Monday Musings: June 14, 2021

Jun 14, 2021

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Public Trust Credit Team
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Labor market statistics summary for May shows mixed results

According to the U.S. Bureau of Labor Statistics, the unemployment rate in May declined by 0.3% to 5.8% while total nonfarm payroll employment rose by 559k. Nonfarm payroll employment is still down by roughly 5%, or 7.6 million, versus the pre-pandemic level from February of 2020. Reflecting the ongoing return to in-person learning and normal retail business hours/operations, job gains were most notable across the leisure and hospitality sector (+292k), public & private education (+144k), and health care & social assistance (+46k). Initial jobless claims for the week ended June 5 totaled 376k, marking a sixth consecutive week of downward initial filings and the fewest weekly new unemployment claims since March of 2020. Despite the improvement in jobless claims, labor shortages appear persistently widespread as the total number of individuals still claiming unemployment benefits remains elevated at 15.3 million during the week ended May 22, a decline of fewer than 100k from the week prior. According to the NFIB’s monthly jobs report in May, a record-high 48% of small business owners reported unfilled job openings during the month. Compared to April’s reading, the labor force participation rate was little changed at 61.6% where it has remained relatively constant dating back to June of 2020.

Companies looking to cryptocurrencies to diversify balance sheets find that accounting rules make it a very punishing choice

Tesla was hot news this year when it announced it would be keeping over $1 billion of its balance sheet in Bitcoin, but accounting rules can lead to large impairment charges for the cryptocurrency. Under GAAP, cryptocurrencies are not accounted for like normal currencies even if the company is holding them in their treasury function. Companies must test indefinite-lived assets like Bitcoin and stocks for impairment at least annually; when the value of these assets goes below carrying value, the company must take a charge and cannot increase the value on the balance sheet until the asset is sold. Most investors know how volatile Bitcoin and other cryptos can be which is why many companies have no plans to hold the asset on their balance sheets. With Tesla likely to take an impairment charge on their Bitcoin holdings this quarter, it is a good reminder of the importance of a skilled credit research team that can dig deep into company financials to find potential red flags. 

All comments and discussion presented are purely based on opinion and assumptions, not fact. These assumptions may or may not be correct based on foreseen and unforeseen events. The information presented should not be used in making any investment decisions. This material is not a recommendation to buy, sell, implement, or change any securities or investment strategy, function, or process. Any financial and/or investment decision should be made only after considerable research, consideration, and involvement with an experienced professional engaged for the specific purpose. Past performance is not an indication of future performance. Any financial and/or investment decision may incur losses.

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