Supply-chain recovery in coronavirus times—plan for now and the future

What is missing from here is the Theory of Constraints.... Aivars Lode

Actions taken now to mitigate impacts on supply chains from coronavirus can also build resilience against future shocks.

Even as the immediate toll on human health from the spread of coronavirus (SARS-CoV-2), which causes the COVID-19 disease, mounts, the economic effects of the crisis—and the livelihoods at stake—are coming into sharp focus. Businesses must respond on multiple fronts at once: at the same time that they work to protect their workers’ safety, they must also safeguard their operational viability, now increasingly under strain from a historic supply-chain shock.

Many businesses are able to mobilize rapidly and set up crisis-management mechanisms, ideally in the form of a nerve center. The typical focus is naturally short term. How can supply-chain leaders also prepare for the medium and long terms—and build the resilience that will see them through the other side?

Read the full McKinsey article here

The Next Coronavirus Financial Crisis: Record Piles of Risky Corporate Debt

For those of you who follow me this comes as no surprise.  I have been highlighting the debt market issues for some time... Aivars Lode

Serious strains are starting to appear in the $1.2 trillion market for loans to high-risk companies, which have borrowed record sums in recent years as investors chased bigger yields.

The market, which survived the 2008 financial crisis, has become overstretched since then, say regulators and economists, who worry that it is now so big and risky its problems could amplify any economic damage caused by the coronavirus crisis.

“What I’ve always worried about is that the existence of overleveraged corporations will exacerbate a downturn that occurs for any reason,” said former Fed Chairwoman Janet Yellen in an interview.

Years of low interest rates and easy credit have allowed companies across the board to borrow big, building a record $10 trillion mountain of debt. Lenders expect the vast majority of that money to be repaid on time.

The epicenter of risk involves a subset of that total: $1.2 trillion in leveraged loans, junk-rated debt secured by corporate assets much like mortgages are backed by homes. The market has exploded, ballooning by almost 50%—or $400 billion—since the start of 2015, as investors desperate for the high interest payments these loans provided threw cash at borrowers.

SoftBank Backs Away From Part of Planned WeWork Bailout

No kidding! If you have been following my posts you would already anticipate that this bailout would not happen.... Aivars Lode

SoftBank Group Corp. is backing away from part of its planned bailout of WeWork, people familiar with the matter said, privately citing several regulatory investigations of the office-sharing company.

A notice sent to WeWork shareholders Tuesday said that SoftBank believes regulatory probes into the startup’s business, including from the Securities and Exchange Commission and Justice Department, give it an out under the deal struck last fall to purchase $3 billion of WeWork shares from existing investors.

That would include Adam Neumann, former chief executive of WeWork parent We Co., who had the right to sell up to $970 million in stock as part of the October deal that led to his ouster from the company’s board.

The development won’t affect the $5 billion lifeline SoftBank agreed to give WeWork directly—cash the startup badly needed then as it ran out of runway, and which it is likely to continue to need as the worsening coronavirus outbreakempties out its desks.

Some of that money, including $1.5 billion in fresh equity, already has been invested.

The Japanese investment giant didn’t explicitly cancel the deal, and its notice to WeWork could be a negotiating tactic, or a way to delay the investment as markets remain volatile. U.S. stocks have plunged—then risen, only to fall again—on fears of the long-term economic effects of the outbreak.

Coronavirus crash reveals traders still haven't learnt the lessons of history

As I have been saying over the last year... the markets are overheated, stupid valuations abound and there is always a correction. Now that JP Morgan is not driving dumb WE Work deals what will their normal revenue and earnings be? Just one example.   ...Aivars Lode

It is fitting that big stockmarket crashes are often compared with a plague. Financial experts talk in terms of “contagion” as the virus of fear and panic swiftly spreads to financial markets around the globe, causing irrational behaviour and general mayhem. This week we saw what happens when the two collide.

What started as a correction turned into a bear market and then from record one-day point-falls to the second biggest percentage fall in history. The numbers are overwhelming but need to be put in perspective.

“A market panic like we’ve never seen before,” screamed an Australian Financial Review headline earlier in the week.

“You must be very young,” retorted longtime investor Mark Carnegie on Twitter. His sentiments were shared by many old hands who not only experienced the last great financial crisis of 2008 but the biggest crash of all - 1987.

Suddenly it was time to look that far back when Thursday night’s drop became the biggest percentage fall since then; though it should be noted that Black Monday 87 was a 22 per cent crash while this week was a 10 per cent drop.

The reason '87 is unlikely to be repeated is because if the S&P 500 index ever drops more than 20 per cent, they will actually close the market for the rest of the day. That is when you know it is really serious.