One wouldn't know it from looking at the latest market meltup which has pushed the S&P to within spitting distance of its all time highs, but corporate America is in bad shape: according to data compiled by Bloomberg, US bankruptcy courts recorded six new, large filings in the last week of August; in total, the month of August saw at least 23 big bankruptcy filings, marking the busiest August of any year since at least 2000. The latest big filings - those with at least $50 million of liabilities — included a Dallas-area hospital that issued muni bonds and Mallinckrodt, the drugmaker that went bankrupt just two years ago and has just Chapter 22'ed.
That spike in large bankruptcies may seem surprising to those who recall the recent research notes from Albert Edwards (here and here) which found that higher interest rates have led to an unprecedented collapse in net interest payments despite the US corporate sector being a massive net debtor, or as Edwards put it "This ‘new normal’ certainly seems astonishingly abnormal to me."
Or maybe not, because after looking at the spike in bankruptcies, Edwards also observes that if one looks just below the very large-caps stocks, "the old ‘normal’ still applies, with higher rates triggering a surge in corporate bankruptcies that will surely lay low the overall economy."
