PREPARE: More Bankruptcies Are Ahead

our economy is starting to experience another shift and this new shift that we're seeing is bankruptcies because bankruptcies are on the rise here in the United States in the last couple of months we've seen a number of big companies go bankrupt we saw the body shop go bankrupt we saw Joan Fabrics file for bankruptcy and more recently we just saw Express file for bankruptcy as well now you don't have to be a genius to really understand why the costs are rising to maintain these stores whether it's your rent your labor cost your materials costs but along with that a lot of stores are not making as much money as before either people are running out of money and they can't keep spending with this discretionary money that they don't have anymore or people are not going to malls the ways that they used to before because they're spending more money online and because of that it's kind of like a double whammy for these brick and mortar stores where people just aren't going there to spend money either because they're not going to Brick and Mortar stores or because they don't have money to spend at Brick and Mortar stores we're not going to know the exact answer for at least a little while now the reason why this is so significant is because corporations aren't just some random entity floating around in the universe they're made up of people who have jobs who consume things in our economy who buy things like homes and clothes and if these corporations are getting hurt that means the people that work in these corporations are getting hurt and I made a video talking about this recently where I was talking about how more and more of these corporations are starting to run out of money and in that video I showed you this chart in October 2023 saaks Fifth Avenue was behind on about 18% of their bills but by February 2024 saaks Fifth Avenue was behind on more than 98 8% of their payments due see it kind of creates a ripple effect because if Express is making money then they buy more products their manufacturers also make more money and those manufacturers hire more people and then those are people that are buying more raw materials they're buying more cotton they're buying more raw materials and products which employ more people as well but if the company is making less money well then that also becomes a ripple effect because that means well they might not be paying their vendors and if their vendors aren't getting paid they don't have money to pay their employees and if those employees aren't getting paid they can struggle to pay their car payments and their housing payments and they can struggle to go out and buy other things so our economy is very intertwined and it's not just corporations and people because corporations are made up of people now although we can't be certain why people are not spending money in these stores whether it's because they're spending more money online or because they have less discretionary money what we know for sure is that people are having less dollars to spend in other places now the first reason for this is because we've been seeing higher than expected inflation not to mention the high inflation that we've SE for years and the inflation that we've been seeing compounds the inflation that we're seeing in 2024 is built on top of the 2023 inflation is built on top of the 2022 inflation and it's built on top of the 2021 inflation and during that time wages just haven't kept up with this higher cost of living and so now if your wages have grown great but for a lot of Americans in fact most Americans wages haven't grown fast enough to keep up with the higher cost of living which means you're using a bigger percentage of your salary to pay your housing cost you're using a bigger percentage of your salary to drive a car you're using a bigger percentage of your salary to pay for your groceries which means you have less money left over to go to the store and buy something to wear or to buy some other nice things or to buy other things that you don't need to survive which means some of these companies are going to make less Revenue because people have less money to spend now unfortunately this is where the lack of financial education in our country really starts to show because when you run into a situation where you can't afford your same lifestyle there's two things that you could do either you downsize your lifestyle or you work to earn more money so you can afford your lifestyle but that as one or option number two is you get a little more crafty and creative as to how you can maintain the same lifestyle and what we've been seeing happen over the last 12 months really is a lot of Americans have fallen into this trap of how can they be more crafty to maintain the same lifestyle that it had before but this is one of the things that we covered in Market briefs but what we've seen happen in the last 12 months is credit card debt has broken a record high so more people are using financing to buy the same stuff that they were before even though they can't afford it and we've also seen a record number of Americans use a hardship withdrawal of their 401k to pull money out of their retirement accounts so they can keep spending money like normal now again this allows people to continue spending this allows people to maintain their Lifestyles which is good for the economy but that's very bad for people that will eventually have to deal with their amn ifications of the credit card debt or for pulling money out of their retirement accounts just so they could keep maintaining their Lifestyles and so this is the first part of the problem where Americans have running a lot of money but they've been getting a little bit more crafty as to how they can spend which you know if you look at the economy and a snapshat it looks like the economy is perfectly fine because people are still spending money what they just don't realize is people are spending money through their credit cards and the 401ks and their Savings in order to maintain this lifestyle although that has a breaking point but the flip side to this is that businesses are also facing higher and higher costs now again we've been talking about this Market briefs Market briefs is my free financial news newslet that my team at briefs media publishes every single day it's a free and easy to read newsletter you can read it in less than 5 minutes every morning and I promise you're going to love reading Market briefs every morning you might say but how can you promise that well I can promise that because it's free and if you don't love it you can unsubscribe at any time so if you'd like to join Market briefs I got the link for you down in the description below or you go to briefs. market that's briefs. Market but this brings us now to the higher costs that businesses are having to pay and the first part of this cost obviously has to do with inflation businesses have to pay more money for their employees businesses have to pay more money for their rent or their property costs businesses have to pay more money to buy their products so because they have to pay more money they also have to charge more money and when they have to charge more money naturally people are less likely to purchase things because people prefer to buy things when they're on sale people prefer to buy things when they're cheap not when they're expensive so that makes it a little bit more difficult to operate business but the second part of this is businesses are also facing higher costs because of the higher debt costs now this is something that I've been covering quite a bit on this channel where we haven't really seen the full effect of the higher interest rates yet higher interest rates have an impact now I agree we need higher interest rates because of all the inflation problems that we have but the higher interest rates come at a cost and part of the cost is if you go out to borrow more money you have to pay a higher price and if you're a corporation if you're a business if you're a landlord a commercial landlord especially you don't get the benefit of a 30-year fixed trate mortgage so you have a lot of businesses out there that took on a lot of debt in 2020 and 2021 because it was cheap and everybody said why would you not go out and take out as much debt as possible and so what a lot of Corporations did is they went out and they raised as much debt as they possibly could and it was great because you could borrow this money at 2 3 4% well that debt isn't a 30-year fixed day mortgage this debt is starting to come due in 2024 more of it is going to come due in 2025 and as this debt starts to come due that means now these businesses have to now pay the higher debt servicing costs because that debt readjusts in 2024 or 2025 and if interest rates are a lot higher like they are today than they were a few years ago well that means the business is going to have to pay much higher cost to service the debt now how are you going to get the money to pay that cost well you got to make more money from your sales but we just talked about how a lot of businesses are struggling maintaining the sales that they have today so you can start to see why their problem is but this actually becomes a whole lot more interesting for all of you Financial money nerds like me because it depends also on what the businesses did with that money money when they took on that debt because if you remember when interest rates were near zero in 2020 and 2021 businesses were loading up on debt now there was a few different things that you could do with that debt some of these businesses took this debt and they Ed it to reinvest back into the company they use this to hire more people invest in R&D research and development to open more stores and do more things to invest in the brand which sure there's an argument for that and I'm not going to debate whether it's good or bad here but the second thing that some businesses did is it took on a whole bunch of debt and then they used this debt to make well their shareholders richer how by purchasing a lot of stock through share BuyBacks or about potentially paying out dividends and by financing these through debt now during that time it seemed great because interest rates were low and it was a very kind of short-term minded thing that we could borrow all this money at 3% and then we could just buy back our stock and make a stock price higher and everything was great but the problem is remember that debt doesn't just go away so now businesses are still paying back the debt that they Ed to potentially buy back their own shares but now if interest rates are higher and you can't keep paying off the debt you can start to see why that's a problem it's kind of like using debt to go out and buy yourself a nice Rolex watch some nice Gucci and a whole bunch of fancy things and then you don't worry about the price of the debt because it's a very low monthly payment because you got that 0% APR but then the APR hits and now you got to figure out how you can make the payments now if you're making the money and you can make the payments sure you can still get bue but if you're not making the money and you can't afford the payments well that's when it becomes a problem and then of course we have the macro picture which we haven't really seen the effects of this yet but the macro picture is some stores have been shutting down that means employees lose their incomes and as employees lose their incomes what does that mean in the economy for example just in 2024 we've seen stores like Dollar Tree Foot Locker Bed Bath and Beyond and Macy's all shut down some of their stores now still today we have an extremely low unemployment rate which is why a lot of people are not concerned about this but the other part you want to understand is this is eventually going to have consequences if interest rates stay higher for longer and the reason why they have to stay higher for longer is because inflation is not coming down the way that a lot of people expected this is where some people are saying that our economy is growing because of the higher interest rates which is kind of ironic where people are just trying to come up with some sort of conclusion as to why the economy is still growing despite the fact that we have these higher interest rates when people are not looking at the other side of the picture which is that well people are spending money they don't have in order to keep maintaining the lifestyles and that has a Breaking Point and this is where I want you to be financially educated and smart and to understand that well things don't stay in the same place forever back in 2021 people thought that inflation was transitory now everyone's kind of confused as to what inflation is and where it's going to be going but this is where the best thing for you to do is to ignore all the noise ignore all the emotion and just do two things number one be prepared for anything and number two be financially educated being prepared means having cash put aside to protect you not just against an emergency but also to be able to capitalize in Opportunities meaning if you see an opportunity in the stock market you have cash to be able to go out and buy stocks if you see an opportunity but number two you also have to be financially educated which means you have to be able to identify an opportunity when it comes your way because the problem is somebody could have cash put aside but if you don't know how to find a good opportunity when it happens you can't really do anything about it so it's a balance you have to be able to identify the opportunity and you have to have the money to actually capitalize on the opportunity and that's what really you want to do because at the end of the day there's going to be a lot of craziness not just in 2024 because 2024 is obviously an election year there's going to be a lot of craziness but our economy is definitely in a strange State there's no ifs ends or butts around it now no one knows where our economy is going to be in 2025 2026 2027 but what you want to be able to do is capitalize and win whether the markets are going up and whether the markets are going down and the way that you do that is by having a strategy that allows you to win both ways and that means if you're just constantly investing your money that's good that allows you to win the markets are up but then if you also have some cash to fall back on that can allow you to win when markets are down as well because you have the financial education and the financial savviness to understand that no markets can stay in the same place forever but you want to be prepared for anything and not be one of the people that's just constantly swayed by the crazy emotions because guess what the world loves to sell you emotions I know YouTube does it too that's why I created Market briefs that way we can get away from the emotions because all your education and all the news is in one newsletter but that's the way the internet works it is an emot tional place and I don't want you to be bogged down by the emotions I want you to understand what's happening that way you can cut through the noise and make financi educated decisions that way you can take better care of yourself your family and your community commercial foreclosures sank during the pandemic but over the last 12 months we've been seeing this steady rise in commercial real estate foreclosures if foreclosure doesn't just mean that a landlord is running out of money it also means that a bank isn't getting paid banks are having to write off these bad loans putting more stress on the banking sector at a time where the banking sector was already struggling

Channel: Minority Mindset

Views: 49,018

Keywords: minoritymindset, minority mindset, minority123, jaspreet singh, rethink rich, financial education, financial literacy, finances, stock market, stocks 101, how to invest, money management, investing 101, building wealth, how to manage money, financial advice, investing, buying stocks, housing market, inflation, wealth, passive income, personal finance, real estate, real estate 101, real estate investing

Id: YAL9r5CYr5k

Length: 12min 32sec (752 seconds)

Published: Sat Apr 27 2024