Consumers Upbeat, Bankruptcies and Foreclosures Increase

Normal folks rejoiced when the Federal Reserve lowered the only interest rate it controls, Fed Funds, by a surprise 50 basis points. However, since then, the rate on 10-year bonds has increased 70 basis points. Focusing on the positive, Almost Daily Grant’s (ADG) reports “An outbreak of optimism has taken hold across the land, as the Conference Board’s monthly gauge of consumer sentiment painted a pretty picture for the economy and asset prices alike.”

The proportion of consumers anticipating a recession over the next 12 months dropped to its lowest level since the question was first asked in July 2022, as did the percentage of consumers believing the economy was already in recession. Consumers’ assessments of their Family’s Current Financial Situation were unchanged, but optimism for the next six months reached a series high.

Consumers became more upbeat about the stock market: 51.4% of consumers expected stock prices to increase over the year ahead, the highest reading since the question was first asked in 1987. Only 23.6% expected stock prices to decline.

Despite Joe and Jane Doe’s cheery attitude, ATTOM has issued a report indicating that lenders on commercial properties are beating a path to the courthouse steps. Commercial foreclosures totaled 752 in May of this year and remained elevated in September at 695. During COVID, Uncle Sam and Jerome Powell kept zombie properties afloat. “By April 2020, commercial foreclosure activity plummeted to just 144 as government interventions, moratoriums, and economic relief efforts took hold. Throughout 2020 and into early 2021, commercial foreclosure numbers remained at historically low levels. However, as pandemic-related measures were lifted and economic pressures resurfaced, commercial foreclosures began to rise again by mid-2021,” ATTOM staff reports.

Problems are not confined to brick and mortar, ADG reported, “August commercial Chapter 11 filings registered at 634 according to data provider Epiq Bankruptcy, up 17% from July and underpinning the 13th straight month featuring some year-over-year increase in total bankruptcy petitions. Meanwhile, six firms with assets of at least $50 million filed for Chapter 11 last week alone per data from Bloomberg, bringing the August tally to 23.” “I think a lot of it is interest rates,” relays Ed Flynn, consultant at the American Bankruptcy Institute. “There have been an unusually large number of large [restructuring] cases.”

New York Community Bank owned up to having $2.5B worth of nonaccrual loans at the end of the third quarter, $1.5B of which were tied to multifamily properties. That figure is up by nearly $600M from the second quarter and up 487% from December 2023, reports Bisnow.com. Readers may remember that a large loss in the fourth quarter last year forced a billion-dollar injection of rescue capital provided by a group of investors led by former Treasury Secretary Steven Mnuchin.

The New York Fed is on to the banks, issuing a statement “Regional banks are delaying disclosing the distress in their commercial real estate loan portfolios, creating greater fragility in the overall financial system,” reports Bisnow.

“The expansion of the maturity wall represents a financial stability risk as a sizable, and increasing, portion of bank regulatory capital is at risk should these CRE loans default,” N.Y. Fed paper authors Matteo Crosignani and

Saketh Prazad wrote. “The possibility of a large and sudden capital hit for banks becomes more likely as the maturity wall becomes taller.”

Problems also exist across the ocean. In the Land of the Rising Sun, ADG reports “Corporate bankruptcies, meanwhile, topped 5,000 over the six months through September per Tokyo Shoko Research, the highest such tally in a decade.”

In China “Some 75% of real-estate transactions valued at $10 million or above over the first half of 2024 involved financially distressed sellers, data from CBRE Group show, while corporate bankruptcies registered at 305 from January to August, on pace to easily eclipse the 354 logged during all last year – which was the largest tally since 2010. “There are more distressed assets in the market than I have seen in the past 30 years,” relayed Derek Lai, Deloitte’s global insolvency leader and China vice chair in Hong Kong. .

As usual, retail investors are getting revved up at the wrong time. There appears to be danger dead ahead.

Originally Posted at https://mises.org/

zerohedge
Economics , News , Politics , Science
November 22, 2024
2 views

Utility Companies Are Not On Our Side

Authored by Linnea Leuken & H. Sterlin Burnett via RealClearPolitics,

When electric power was a novel idea and just beginning to be adopted in urban centers, the industry had a Wild West feel to it as multiple companies strung wires, opened power plants, and sold electricity on an unregulated market. Competition was fierce, but state and local governments concluded that the inefficiencies and redundancies endangered the public and imposed higher costs.

So states set up service territories with monopolistic or oligopolistic service providers, who were entrusted with providing reliable power and sufficient reserve for peak periods in return for being guaranteed a profit on rates proposed by the utilities but approved or set by newly established state public utility commissions (PUCs). These commissions were charged with ensuring public utilities served the general public universally within their territory, providing reliable service at reasonable rates.

Much has changed since then. Politicians began to supplant engineers to decide, based on self-interested calculations, what types of power should be favored and disfavored, and what types of appliances and modes of transportation Americans could use. As the 21st century dawned, a new consideration entered the picture: Climate change.

Under the banner of combatting global warming, utilities were at first encouraged and then coerced into adopting plans and policies aimed at achieving net zero emissions of carbon dioxide. The aim of providing reliable, affordable power – the rationale for the electric utilities’ monopolies in the first place – was supplanted by a controversial and partisan political goal. Initially, as states began to push renewable energy mandates, utilities fought back, arguing that prematurely closing reliable power plants, primarily coal-fueled, would increase energy costs, compromise grid reliability, and leave them with millions of dollars in stranded assets.

Politicians addressed those concerns with subsidies and tax credits for renewable power. In addition, they passed on the costs of the expanded grid to ratepayers and taxpayers. Effectively, elected officials and the PUCs, with a wink and a nod, indemnified utilities for power supply failures, allowing utilities to claim that aging grid infrastructure and climate change were to blame for failures rather than the increased percentage of intermittent power added to the grid at their direction.

Today, utilities have enthusiastically embraced the push for renewable (but less reliable) resources, primarily wind and solar. PUCs guarantee a high rate of return for all new power source (wind, solar, and battery) installations, which has resulted in the construction of ever more and bigger wind, solar, and battery facilities. The costlier, the more profitable – regardless of their compromised ability to provide reliable power or the cost impact on residential, commercial, and industrial ratepayers.

A new report from The Heartland Institute demonstrates the significant financial incentives from government and financiers for utilities to turn away from affordable energy sources like natural gas and coal, and even nuclear, and instead aggressively pursue wind and solar in particular. All of this is done in the name of pursuing net zero emissions, which every single major utility company in the country boasts about on their corporate reports and websites. Reliability and affordability come secondary to the decarbonization agenda.

Dominion Energy is a good example, as they are one of the most aggressive movers on climate-focused policy. Dominion CEO Robert Blue speaks excitedly about government-forced transitions to a wind- and solar-dominated grid in interviews. During one interview with a renewable energy podcast, he said:

“[S]ometimes the government needs to focus on outcomes. We’re trying to address a climate crisis, and we are going to need to move quickly to do that.” In the same interview, he expressed enthusiasm about federal policy that would achieve a government-directed transition.

And why wouldn’t he? Dominion, like most utilities, is granted government tax credits and guarantees on returns for investing in large, expensive projects like offshore wind, the most expensive source of electric power. The bigger the project, the bigger the profit with guaranteed returns.

Also, onshore wind companies have received special “take limits” from the Fish and Wildlife Service to kill protected bald eagles and golden eagles, while prosecuting oil companies if birds are injured or killed on their sites.

Net zero policies are not the environmental panacea that climate change activists proclaim. Industrial-scale wind and solar use substantially more land than conventional energy resources, disrupting ecosystems and destroying wildlife habitats in the process.

And despite recent technological advances, wind and solar are still not dispatchable resources, meaning they cannot provide consistent power at all times needed. Refuting claims made by environmentalists and utilities that wind and solar are the cheapest sources of electric power, costs have risen steeply as the use of wind and solar has increased. Customers of Duke Energy in Kentucky, for example, are paying 78% higher rates in the wake of coal-fired plant closings.

Politicians and utilities are pushing for even more electrification for appliances and vehicles despite the fact that Federal Energy Regulatory Commission officials have repeatedly warned in recent years that adding more demand for electric power while replacing reliable power sources with intermittent renewables is destabilizing the power system.

It appears that the utilities prioritize short-term profits over grid reliability or keeping costs reasonable – and the government officials who are supposed to keep them in check are only encouraging them. It doesn’t need to be this way. The U.S. grid was not always this way. Only in recent years, with the obsessive pursuit of net zero, have rolling black and brownouts become so common.

Today, utility companies are sending lobbyists to conservative policymakers in order to convince them that the utilities have our best interests in mind. Their track record tells another story. Meanwhile, Americans have less reliable electricity at higher costs.

Linnea Lueken (llueken@heartland.org, X: @LinneaLueken) is a research fellow with the Arthur B. Robinson Center on Climate and Environmental Policy at The Heartland Institute.

Tyler Durden
Fri, 11/22/2024 – 06:30