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All right, let's talk about corporate bankruptcies. According to N S&P Global Report, so far in 2025, we've seen the
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most corporate bankruptcy filings since 2010. That was after the great financial
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crisis, you remember? Uh, or some of you might have been too young. So, uh, corporate bankruptcies, according to the
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S&P, are public companies with debt of at least 2 million and private companies with assets or liabilities of at least
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10 million. I'm not sure why the public companies is less than the private. It didn't make sense to me, but there must
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be a reason. Uh, these are also called large bankruptcies. Here's a chart showing you corporate bankruptcies since
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2008. The blue bar is through July. Gray bar is the full year. So, uh, we're looking at a partial year here,
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obviously, in 2025. We're at 446 large bankruptcies, 7 months into 2025, which would put us on track for the most since
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2010. And um yeah, nothing close to GFC numbers, but uh you know, it's not trending well. And
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if you look at corporate bankruptcies broken down by month since 2020, you can see uh that bankruptcies are increasing
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after the massive rate hike cycle in 2022 and 2023. So obviously rates has something to do with this. What are your
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thoughts, Chimath, on what we're seeing here? It's not like super dramatic, but it's definitely uh notable.
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Yeah, it's notable, but I think it's notable not for the reasons that the mainstream media tries to describe it
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in. I read these articles and I was a little bit caught off guard because initially what it said was the tariffs
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were causing this and I was like large companies don't go bankrupt 30 60 days. Yeah. Because of the tariff this makes
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no sense. But the narrative was very strong basically trying to paint the Trump administration as having caused
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this. So I just started to look into this and couple of interesting things to note that I the conclusions that I came
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to. I think the most interesting is that there were a lot fewer bankruptcies over
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the last four or five years than there should have been. And I think that there are two reasons. The first
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reason is that you had rates artificially suppressed at zero for an incredibly long amount of time. And so
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you had all kinds of companies able to raise enormous enormous amounts of capital that they probably shouldn't
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have been able to or at a minimum should have done at much higher rates which weren't really there because the poor
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rate was at zero. So what that means is that many companies were able to fill the reservoir of money and then when the
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core structural business started to fail, they had a lot more oxygen in the tank to survive a lot longer. So I think
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a lot of what you're seeing and if you look Jason at some of these companies like Joann's Fabrics and Party City,
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these were businesses that were upside down for years. Yep. And a number of these right were PE
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buyouts that you know their strategy is to saddle them up with a bunch of debt too. So that that speaks to what you're
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saying. So I think I think the reason why bankruptcies are up right now is because
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the reservoir of free money the money printer that printed frankly since 2010 up until about 2021 because you know we
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still gave an enormous amount of money in co is finally starting to run out. That's number one. But the second is
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that we actually haven't had a process of creative destruction in American company formation for a while.
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Yeah. Probably since GFC GFC, right? It was that a similar a similar thing happened at
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that time too, Jamal, right? We had all these backed up companies that probably should have died and it kind of
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Well, what I think I think what happened was like, you know, startups ran out of
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money. There was certain parts of of industries that had some trouble, but by and large there was no transformational
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or catalyzing M&A that could have actually happened and that in part was a structural issue because of the way the
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federal bureaucracy reacted to it. Not just in the United States to be fair, but around the world. And I think when
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you relax those constraints, what you can start to see are companies identify assets that they want inside of other
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businesses, be much more aggressive in getting them. Businesses that are floundering, being able to see that
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they're about to run out of money and have the confidence to try to do an M&A deal to survive. You need all of these
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things to work in lock step for a market to be efficient. The market was incredibly inefficient since 2010.
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artificially suppressed rates, a regulatory regime that, you know, disallowed any form of M&A and
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consolidation. Now that those constraints are lifted, you're going to see a lot of this creative destruction
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work its way through the economy. That's one big trend. The other big trend, and
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I think we saw this in Nick, can you please find the tweet from Delion where he talked about the Chipotle competitor
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that TK launched? I just want to point to this because I think this is another wave of competition that's going to put
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a bunch of categories of business under duress which is you know our friend Travis Kalanick who's the founder of
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city what is it called city logistics is that what it's called yeah cloud kitchens is how
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cloud kitchens okay he launched a Chipotle competitor and it's apparently totally kick-ass and way
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better than Chipotle and it just starts to show that there's an a wave of competition that's also coming from
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completely different companies you never would have expected going after a bunch
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of these businesses. So if you put these two things together, I think you're going to see more, not less,
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bankruptcies. But I think the outcome is probably positive in that you clean out
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a bunch of businesses that were taking up time and resources. You should allocate a lot of the human capital that
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are in those companies to different businesses. is and I think uh man it's a long list of companies but I just want
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to know which one hit you harder forever 21 or Hooters which one of those bankruptcies hit harder for you trying
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to game it out here. Um, I think that we should buy Hooters. I mean, we should buy Hooters Chim. We should have If you
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have a teenage daughter, if you have a teenage daughter, what I'll tell you is Forever 21 was That was going to
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go to zero anyways. Like, you need to be long. Brandy Melville, you need to be long. Oh god, what is
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this other one that's like the the clothes are so like yoga pants? Aloe, hold on.
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The kids wear a lot of those. They're into the athletic wear. What's the name of that clothing store,
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Vori? you know, where Sloan like always wants the, you know, the the skirts and stuff. Not Brandy Melville, but the
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other one. Oh. Um, uh, anyways, there's all these brands. Yeah. Forever 21 was not it.
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Yeah. What do you guys think? Should we do a should we buy out Hooters and put Sydney Sweeney as CEO? This could be a
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great brand extension. I don't know. The chicken wings are amazing. Saxs, any thoughts here on the creative
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destruction and what we're seeing? Obviously, it can't have to do with tariffs because they're only three
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months old and it seems largely the companies. Well, every company you've mentioned,
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every company you've mentioned is a retail business. They have physical locations that people have to go to do
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stuff or get stuff. And I think that this demand you had 2020 and me, you had Wag.
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You had a Yeah, but yeah, I think but I think the retail getting flushed out makes sense given the age of Amazon
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and Sheen and Target. Yeah. Well, the retail channel, like others, is highly levered because in order to have a
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retail store, you have to pay a monthly fee to the physical real estate owner. And so, it's unlike other businesses
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that are services or are more nimble and can relocate, you actually, it's the equivalent of having debt. When you sign
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a lease, you're stuck in a 10-year debt cycle. You have to pay every month a fixed amount of money and you can't get
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out of it. So, the retailers make a lot of sense. they were basically levered businesses in addition to all of the
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kind of macro trends of people not going to physical locations and co but I think
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Chimath has it right which is this is all kind of zer era you know indigestion that's being washed out and to the point
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like some percentage of overfunded negative unit economic type businesses are also getting cleaned up in the kind
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of call it tech space which involves typically a lot of companies that are not tech but math does tech
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so um That definitely makes sense to me. Saxs, any insights here? Well, just to pick up on this. So, you
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know, when you showed those charts on the bankruptcies, I didn't see a huge trend there. I mean, I can see that
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there's some pickup since the ZERP era, but it doesn't look like a huge trend to
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me. We just had a 3.3% GDP print for Q2. I think it that was restated, right? That's what
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happened today is they restated it. Well, no, there was an estimate. Remember the Atlanta Fed had this 3.3%
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estimate. Then they reduced it to 3.0, but now the actual number is in 3.3%. So the economy seems pretty hot and it's
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doing well. But I would say that there is some softness in the economy in those sectors that are exposed to high
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interest rates. And the best example of this is real estate. I remember on this program a year and a half ago, we talked
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about the wall of debt on commercial real estate that was coming due and had to be refinanced. And there's 2.2 two
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trillion of debt, CR debt that's maturing before 2028. And what we talked about back then was the banks don't
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really want to foreclose on these buildings because then it hits their balance sheet. So, everyone has a
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incentive to restructure this debt. And there were a lot of these blend and extend type deals where they would
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extend the debt and work out a a lower interest rate. Some people call these deals pretend and extend because you're
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pretending that the real estate sponsor still has equity in these buildings and they might have
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Have these started to come back? What I'm seeing is that some real estate developers are starting to lose
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buildings. Now, the reason for that is that the debt is coming to you and has to be refinanced. And there's two
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problems when you refinance. One is you're paying a higher interest rate. So now you take a building that was cash
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flowing and now at that higher interest rate, it might have negative cash flow. In other words, it it's basically
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bankrupt. So those buildings don't make sense anymore. And those are situations where you're going to lose the building
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to the bank. The other problem is when you refinance, you might not be able to get the loan to value that you had
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before because valuations have also come down because real estate valuations are
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inverse to interest rates, right? So in other words, if you know, let's say you had a building that was worth uh $100
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million before at zer era interest rates, you could borrow twothirds of that. So call it 66 million. Now, if the
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building's only worth, I don't know, $60 million, then you can only borrow $40 million. So, the amount of proceeds you
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can get when you refinance is much lower. And that gap has to be replaced with something. So, in that situation,
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the equity holders would have to come in and do an equity in refinancing where they've got to put up that gap. In the
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example I gave, that gap would be $26 million. So, the equity holders have to come out of pocket, which is very
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difficult to do. and they might not want to do it and in that case you're also going to lose the building.
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Sax, I have a question. Nick, can you show up? Show this to Mitch. Sax, how does this trend build on top of that
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other trend which is on top of everything else now? It just seems like the real estate financing flows are
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moving far away from typical office construction towards data centers. So if you add that to the mix, then people
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seeking funding for traditional office are going to find or refinancing are going to find fewer lenders. Is that
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true or not true? Well, yeah. I think there has been a little bit of a credit crunch, but also
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there's no reason to really be building so much office space when there's so many buildings that are underwater or
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vacant. Yeah. Like a third of the real estate in San Francisco is basically vacant
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still. Still. So why would you build any more real estate? But what needs to happen is
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those buildings effectively need to go back to the bank and then they need to be auctioned off at some lower price so
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that new equity holders can come in and new capills can be formed and then you can get the money you need to do the
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tenant improvements the TI's so that you can get more tenants in there cuz right
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now one of the reasons why a lot of these buildings are empty is because the equity holders don't have an incentive
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to put in more money to do the TI's necessary to sign new tenants. So you got these zombie buildings that even if
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there was a tenant who wanted the space at some lower rent, the owners of the building have no incentive to do that
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because they can't put any money into the deal. So like we finally need a bunch of these buildings to go back to
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the bank or we need rates to come down so that you can do refinancings without them being these punitive refinancings.
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And I do think that there is a lot of risk in the economy in this sector because again of this wall of commercial
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real estate debt that's coming due. And I think this is the the problem. You got
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Pal sitting there. You got too late Pal sitting there in his ivory tower. He's willing to keep rates artificially low
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so he can get renominated and he can help Biden and Yellen. He's willing to cut rates to help Kamla. But as soon as
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Trump gets in there, he stops the rate cutting cycle even though inflation's down to 2.0%. So you got this too late
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pal and the rest of his Fed cronies. Jal wants to make it sound like they have some dissenting voice. It's nonsense. In
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any event, they're all collectively sitting there in their ivory tower, completely out of touch with what's
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happening in the economy, and they're being slow to cut rates. And I do think that at least sectors like real estate
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do need these cuts.