When Pigs Fly: Hot Markets & Fat Tail Risk (w/ Tommy Thornton and Ash Bennington)

TL;DR

Companies adjusting 2020 earnings with 2019 figures, bond covenants extended, concerns about market stability amid COVID-19.

Transcript

it's Wednesday June 17 2020 just after market closed in New York this is the real vision daily briefing I'm ash Bennington joined shortly by Tom Thornton CEO and founder of hedge fund telemetry but first Peter Cooper with a look at markets thanks ash companies are substituting their 2020 earrings with their profits from last year in order to remain... Read More

Key Insights

• ❓ Companies resort to using 2019 earnings for loan covenants due to pandemic-induced financial uncertainties.
• 🍉 Lenders are compelled to adjust bond terms, granting flexibility to borrowers to avoid triggering bankruptcies.
• 🚵 US bond market experiences heightened activity, with increased issuances and mounting leverage concerns.
• ✳️ Market speculation, highlighted by the "Robin Hood trade," poses risks of excessive risk-taking and financial losses.
• ❓ Concerns linger around declining retail sales, challenging sectors like restaurants, and the road to economic recovery.
• 👨‍💼 Reopening businesses amidst ongoing pandemic risks affecting consumer behavior and market dynamics.
• ⚖️ Financial market fluctuations indicate a delicate balance between economic recovery and potential insolvency risks.

Questions & Answers

Q: Why are companies using 2019 earnings instead of 2020 figures for loan covenants?

Companies are leveraging 2019 earnings to meet loan covenant requirements, fearing financial peril due to the pandemic's impact on 2020 earnings.

Q: How are lenders responding to companies requesting the use of past earnings for loan covenants?

Lenders are reluctantly complying with companies' requests to use prior earnings, as triggering bankruptcies would be detrimental amid economic uncertainty caused by the pandemic.

Q: What concerns arise from the US bond market's current trend?

The surge in bond issuance, coupled with companies amassing leverage instead of fortifying balance sheets, raises concerns about economic stability and potential insolvency risks amid the ongoing pandemic.

Q: How is the reopening of businesses and markets impacting financial stability?

Despite reopening measures, challenges persist for retailers, restaurants, and companies navigating reduced capacity, financial strains, and consumer apprehension, posing risks to market stability.

Summary & Key Takeaways

• Companies resorting to using 2019 earnings instead of 2020 figures for loan covenants amidst the pandemic's impact.

• Lenders accommodating the use of past earnings, fearing bankruptcy if covenants break.

• US bond market thriving, raising concerns about excessive leverage and economic uncertainty.