Commentary: Will the Retail Apocalypse Return?​​​

After years of large retailers and malls struggling prior to the COVID-19 pandemic and the most vulnerable retailers filing for bankruptcy relief in its immediate wake in early 2020, the U.S. economy rebounded strongly with the aid of government assistance and low interest rates. As a result of sustained economic growth and consumer spending, chapter 11 bankruptcy filings, particularly those in the retail sector, reached historic lows toward the end of 2020 and through 2021. However, certain economic changes could trigger an uptick in distress across the retail sector, according to a commentary by George P. Angelich and Brett D. Goodman of ArentFox Schiff LLP in the National Law Review. Since the economy rebounded following the initial months of the pandemic, consumer demand has risen, while pandemic-related shutdowns have caused global supply chain issues. The costs for food, vehicles, electricity and housing, among others, have increased exponentially, causing inflation to rise at the fastest pace in 40 years. The U.S. Bureau of Labor Statistics reported that the Consumer Price Index (CPI) for all items rose 7% for the 12 months ending December 31, 2021 (the largest 12-month increase since June 30, 1982), and has continued to rise into 2022. Jobs data from the Bureau of Labor Statistics also found that while average hourly earnings rose, inflation eroded pay at the same time that consumers have taken on more debt than in any year since before the 2008 financial crisis. As a result of mounting consumer debt and the expiration of government stimulus credits, consumers may be forced to cut back on discretionary spending in order to meet their debt obligations. In addition, as inflation continues to erode pay, consumers may pivot to discount options, forcing retailers to make difficult decisions in this new environment, including reverting to various forms of discounting measures in order to fight for market share.

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Weekly Jobless Claims Increase Slightly, Still Trending Lower Amid Labor Shortages​​​

The Department of Labor reported today that initial claims for unemployment insurance in the week ending May 7 totaled 203,000 after seasonal adjustments, 1,000 more than than the previous week’s revised level, The Hill reported. The four-week moving average of weekly jobless claims ticked 4,250 claims higher to 192,750. Jobless claims have remained at or below pre-pandemic levels for months as businesses are avoiding laying off workers in historically high demand. There were roughly two open jobs for every unemployed American in March, according to data released by the Labor Department last week, and businesses have avoided laying off current staff, with workers in short supply. The U.S. labor market has recovered rapidly from the onset of the pandemic more than two years ago, which claimed 21 million jobs and caused the steepest decline in the U.S. economy since the Great Depression. The economy has recovered all but roughly 1.2 million jobs lost in 2020, returned to its pre-pandemic growth path and recovered far quicker than most experts expected.

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Credit-Market Clashes Are Getting Uglier, Dirtier and More Common​​​

The list of controversial debt deals that pit creditors against creditors is growing, and market-watchers say it’s poised to get even longer, Bloomberg News reported. Envision became the latest firm to stir up outrage after the KKR & Co.-owned physician-staffing company secured a $1 billion financial lifeline by shifting its most valuable assets to a new loan, tanking the value of its older debt in the process. The transaction signals that even with supply-chain disruptions, rising inflation and monetary policy-tightening fueling a fresh wave of opportunities, firms in the cutthroat business of distressed-debt investing aren’t scaling back their efforts to cash in at their rivals’ expense. In fact, backroom deals by aggressive fund managers looking to exploit weak creditor protections are already on the rise, with desperate private-equity sponsors and lenders grasping for value in flagging investments as global sentiment sours and volatility surges. “I don’t think growth in distressed-debt supply will decrease tension; I think it’s only going to increase it,” said Matt Toms, chief investment officer of fixed income at Voya Investment Management. “In a rising-interest-rate environment, not only does the cost of debt go up, the patience of capital goes down.” The conflicts are in part a product of over a decade of near-rock-bottom interest rates and quantitative easing that spurred a surge in demand for higher-yielding assets. That, in turn, helped risky companies sell debt with fewer lender safeguards.

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Homeowners Are Seeking Roommates to Help Pay Their Mortgages​​​

With the average U.S. mortgage interest rate above 5% and home prices at record highs, homeownership feels increasingly out of reach, particularly for young and first-time buyers. To make it work, some are renting out rooms or basements and using the extra income to help offset their costs, Bloomberg News reported. The practice, which has long been accepted in the U.K. and other European countries, is spreading to the U.S., where the number of buyers who considered renting out a portion of their homes for rental income rose to 31% in 2021 from 24% two years earlier, according to real estate website Zillow’s consumer housing trends report. For some, the extra rental income is the only way they can afford to keep up with their mortgage payments and bills that are increasing due to rising inflation.

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Analysis: Crypto’s Plummet Tests the Durability of a Hype-Driven Industry​​​

The cratering of TerraUSD, what had been the third-largest stablecoin by total market value, points to a wider reckoning for a hype-fueled asset class that is deflating as dramatically this year as it inflated in 2021, the Washington Post reported. A sell-off over just the past seven days has erased more than a quarter of the value from the global cryptomarket, according to CoinMarketCap. Most dramatically, UST’s sister coin, Luna, lost more than 90 percent of its value in the past week, all but wiping out most people who had invested in it. And interest in cryptotrading overall seems to be cooling off. Coinbase, the largest U.S.-based cryptotrading platform, posted a first-quarter loss of $430 million on Tuesday as its stock continued a slide that has it down more than 80 percent this year. The exchange reported that its active monthly users dropped to 9.2 million in the first quarter of this year, down from 11.4 million in the previous quarter. Bitcoin, the world’s most popular cryptocurrency, dropped to roughly $28,000 on Thursday, down more than 59 percent since its all-time high in November. It is now trading below its 2021 low, meaning investors who bought it as popular interest in crypto surged last year are now in the red on their investments. In total, an estimated 40 percent of Bitcoin holders are underwater on the asset, according to a new analysis from cryptoanalytics firm Glassnode.

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