislatures to bar companies that boycott Israel from contracting with state governments. That trend inspired not one, but two bills that have been introduced in the California Assembly since January, the first by Allen and another by Assemblyman Richard Bloom, a Santa Monica Democrat.
Allen has since become a co-author of Bloom's bill—which, unlike Allen's similar measure, enjoys the support of the California Jewish Legislative Caucus. Bloom's measure, Assembly Bill (AB) 2844, won approval on April 12 from the Accountability and Administrative Review Committee, the first of two legislative committees set to review it.
"I am very pleased that others have now joined in support of the effort, and it looks like we will now get a substantive law that will affirmatively state that California won't support the boycott of Israel," Allen said in an interview.
The bill was not without its opponents. Cristina Garcia, a Democrat from southeastern Los Angeles County who chairs the accountability committee, recommended rejecting the measure. But the support of the committee's three Republicans put the bill over the top, and it passed in a 5-1vote, with three Democrats abstaining.
"With unanimous Republican support, I am extremely confident that the current efforts to pass AB 2844 will be successful," Allen said.
Allen has touted the wide and diverse support for legislative efforts to combat BDS, including from members of Congress and Israeli Knesset Speaker Yuli Edelstein. As calls to alienate Israel or its government have grown louder, anti-boycott activists have looked to state capitols to provide businesses with the political cover to reject those calls.
In addition to the state contractor bill, Allen authored another piece of legislation that would prevent state pension funds—worth hundreds of billions of dollars—from investing in companies that boycott Israel.
If California passes any of the bills, it would become the eighth U.S. state to formally legislate against BDS, according to Peggy Shapiro, the Midwest director for StandWithUs. So far, Illinois, South Carolina, Colorado, Georgia, Indiana, Arizona, and Florida have passed such laws, she said. Florida and Arizona have passed laws applying both to contractors and state pension funds, while the other states have done one or the other.
State legislation has become an increasingly important part of the anti-BDS arsenal, Shapiro said. StandWithUs has found "smart, willing, cooperative partners" in state capitols, working "hand in glove, reaching out to legislators, educating them about the destructive goals of BDS," she said.
Pro-Israel groups started advocating for such legislation after the European Union (EU) began discussing labeling laws for products from Judea and Samaria. Last November, the EU decided to make such labels mandatory for some goods, removing their "Made in Israel" labels.
The increasing popularity of legislative tactics to fight BDS has corresponded with a somewhat disappointing year for campus advocates of Israeli government policy, as student resolutions seen as unfavorable have passed at an increasing number of schools.
In the past, the Louis D. Brandeis Center for Human Rights Under Law (LDB), a group dedicated to protecting Jewish civil and human rights, was able to keep a list of campuses where pro-BDS resolutions were likely to crop up.
"We're now at the point where, sad to say, the BDS movement has saturated the country to the extent that it is no longer so predictable—you can no longer focus on a discrete number of campuses," LDB President Kenneth L. Marcus said at the StandWithUs conference.
Part of the idea behind moving the battleground to state legislatures is to find more favorable turf for the anti-BDS message, said pro-Israel activist Noah Pollak, executive director of the Emergency Committee for Israel, who has supported the nationwide legislative effort.
"You don't want to fight on your enemy's terrain," Pollak said, speaking alongside Assemblyman Allen at the conference. The "enemy," he said, "picked out campuses for a reason."
Victories in state legislatures could subsequently spread to college campuses, said Pollak.
According to Pollak, legislating against BDS tells its proponents, "While you were doing your campus antics, the grown-ups were in the state legislatures passing laws that make your cause improbable." The laws are meant to dent the morale of BDS advocates, who enjoy a number of advantages on campus, he said.
Among those advantages, the Palestinian narrative of Israeli "oppression" and "racism" holds a certain intrinsic pull for some minority communities, allowing groups like Students for Justice in Palestine to build diverse coalitions around their cause.
Roz Rothstein, the CEO of StandWithUs, admitted that when it comes to building diverse coalitions, "we're very bad at that."
"The other side is doing it to a fault—that's all they do," she said.
According to Estee Chandler, the founder of the Los Angeles chapter of the pro-BDS organization Jewish Voice for Peace, the anti-BDS bills are unconstitutional and part of a sustained effort to shield Israel from being held accountable for decades of "occupation" and "human rights abuses." She calls the bills a "misleading attempt to squelch the BDS movement, which has only grown exponentially in spite of years of efforts to oppose it both on and off of college and university campuses."
Chagrined by the state of play among student governments, some in the anti-BDS camp are hoping one group of allies—state legislators—will make the diverse coalition on the other side obsolete.
Besides, the bills have the advantage of putting Jewish organizations in a position where they don't normally find themselves: on the offensive.
"We're always on the defensive; we're always responding to pro-BDS activists," said Jacob Millner, a senior analyst at The Israel Project, a non-partisan policy and education group. "This is something we can do where we can be proactive."
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