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June 22, 2020 – A Chapter 11 wave like no other, the reshaping of globalized trade and Oracle’s massive data breach that could include all of us.

Today’s newsletter is 1,274 words, an 8-minute read. Let’s get to it:

A Tidal Wave of Bankruptcies Is Coming

We’ve already seen several notable bankruptcies since the pandemic started. Both Hertz and J. Crew lead the way as household names deliberating over a tenuous financial future. And things are only primed to get worse. According to Edward I. Altman, creator of the Z Score (a widely used method of predicting business failures), this year will blow away the previous record for “mega bankruptcies” – filings by companies with $1 billion or more in debt. He also expects the number of “large bankruptcies” – at least $100 million – will challenge the record-high levels from the year after the 2008 economic crisis.

Why It Matters

The system will get clogged with claims, and many small, viable businesses will get lost in the shuffle. The bigger companies can restructure and salvage, while the smaller ones will be forced to liquidate quickly, causing irreversible economic losses. And plenty of workers will suffer harsh effects as well.

Now, the government is kicking around ideas to process more claims. One is to increase budgets, recall retired judges and hire more clerks. Another offers more time to restructure, so companies don’t burn through their cash too quickly. Generally, the longer a company stays in bankruptcy, the higher likelihood of liquidation, and that could create a ripple effect. If General Motors had failed, the impact on the supply chain would have been catastrophic.

In the interim, companies have survived by delaying the inevitable through amassing and conserving cash, drawing down on existing credit lines, furloughing workers, delaying projects and utilizing government pandemic-relief programs. However, when those measures run dry, Robert J. Keach, a director of the American College of Bankruptcy, expects “a Covid-19 cliff” in the next 30 to 60 days, according to The New York Times.

Numbers to Consider

  • 6,800 – The number of companies that filed for Chapter 11 bankruptcy protection last year, which will almost certainly increase this year.
  • 66 – The number of cases Altman expects with more than $1 billion in debt this year, eclipsing 2009’s mark of 49.
  • 192 – The number 0f $100 million cases Altman predicts, which trails 2009’s record of 242.

Full Story: (NEW YORK TIMES)

How the Coronavirus Will Reshape World Trade

Contrary to everything we learned as kids, the post-pandemic world may be less inclined to share. Governments are shifting away from a reliance on global trade, instead erecting barriers to commerce and bringing manufacturing home. The goal is to create economic systems less vulnerable to disruption.

“What the pandemic has done is highlight some of the ways that globalization may have gone a bit too far,” said Peter Anderson, vice president of supply chain and manufacturing for Indiana-based engine maker Cummins Inc., according to The Wall Street Journal.

Why It Matters

In the post-Covid world, economic activity is now a matter of national security and “thus deemed to require self-sufficiency.” However, walling off segments of the economy could result in costs rising and growth slowing. More prosperous economies might still have some positive growth, while newly industrialized ones could fall behind. Low-income countries are already in trouble – the World Bank warned of lasting harm due to “prolonged damage to global supply chains, global trade and financial flows, and global collaboration.”

In some cases, the pandemic has drawn the opposite response. Singapore, New Zealand and a collection of other nations have banded together, saying cooperation is the best way to efficiently procure scarce medical supplies. And remote work has globalized different jobs in unexpected ways. But the bottom line is clear – whether it’s a departure or modification, the globalized world economy as we know it will be “reshaped.”

Numbers to Consider

  • 40 Percent – The amount of foreign direct investment is projected to fall this year.
  • $83 Billion – How much investors pulled out of emerging markets in March alone, a single-month record.
  • 90 – The approximate number of governments that have blocked the export of medical supplies to preserve resources for their citizens.

Full Story: (WALL STREET JOURNAL)

Oracle’s BlueKai Tracks You Across the Web. That Data Spilled Online

It looks like we have another data leak to worry about. BlueKai, an internet research and marketing firm owned by Oracle, apparently had an unsecured server exposing billions of records for anyone to find. Eventually, an employee noticed the error and reported it to Oracle. But as Tech Crunch writes, “the sheer size of the exposed database makes this one of the largest security lapses this year.”

Why It Matters

You’ve probably never heard of BlueKai, but they’ve heard of you. The firm uses website cookies and other tracking technology to follow you around the web recording the websites you visit, emails you open, the hardware and network connection you’re using and more. Billions of data points collected are refined into individual user profiles funneled to advertisers for targeted ad campaigns. When you see some of the examples – a German man’s sports bets, an Istanbul resident’s furniture orders, a person’s consumer electronics habits – it’s eerie to think how much information is out there.

Oracle declined to say if it notified any victims of the data breach or informed U.S. or international regulators. At some point, it will have to fess up. California state law requires the public disclosure of any data security incidents.

Numbers to Consider

  • 1.2 Percent – The estimated amount of total web traffic monitored by BlueKai, according to WhoTracks.me.
  • 4 Percent – The percent of a company’s global annual turnover it can be fined for flouting data protection and disclosure rules under Europe’s General Data Protection Regulation.
  • $400 Million – The price Oracle paid to acquire BlueKai in 2014. 

Full Story: (TECH CRUNCH)

Worth Your Time

Trendsetting As Always: Apple’s Worldwide Developers Conference has gone virtual, and other tech companies are taking note. While these events serve as valuable networking events, the current crisis has made it impossible to operate. Instead, Apple and its contemporaries have pivoted remotely, redesigning the events, offering them at a lower cost and accessing a much wider audience. (LINK – WALL STREET JOURNAL)

Nah, We’re Good: New York City allowed companies to reopen their offices today, but it is unlikely to see too many employees go back. Most firms are taking a cautious approach, and while that’s expected to rise gradually over the summer, the good of remote work and bad of possible commuting bottlenecks has significantly reduced to the sentiment of returning to normal operations. (LINK – WALL STREET JOURNAL)

It’s Almost Battery Day: After what seemed like a never-ending stream of delays, Tesla and CEO Elon Musk are ready to announce the latest updates to its battery technology. The event will come in September, according to a tweet from Musk, and will focus on the new, lower-cost, long-life electric battery technology rumored to be on its way. (LINK – TECH CRUNCH)

Quick Hits

As bizarre as it sounds, retailer T.J. Maxx is doubling down on brick and mortar sales rather than pivoting to e-commerce. (LINK – WALL STREET JOURNAL)

Tik Tok users say their videos helped drive down the attendance of President Trump’s rally in Tulsa, showing how digital activism has arrived on the platform. (LINK – WALL STREET JOURNAL)

Huawei has a new hurdle to climb in its 5G rollout as a U.S. Commerce Department ban restricts the tech giant from using many of the components it needs. (LINK – WALL STREET JOURNAL)

A Couple Cents Content

Throw it back to the basics – Justin Oh’s YouTube series on how to traverse investing fundamentals (YOUTUBE)

Read why Barstool Sports’ Dave Portnoy shouldn’t be the go-to source for stock trading advice (POST) and a Q&A with former Tennessee Titan and impact fund investor Derrick Morgan (POST)

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See you tomorrow!

— Justin Birnbaum

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