Categories
Life

35 Covid-19 Bankruptcies and Store Closures List

We’re 8 months into the Covid-19 economic crisis and the retail bankruptcies keep rolling in.

The latest in Canada: Le Chateau.

It’s easy to forget the economic carnage caused by the virus. So I thought I’d create a list of big retail brands that have announced mass store closures, filed for bankruptcy or sought creditor protection over the past several months. Frankly, it’s depressing so I stopped at 35.

  1. Le Chateau
  2. David’s Tea
  3. Ann Taylor
  4. Toys, Toys, Toys
  5. Microsoft
  6. GNC
  7. Starbucks
  8. Reitmans
  9. Victoria’s Secret
  10. Pier 1
  11. Bed, Bath & Beyond
  12. Aldo Shoes
  13. J Crew
  14. Gold’s Gym
  15. Neiman Marcus
  16. JC Penney
  17. Hertz
  18. Tuesday Morning
  19. 24hr Fitness
  20. Chuck E Cheese
  21. Lucky Brand
  22. Brooks Brothers
  23. Lord and Taylor
  24. Men’s Warehouse
  25. Muji USA
  26. The Paper Store
  27. Century 21
  28. G-Star Raw
  29. Roots USA
  30. True Religion
  31. Sur La Table
  32. John Varvatos
  33. Modell’s Sporting Goods
  34. Papyrus
  35. Stein Mart

Categories
ETFs and Funds Investing

Why Oil Price Went Negative Today

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Today, the price per barrel of West Texas Intermediate reached a low of -$40.32. That’s right: the price was negative.

West Texas intermediate (WTI), also known as Texas light sweet, is a grade of crude oil used as a benchmark in oil pricing.

Everyone has the same question: How is this possible?

The reality is that there is simply too much oil being produced right now and not enough demand. Production is being curtailed globally, but that takes time. It’s not like a light switch that can simply be turned on and off.

The chart below shows supply and demand for the world oil market going back to 2000. As you can see, most of the time there tends to be minor variance between supply and demand.

In contrast, today the gap between supply and demand is extremely wide. This means there is a massive surplus of oil being produced right now.

That oil needs to be stored somewhere, and as storage capacity is maxed out fewer people are willing to take delivery.

With May 2020 WTI futures contracts expiring on April 21, oil producers are desperate to offload about 100 million barrels. With limited storage and plummeting demand, producers are now forced to pay others to take the oil off their hands. Nobody wants to take delivery and the oil has to go somewhere.

You read that right. Oil producers right now must pay others to take delivery of their oil. Of course, anyone taking delivery must have somewhere to put it and means to transport it. That all costs money. 

As the Covid-19 coronavirus economic catastrophe rages on, it is likely that energy markets continue to implode – at least until supply and demand can be more closely aligned.

Vanguard Energy ETF (VGE), Exxon (XOM), ConocoPhillips (COP), Chevron (CVX) and Canadian Natural Resources (CNQ) are getting hurt badly today. However, the United States Oil Fund (USO) is down even more, more closely reflecting the maturing May contract.

Chart
Data by YCharts

Is this epic collapse an epic opportunity?

Beware if you’re considering buying an ETF that buys oil futures like the United States Oil Fund (USO). These types of ETFs shouldn’t be used to get long-term exposure to oil.

Chart
Data by YCharts

Oil ETFs tend to invest by purchasing futures contracts (i.e. they don’t actually buy barrels of oil). When a futures market is in “contango” (see chart below) futures contracts expiring near-term have a lower price than those expiring farther out into the future. The oil futures market is currently in record contango. Indeed, there is currently (mid-day April 20th) roughly a $50-60 spread between the May and June contract. 

Even if prices along the futures curve for Oil remains constant, when the market is in contango an oil ETF that buys futures contracts will experience a negative roll yield as future contracts approach expiry and converge with lower spot prices. This is a great way to lose money over the long term. Oil ETFs that invest in futures contracts are best used for very short term trades.

If you are brave enough to invest in energy right now as a long term play, I would instead choose an ETF that invests in actual producers. 

If you found this article helpful, please forward to a friend or colleague you think might benefit.

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Categories
Real Estate

11 Signs Canada Housing On Verge of Collapse

A recent Bloomberg article provided a view of the deteriorating condition of the Canadian housing market. It’s dire and in my opinion will get worse because the economy is being pushed to the edge by the Covid-19 coronavirus crisis.

Housing crises are slow-motion train wrecks, so don’t expect the pain to be immediately obvious, like in the stock market. While this might seem to make it more manageable, it actually extends the economic pain. If you are unfamiliar with what a housing-led economic implosion looks like, you should brush up on what happened to the US after 2006 and Canada after 1989.

The US housing collapse took years to eventually bottom, resulting in massive economic dislocation, human suffering and a near-collapse of the global financial system. Coming out the other side of the collapse was a long, slow uphill battle for most.

Canada saw the same after its real estate bust in the early 1990s. Years of stagnation and relatively high unemployment.

Of course, in both the US and Canada the real estate bust eventually created massive opportunities for many.

The following key stats from the Bloomberg article illustrate the immediate vulnerability of the Canadian housing market and the overall Canadian economy:

1) Nearly one in three workers have applied for income support.

2) Canadian households are among the world’s most indebted.

3) Real estate has become Canada’s largest sector. Including residential construction, it accounted for 15% of economic output last year; energy accounted for 9%.

4) The City of Vancouver fears it’s heading for insolvency after it surveyed residents and found that 45% of households say they can’t pay their full mortgage next month and a quarter expect to pay less than half of their property tax bills this year.

5) Canadian households owe C$1.76 for every dollar in disposable income. In Vancouver, that spikes to about C$2.40

6) Canadians owe C$2.3 trillion in mortgages, credit card, and other consumer debt, about equal to the country’s GDP, which is an even higher ratio than the U.S. had before its housing bust.

7) If only 2% of the housing stock were to be listed for sale, it would trigger the kind of supply shock behind a 1990 crash, according to Veritas. That’s most likely to come from investors, half of whom weren’t generating enough cash to cover the cost of owning their rental properties, Veritas found in a survey last September.

9) 30% of apartment rent due April 1 went uncollected, according to estimates by CIBC Economics.

10) Nearly a third of Canada’s Airbnb hosts — who jointly had 170,000 active listings in late 2019 — need the income to avoid foreclosure or eviction, Airbnb said in a letter to the Canadian government last month.

11) Nearly 6 million Canadians have applied for income support. Lenders had deferred nearly 600,000 mortgages, about 12% of the mortgages they hold, as of April 9.

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The Covid-19 economic crisis is gripping the world. After 20 years in the asset management business, it looks like we are fighting through unprecedented territory.

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