CHEAP DEBT FUNDS NEW PRIVATE EQUITY DEALS. In 2020, almost 800 corporate buyouts valued at $559 billion were fueled by low-interest rates set and enforced by the world’s central banks.
The number of deals surpasses the 1980’s record and is 20 percent more than in 2019, according to data firm Refinitiv. The deals’ collective value is the greatest since 2007 as the Great Recession decimated businesses around the world.
Also, from January through September, buyouts fetched a valuation of 13.5 times earnings, the highest since Refinitiv began tracking the measure in 2004.
“Given the shock to the system” from the global economic shutdown, “the way M&A” and private equity deals “has snapped back has definitely exceeded our expectation,” David Kamo, a M&A executive at Goldman Sachs, said to the Financial Times.
After the 2008 financial crisis, “it took about two years to come back,” he said.
Now, after shoring up damaged companies in their portfolios, buyout specialists were back on the hunt within weeks.
The reason: the U.S. Federal Reserve and other central banks slashed interest rates to or, in some cases, below zero, bought the corporate debt, and bought exchange-traded funds dealing in junk bonds.
“Low-interest rates have created such demand for the higher-yielding debt that private equity firms are increasingly able to load their companies with fresh loans and use the money to pay themselves dividends,” the FT noted.
Central banks’ generosity, combined with national governments’ stimulus programs giving companies cheap loans, ensured that few deals could fail to close.
The pickings were plentiful, with many companies selling off business units to shed costs and pile up cash during the 2020’s crisis.
“Ultimately, the lifeblood of private equity is cheap debt,” Bryce Klempner, a McKinsey & Co. partner, told the FT. “When you’ve got the Fed saying debt will stay cheap for years, plus historically high multiples, the numbers look buoyant.”
TREND FORECAST: As we have noted in the Trends Journal and throughout the years, history is repeating itself. Just as what transpired during the Panic of ’08, when the Bigs bought out failing companies across the industrial/retail/real estate spectrum, so too with their buying up failing firms during the COVID War.
As long as the central banks keep interest rates low, the buyouts by the “Bigs” will grow bigger.
BREXIT DEAL: MIXED RESULTS. The newly-ratified trade agreement between the U.K and the European Union (E.U.) “above all means certainty,” declared British prime minister Boris Johnson as his parliament was about to ratify the treaty.
The deal, which went into effect on 1 January, avoids $900 billion in new tariffs that would have been imposed between the two sides if no agreement had been reached.
However, about 600,000 new declarations of value on imports will be required every day, according to the British government, costing companies time and money to prepare. Some businesses will need to buy import licenses, pay inspection fees, and learn to figure value-added taxes.
For example, meat exporters will need to show a certificate signed by a veterinarian that the meat complies with the importing destination’s health standards. British meat processors say the country lacks enough veterinarians to comply.
The extra paperwork could cost British businesses in the aggregate £17 billion a year and European companies €15.7 billion, roughly equivalent to $23 billion and $19 billion, respectively.
As a result of these and similar disruptions, Britain’s post-Brexit GDP is likely to be 4 percent less than if the U.K. had remained in the union, the British government’s Office of Budget Responsibility has predicted.
The pound rose modestly against the euro when the deal was announced but remains near historic lows against the E.U.’s currency.
Trade disruptions will be felt especially keenly in the auto industry. Germany sells 600,000 cars a year – about 13 percent of its production – in the U.K., accounting for much of Germany’s £29-billion trade surplus with Britain. Britain is the E.U.’s second-largest car market and most of the cars sold in the U.K. are assembled in Europe.
The vehicle trade between Britain and the E.U. is valued most recently at $88 billion annually. Companies are unsure of the impact of new regulations, paperwork, and time delays will have.
Trade with European Union nations makes up about 13 percent of the U.K.’s foreign commerce; about 3 percent of E.U. trade is with Britain, which takes 52 percent of its imports from across the English Channel.
The sudden complications and extra costs in what has been $590 billion a year in open-border trade could slow Europe’s and Britain’s economic recovery, some analysts fear.
“It is vital that both sides take instant steps to keep trade moving,” warned Tony Danker, director of the Confederation of British Industry, in a comment to the Wall Street Journal. His group is pressing for a six-month transition period to allow companies to figure out the new rules and processes.
Converting from old rules to new is “a gargantuan task” for which businesses had only a few days to prepare, Adam Marshall, director of the British Chambers of Commerce, told the Journal.
However, “there is no grace period in this agreement,” an E.U. official said in a public briefing last week. “We think that companies have had a lot of time to prepare for this.”
TREND FORECAST: Yesterday, the U.K. government essentially locked down the nation, ordering shelter-in-place mandates. So too is much of Europe re-locked down. Even in the best of times, the implications of the Brexit deal would dampen U.K. economic growth projections.
Now, with economies shut down in ways that were unimaginable this time last year, the economic devastation will escalate in the U.K. as the “Greatest Depression” worsens.
INVESTORS POUR MONEY INTO EMERGING MARKETS. From March through June, foreign investors yanked $243 billion worth of value out of emerging nations as the global economy shut down, according to data from the Institute for International Finance (IIF).
Investors are now pouring money back into those markets at the fastest clip in seven years – $145 billion from July through November, the IIF reports.
From mid-November through mid-December, foreign buyers snapped up $37 billion of these countries’ debts and another $40 billion went into equities there.
“Emerging markets are starting to outperform,” Christopher White of Somerset Management, told the Financial Times. “There are good reasons to believe this will continue and 2021 will be a breakout year for emerging markets.”
Returning tourists will boost the economies of Greece, Malaysia, Thailand, and Turkey in particular; a stronger global economy will boost oil prices for Brazil and Russia, “which have drastically underperformed” in 2020, Jacob Grapengiesser, a partner at East Capital, said to the FT.
Brazil’s stock market lost 21 percent of its value last year, Russia’s 18 percent.
“There is a lot of stimulus out there and [emerging markets are] the natural place for yield looking for yield,” Omotunde Lawal, Barings’ director of emerging markets’ corporate debt, said in the FT interview. “Reality definitely will bite” in 2021, she added.
Some analysts predict money will continue to flood into developing nations through 2021, while others warn that many of those governments will struggle to pay debt and provide basic services to citizens, risking political turmoil.
Emerging nations’ GDP probably averaged a 2.1-percent slide in 2020, Rajul Ghosh, senior vice-president at Moody’s, estimates.
However, “capital spending will not be as significant in the fiscal mix as it was in the past,” he told the Finacial Times, “so the ability of governments to generate growth will be restrained.”
The private sector will begin to fill that space, he believes. “The exodus of capital from emerging markets is now firmly in the rear-view mirror.”
TREND FORECAST: The lower the dollar goes, the more money emerging markets will borrow, and the higher their debt levels will grow. Gambling in the markets does not generate growth. When the equity bubble finally pops, the emerging markets will be hit the hardest.
RISING FOOD PRICES STIR FEARS OF UNREST IN DEVELOPING NATIONS. Hoarding, drought, and logistical glitches are driving up food prices in developing countries, sparking fears of social unrest and political upheaval.
Bloomberg’s Agriculture sub-index, which tracks agricultural commodity prices, has rebounded from its June low to a 30-month high; the U.N. Food and Agriculture Organization’s (FAO) food price index rocketed to a six-year high in November.
Corn prices are at a six-year high; wheat prices have pulled back from last year’s peak but are still trading near their six-year highs.
“The real impact is the access to food,” FAO senior economist Abdolreza Abbassian said to the Financial Times. “People have lost their incomes” because of the global financial crisis. “There are a lot of unhappy people and this is a recipe for social unrest.”
China, which drew down its food reserves during the worst of the pandemic and shutdown, is now replenishing its stocks, driving up prices for a range of commodities and leaving a dwindling supply for other countries unable to grow enough food.
Russia, the world’s chief wheat exporter, is dealing with drought and may restrict exports. Also, the La Niña weather pattern has brought hot, dry weather to Brazil and Argentina, key producers of staple crops.
“Freight prices have doubled,” Frank Gouverne at the online Rice Exchange told the FT. “People are waiting three to four months for their orders, adding further pressure to the market.”
“If people realize the vaccine won’t solve problems in the near term and they don’t have food, things could get out of control,” Abbassian said. “We will see volatility in the coming year.”
TRENDPOST: With food prices going up as wages go down and unemployment goes up, there will be growing civil unrest in both developed and developing nations.
STOCK OFFERINGS BOOM DURING SHUTDOWN. Businesses raised about $300 billion worldwide, and a record $159 billion in the U.S., in new stock offerings during 2020, the most since 2007, according to data firm Refinitiv.
The U.S. and Asia saw about 70 percent more issues than in 2019, while stock issues in Europe were slightly fewer than in 2019.
After tanking in March, stock prices roared back, luring in companies needing cash as well as investors eager to ride the wave.
Food schlepper DoorDash made its initial public offering 9 December at $102 a share and saw its price soar past $190 by the year’s end.
Some observers have expressed unease about the stock market’s frenzy and about dazzling short-term IPO performances such as DoorDash’s, hearing echoes of the dot-com bust 21 years ago.
Other analysts contend that high valuations are due to companies’ robust revenues growing out of new economic and consumption patterns wrought by the shutdown.
“People aren’t trying to value things per click or per eyeball,” John Leonard, global head of equities at Macquarie Asset Management, told the Financial Times.
INVESTMENT MANAGERS STAFF UP IN EUROPE. Ten major investment firms, including Amundi, Invesco, and Vanguard, have expanded their staffs in Europe by an average of 38 percent since 2015, the Financial Times has reported, and now employ 6,569 people there.
The heftier staffs are a response to Europe’s growing market, increasing regulatory complexity, and uncertainties around Brexit, the FT noted.
Blackrock, Capital, and Fidelity were among the firms that did not supply data for the Financial Times’ survey.
The growing headcount mirrors the overall growth of the investment industry worldwide, which was managing $110 trillion at the end of 2019, a 24-percent increase from $84 trillion in 2016.
TRENDPOST: We note this article to illustrate that in the new world order, these “investment firms” are branches of the money changers cartel that are controlling, buying, and owning the world’s assets. According to Oxfam, the world’s 2,153 billionaires have more wealth than the 4.6 billion people… 60 percent of the world’s population.
PORTUGAL’S ECONOMIC RECOVERY REMAINS STALLED. Portugal’s economy will have contracted 8.1 percent in 2020, according to the country’s central bank, which predicted that unemployment is likely to reach 9 percent this year.
The rate would erase the 360,000 jobs the country has created since 2016, economists warn.
The Bank of Portugal also has forecast a 2021 GDP growth rate of 3.9 percent and that the country’s economy will not return to 2019’s strength until 2023.
The weakness is due to Portugal’s over-reliance on tourism, which accounts for 15 percent of GDP and 9 percent of jobs.
The nation’s tourist industry dumped about 60,000 workers last year as the global economic shutdown vaporized international travel. About 45 percent of Portugal’s hotels are shuttered and TAP Air Portugal, the nation’s airline, needed a government bailout to survive after lopping off 3,500 workers.
Portugal is slated to collect €13 billion in grants through 2026 from the European Union’s recovery fund and has pledged to minimize borrowing to not swell the public debt, which stood at 130.8 percent of GDP in September, according to data firm CEIC.
JAPAN’S INDUSTRIAL PRODUCTION FLAT IN NOVEMBER. For the first time since July, Japan’s industrial production flattened in November, due to the lingering damage done by the global economic freeze and concerns about the future as the virus continues to hamper economic recoveries around the world.
Automobile production was off 4.7 percent because of poor sales in Australia and the U.S., the Ministry of Economy reported.
Manufacturers expected production to drop by 1.1 percent in December, according to a ministry survey, and grow 7.1 percent this month.
23 PERCENT OF GREEK BUSINESSES WILL NOT REOPEN. Twenty-three percent of Greek businesses closed by the global economic crisis will not reopen, according to a survey of 1,002 business owners conducted for the Athens Professional Chamber 14 through 18 December.
The figure includes 41.7 percent of restaurateurs and 34 percent of shop owners.
Many owners of dining establishments see 2021 as already lost; they believe tourism is unlikely to return in strength this year, the survey found.
Of the companies that plan to remain in business, 23 percent expect to lay off workers, including 49.5 percent of food services and 22 percent of companies involved in the commerce of all kinds.
Among companies with six to ten workers, 39.8 percent are planning layoffs. The number rises to 41.6 percent among companies with 11 to 20 employees and 40.4 percent of businesses employing more than 20 people.
Thirty-four percent of business owners surveyed think the economic crisis will be over by 2022, while 27 percent see it taking two more years to resolve, and 25 percent saying it will take longer than two years.
Only 11 percent believe the economy will turn around within six months.
“According to our estimates, one in three businesses may have opened for the last time,” lamented Giorgos Kavvathas, president of the Hellenic Confederation of Professionals, Craftsmen, and Merchants.
TREND FORECAST: As goes Greece, so, too, goes much of the world. Again, the small businesses are being hit the hardest. As we have detailed in numerous articles in the Trends Journal, there will be more mergers and acquisitions, buyouts, and businesses going bust.
VIETNAM EMERGES AS MANUFACTURING HUB. As companies sought to diversify their supply chains during the global economic crisis, Vietnam emerged as a new manufacturing center.
“Firms thought they had a global supply chain, and what COVID showed them was that they had a China supply chain,” Michael Kokalari, an economist with VinaCapital in Ho Chi Minh City, said in a Financial Times interview.
“This phenomenon of companies moving from China to Vietnam is just starting, and we’ll see an acceleration” in 2021, he added.
For example, Apple began manufacturing four million Airpod earbuds a year in Vietnam in 2020’s second quarter. Adidas, Nike, and Samsung are among the other companies moving there.
Still, Vietnam’s manufacturing economy remains embryonic.
The labor market is small relative to China’s; Ho Chi Minh City’s airport is overwhelmed and the new one under construction will not be ready for use until 2025.
Most companies still send parts to Vietnam for assembly instead of making parts there. Many of those parts are made in China.
However, “we are now seeing a proper build-out of supply chains here,” Kokalari said.
Foreign investment in Vietnam dipped only 2 percent in 2020 through November, reported the country’s General Statistics Office.
The country’s economy was expected to end 2020 with a 2.4-percent GDP growth rate and the government has set sights on 6.5 percent this year.
PUBLISHER’S NOTE: Beyond the socioeconomic and geopolitical implications of Vietnam’s rising economic muscle, we note this article to illustrate the hypocrisy and lunacy of America’s political system.
The United States, as they have with Afghanistan, Iraq, Libya, etc., launched a deadly war against Vietnam in 1964 based on lies…The Gulf of Tonkin lie, which I wrote about in my book “Trends 2000” (Warner Books, 1997).
Aside from poisoning the nation by dropping some 20 million gallons of herbicides, including agent-orange on its people and bombing much of the nation into devastation, the American people were taught to hate those Vietnamese “commies.”
Washington warned that if Vietnam fell to the communists, like falling dominoes, one nation after another in East Asia would fall into communism… and those falling dominoes would hit the shores of California.
According to Vietnam, as many as two million civilians were killed and 1.1 million North Vietnamese and Viet Cong soldiers died in the war. The U.S. estimates between 200,000 and 250,000 South Vietnamese fighters died in the war that took the lives of some 58,000 American young men… wounding physically and mentally hundreds of thousands more.
But now, with the same communist party in charge following America’s defeat, Vietnam is now a great country to do business with; a place where manufacturers can get products made cheaply and mark up the selling prices to make greater profit margins.
The same propaganda was sold to the Americans to hate those Chinese commies who hid behind the bamboo curtain… until it was time to do business.
As the Founder of Occupy Peace and Freedom, I note this to not only express my disdain for wars based on lies that are launched by psychopaths but to illustrate how the bottom line, not morality, is the true meaning of America’s political system.
Like I have said many times, “Do you think the United States would have invaded Iraq if their major export was broccoli?
Pace e Amore,
Gerald Celente
