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Stockman: While Wall Street Bubbles, Jay-Pow Babbles

Stockman: While Wall Street Bubbles, Jay-Pow Babbles

Authored by David Stockman via Contra Corner blog,

If you want to understand why we are heading for a financial Gotterdammerung, just consider the specious nonsense and mendacious cant…

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Stockman: While Wall Street Bubbles, Jay-Pow Babbles

Authored by David Stockman via Contra Corner blog,

If you want to understand why we are heading for a financial Gotterdammerung, just consider the specious nonsense and mendacious cant that issued from JayPo’s post-meeting presser last week. It’s all the worse because this drivel is not just his opinion - it embodies the oppressive groupthink of the entire central bank and its Wall Street megaphones, servitors and overlords ( e.g. Goldman Sachs).

In again insisting there were no visible signs of excessive speculation and threats to financial stability ( viz. why would Wall Street admit otherwise?), Powell claimed, among other things, that the undeniable eruption of business borrowing since the financial crisis was no sweat whatsoever.

In fact, he claimed that business and household debt were two of his four measures of financial stability and that all was copacetic on those fronts:

In terms of households and businesses, households entered the crisis in very good shape by historical standards. Leverage in the household sector had been just kind of gradually moving down and down and down since the financial crisis. Now, there was some negative effects on that. People lost their jobs and that sort of thing. But they’ve also gotten a lot of support now. So, the damage hasn’t been as bad as we thought. Businesses, by the same token, had a high debt load coming in. Many saw their revenues decline. But they’ve done so much financing, and there’s a lot of cash on their balance sheet. So, nothing in those two sectors really jumps out as really troubling.

WTF is he talking about?

During the 19 months since August 2019, the Fed has injected a staggering $3.9 trillion of freshly minted cash into the canyons of Wall Street. Some of this massive balance sheet expansion temporarily ended-up as elevated business and household cash balances for one simple reason: The fiscal authorities and the red hot corporate/junk debt markets have been dispensing the Fed’s tsunami of cash faster than households and businesses can actually spend it!

And this is called evidence of financial health and stability?

No, it’s self-evidently a mindless, over-the-top experiment in money-printing that all of history and all of the laws of rational finance militate against.

After all, how can you call a 103% expansion of the Fed’s balance sheet rational during a 19 month period in which the indicators of main street activity have all fallen backwards?

Percent Change: Q4 2020 Versus Q3 2019

  • Federal Reserve balance sheet: +103%;

  • Nominal GDP: -0.2%;

  • Business sector value added: -0.6%;

  • Industrial production: -3.3%;

  • Total labor hours worked: -5.1%%;

Federal Reserve Balance Sheet, August 2019 to February 2021

In the sections below, we demonstrate how Washington has turned the Fed’s massive outpouring of fiat credits into a simulacrum of excess “savings” in the business and household sector, when the truth of the matter is that both are drowning in record debt.

The fact that JayPo would focus on these utterly artificial and transient cash balances while ignoring the record $34 trillion of debt held by the household and nonfinancial business sectors combined is surely not an oversight; it’s mendacity of the first order, or, less politely, a pack of lies.

First, consider the explosion of checkable deposits and currency held by households. Between the pre-Covid benchmark in Q4 2019 and Q4 2020, these balances soared by nearly $2 trillion or 189%. That was off the charts of history as shown below.

In fact, the checkable deposit/currency level was virtually flat at $1.0 trillion between early 2014 and the end of 2019, and only erupted skyward when the stimmy checks, UI top-ups and other Washington free stuff began pouring into households in April 2020.

Household sector balances of checkable deposits and currency, 2000-2020

Moreover, balances in savings and money market accounts also rose substantially during the year of the Covid. These account balances stood at $12.4 trillion in Q4 2019 and had risen by $838 billion to $13.2 trillion by Q4 2020.

In all, combined household cash accounts–checking, savings and money markets—stood at an off-the-charts $16.49 trillion at the end of Q4 2020. That represents a $2.8 trillion gain during this 4-quarter period (brown bars in the chart below).

For perspective, the total deposit gain during 2019 compared to 2018 was just $980 billion or only 34% of the gain during 2020. And during 2018 and 2017, the gain was just $525 billion and $405 billion, respectively.

In any event, the chart below tells you all you need to know. Until the 2020 outbreak of Fed money printing and Washington Everything Bailouts, the year-over-year gain in total household cash account balances (brown bars) varied between $400 billion and $800 billion, while checking account balances alone (purple bars) barely changed at all.

Year-Over-Year Change In Total Household Cash Account Balances (brown) and Checking Accounts (purple), 2011-2020

Needless to say, the above eruption in America’s checking and other cash accounts did not happen because wages and salaries were booming, thereby providing the wherewithal for a $2.8 trillion gain in available cash. Actually, between Q4 2019 and Q4 2020, aggregate wage and salary disbursements rose by only an anemic $40 billion or just 1.4% of the gain in cash deposits!

No, America did not go on an ultra-austerity diet on the consumption spending front, either. Between Q4 2019 and Q4 2020, personal consumption expenditures declined by only $320 billion or 2.2%, notwithstanding the lockdowns and stay-at-home orders. These so-called Covid mitigation measures mainly caused consumption spending to shift from services that were closed by orders of the state to goods that could be ordered on-line and delivered to the doorstep.

Taken together, higher wages and lower spending add up to just $360 billion over the four quarter period, and this change accounts for just 13% of the surge in checking and other cash deposits.

So the question recurs: Is there something wrong with the NIPA (national income and products accounts) math or is JayPo’s assertion that households are financially solid because they’ve got a lot of cash just a load of self-justifying baloney?

The answer, of course, is yes and yes.

The NIPA accounts were designed by Keynesian economists 80 years ago and are inherently flawed; and the current head of the most powerful financial institution on the planet does not, apparently, even know the difference between Fake Fed Credit and real money savings obtained from income and profits earned in the production of goods and services.

Four-quarter Change in Household Checking Accounts Versus Wage and Salary Income, Q4 2019 to Q4 2020

Actually, it doesn’t take too much digging to identify where all the household cash came from. To wit, it’s the spawn of Washington’s frenzied descent into the distribution of free stuff to compensate for the mayhem caused by the Virus Patrol.

As it happens, much of the spending included in the Everything Bailouts is recorded as transfer payments in the NIPA accounts, and self-evidently that’s were most of America’s currently bulging cash account balances came from.

For want of doubt, the chart below shows that the pre-Covid government transfer payment level in February 2020 stood at $3.109 trillion on an annualized basis or about $777 billion on an actual monthly basis. Since this was already by far the highest level in history, we compute the monthly gains above that level as the “excess” transfer payments flowing from the Everything Bailouts.

That is to say, the preponderant share of the bulge in household cash balances was not “savings”; it was free stuff from Washington fresh off the Fed’s printing press one step removed.

  • February 2020 Transfer Payments: $777 billion;

  • March gain: +$7 billion;

  • April gain: +$282 billion;

  • May gain: +$189 billion;

  • June gain: +$144 billion;

  • July gain: +$139 billion;

  • August gain: +$76 billion;

  • September gain: +$74 billion;

  • October gain: +$53 billion;

  • November gain: +$43 billion;

  • December gain: +$49 billion;

  • January gain: +$214 billion;

  • 11-month gain: +$1.270 trillion.

Government Transfer Payments: February 2020 to January 2021

On the nonfinancial business side, the gain in total cash account balances was also substantial, rising from $3.58 trillion in Q4 2019 to $4.66 trillion in Q4 2020. That’s a pick-up of $1.1 trillion or 30%, and it compared to the more ordinary $270 billion or 9% gain during the previous year (2019 over 2018).

Yet why Powell would choose to focus on this self-evident pass-through of the Fed’s own fiat credit is self-evident. He’s trying to hide the massive debt elephant in the room.

After all, what really happened in the nonfinancial business sector last year begins with the fact that the US Treasury’s massive debt issuance was almost completely monetized by the Fed. In turn, some of the resulting cash—all of which was plucked from thin air— was cycled into the Paycheck Protection Program and other targeted business bailouts such as the airline subsidies and tax cuts.

As it happened, the first $4 trillion of Everything Bailouts (excluding the $1.7 trillion Biden Boondoggle) included $950 billion for the PPP program and another $750 billion for business tax cuts, airlines, emergency business loans etc.

So surely some substantial portion of the $1.1 trillion pick-up in nonfinancial business cash balances represents the pass-thru of this massive $1.7 trillion cash infusions from the US Treasury and the Fed.

In short, the bloated cash balances of the business sector are a red herring. And if Powell nevertheless wishes to engage in such distractions, we are compelled to inquire as to just how long the Fed heads think this frog can boil?

We are referring, of course, to the real financial condition of the business sector: Namely, the relentless rise of debt relative to the value-added generated by corporate and non-corporate businesses combined. As is evident in the chart below, the business leverage ratio has been climbing steadily since the 1950s, but when the Fed went full retard with money printing and extreme interest rate repression after the financial crisis, the business leverage ratio shot the moon.

Self-evidently, the Keynesian money-pumpers who now dominate the Fed are blithering know-nothings when it comes to history of more than a few years back. Otherwise, how do they explain that during the halcyon days of American business growth in the 1950s and 1960s, the business debt-to value added ratio was a mere fraction of today’s levels, yet American business prospered mightily?

In fact, in 1954 business debt (purple line) was only 38.6% of business value added. Thereafter at key inflection points when the monetary regime lurched to increasingly bad money, the leverage ratio kept rising to today’s 109%, while domestic business growth kept slowing.

Business Debt To Business Value Added Ratio:

  • Halcyon Days of the 1950s (Q4 1954): 38.6%;

  • Eve of Nixon’s Folly severing the dollar from gold (Q2 1971): 61.3%;

  • Greenspan’s arrival at the Fed (Q2 1987): 80.5%;

  • Peak of the Greenspan tech boom (Q4 2000): 82.0%;

  • Pre-crisis financial bubble (Q4 2007): 90.6%;

  • Current Peak after 13-years of relentless money-pumping (Q4 2020): 109.0%

Since the pre-crisis peak in Q4 2007, the purple line has decisively crossed-over the red line (business value added), and the resulting figures speak for themselves.

During the last 13 years, business value added has grown at an anemic 2.94% per annum rate—by far the lowest growth rate since 1950. In fact, $7.6 trillion of debt growth since Q4 2007 has generated only $5.1 trillion of additional business value added.

By our lights, that’s pretty dramatic evidence that the Fed is spinning its wheels into a dead-end.

Nonfinancial Business Debt Versus Business Value-Added,1955-2020

For want of doubt, here is the inflation-adjusted growth rate of business sector value added for broad intervals since 1954. It is gobsmackingly evident that as the leverage ratio has steadily risen (per above) the trend rate of real growth has steadily weakened.

Per Annum Growth Rate of Real Business Value-Added:

  • Q4 1954 to Q4 2000:4: 3.68%;

  • Q4 2000 to Q4 2007: 2.82%;

  • Q4 2007 to Q4 2020: 1.54%

In short, money-pumping by the Fed has caused US businesses to drastically elevate their leverage ratios, but the added debt has not gone into productive investment in plant, equipment, technology, human resources and production. The proof is in the pudding: Business value-added growth since the 2007 pre-crisis peak has been only 42% of the 1954-2000 average.

To the contrary, the Fed’s interest rate falsification policies have turned business into part-time wagering venues wherein cheap debt has progressively lured business executives into the financial engineering business. And, by definition, the purpose of financial engineering is to goose asset values, not business production and value added.

And when it comes to the matter of deliberate falsification of interest rates, the jury is in. Since the late 1990s, the real or inflation-adjusted rate on the 10-year UST benchmark has plunged from a historic 3.0% range to the actual negative real interest rate levels which currently prevail.

So while Powell insists on gassing about no financial stability problems in the household and business sectors, the Fed’s policies have actually unleashed a tsunami of dangerously debilitating debt in both the household and business sectors.

Since Q4 2000, combined debt has risen from $13.8 trillion to $34.4 trillion. In turn, that 150% gain in household and business debt outstanding far outpaced the 105% expansion of nominal GDP during the same 20-year period.

Total Business and Household Debt Outstanding, 2000-2020

Of course, while JayPo was completely ignoring the towering edifice of debt depicted above, he didn’t spare the rhetoric when it comes to the Fed’s sacred 2.00% inflation target:

“So, we’ve said we’d like to see inflation run moderately above 2% for some time. And we’ve resisted, basically, generally, the temptation to try to quantify that. Part of that just is talking about inflation is one thing. Actually having inflation run above 2% is the real thing. So, over the years, we’ve talked about 2% inflation as a goal, but we haven’t achieved it. So, I would say we’d like to perform. That’s what we’d really like to do is to get inflation moderately above 2%. I don’t want to be too specific about what that means, because I think it’s hard to do that. And we haven’t done it yet. When we’re actually above 2%, we can do that. I would say this: the fundamental change in our framework is that we were not going to act preemptively based on forecasts, for the most part. And we’re going to wait to see actual data. And I think it will take people time to adjust to that. And to adjust that new practice. And the only way we can really build the credibility of that is by doing it. So, that’s how I would think about that.”

The above miasma of words is simply a pack of lies. Any competent economist knows that the Fed’s sawed-off ruler called the PCE deflator is not a measure of the average price level change in a fixed basket of goods and services; it’s a cost-of-living index which drastically under-weight housing and medical costs, and continuously re-weights the component price items to nullify the actions of households and businesses on the free market.

That is to say, in response to the Fed’s insensible pursuit of MOAAR inflation, consumers tend to substitute lower cost items, such as chicken, for higher cost items, such as beef. Alas, the geniuses in the Eccles Building then interpret the cost minimizing behavior of consumers as evidence of lower inflation!

As the man says on later night TV, you can’t make this stuff up, but here it is: The best general price index from the government statistical mills is the 16% trimmed mean CPI, and since January 2012 when the Fed formally adopted its 2.00% inflation target, this index is up by 1.99% per annum. That’s more than close enough to 2.00% for government work.

By contrast, the PCE deflator is up by just 1.34% per annum, causing the Fed to keep pumping its balance sheet and repressing interest rates to the zero-bound on the grounds that its faulty index is not showing enough inflation.

Moreover, with every passing month, the gap between actual inflation and the Fed’s faulty PCE deflator widens. This gap has now given rise to the even more risible claim, contained in JayPo’s blathering above, that the Fed needs to let inflation run hot (i.e. above 2.00%) in order to catch-up on the phony inflation shortfall depicted below.

Cumulative Increase in 16% Trimmed Mean CPI Versus PCE deflator

Since January 2012 Meanwhile, the always cogent Lance Roberts reminded in a post this morning about the effect the Fed’s insane inflation targeting and interest rate repression is having on the old-fashioned households which actually attempt to save for retirement, rainy days and the other unforeseen contingencies of life.

To wit, the return on $1 million of 10-year USTs has dropped by 71% since the turn of the century. And, oh, Lance was given the Fed the benefit of the doubt - the chart below is in nominal dollars.

As it happens, the 16% trimmed mean CPI has risen by 2.12% per annum since the year 2000. So in real terms earnings from that $1 million of savings are downs by 81%, and the purchasing power of the principle now stands at only $650,000.

Meanwhile, the debt-entombed US economy is beginning to get a whiff of the inflation the Fed has so assiduously attempted to generate.

Specifically, the price of lumber per thousand board feet is at $1,044, according to Random Lengths. That’s an all-time high, and up 188% since the onset of the lockdowns, COVID-19 panic and massive Fed money printing. The National Association of Home Builders calculates that current lumber prices are adding at least $24,000 to the price tag of a typical new single-family home.

Yet sometimes a picture is worth a thousand words, and this one is surely the case.

Tyler Durden Wed, 03/24/2021 - 14:00

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The Coming Of The Police State In America

The Coming Of The Police State In America

Authored by Jeffrey Tucker via The Epoch Times,

The National Guard and the State Police are now…

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The Coming Of The Police State In America

Authored by Jeffrey Tucker via The Epoch Times,

The National Guard and the State Police are now patrolling the New York City subway system in an attempt to do something about the explosion of crime. As part of this, there are bag checks and new surveillance of all passengers. No legislation, no debate, just an edict from the mayor.

Many citizens who rely on this system for transportation might welcome this. It’s a city of strict gun control, and no one knows for sure if they have the right to defend themselves. Merchants have been harassed and even arrested for trying to stop looting and pillaging in their own shops.

The message has been sent: Only the police can do this job. Whether they do it or not is another matter.

Things on the subway system have gotten crazy. If you know it well, you can manage to travel safely, but visitors to the city who take the wrong train at the wrong time are taking grave risks.

In actual fact, it’s guaranteed that this will only end in confiscating knives and other things that people carry in order to protect themselves while leaving the actual criminals even more free to prey on citizens.

The law-abiding will suffer and the criminals will grow more numerous. It will not end well.

When you step back from the details, what we have is the dawning of a genuine police state in the United States. It only starts in New York City. Where is the Guard going to be deployed next? Anywhere is possible.

If the crime is bad enough, citizens will welcome it. It must have been this way in most times and places that when the police state arrives, the people cheer.

We will all have our own stories of how this came to be. Some might begin with the passage of the Patriot Act and the establishment of the Department of Homeland Security in 2001. Some will focus on gun control and the taking away of citizens’ rights to defend themselves.

My own version of events is closer in time. It began four years ago this month with lockdowns. That’s what shattered the capacity of civil society to function in the United States. Everything that has happened since follows like one domino tumbling after another.

It goes like this:

1) lockdown,

2) loss of moral compass and spreading of loneliness and nihilism,

3) rioting resulting from citizen frustration, 4) police absent because of ideological hectoring,

5) a rise in uncontrolled immigration/refugees,

6) an epidemic of ill health from substance abuse and otherwise,

7) businesses flee the city

8) cities fall into decay, and that results in

9) more surveillance and police state.

The 10th stage is the sacking of liberty and civilization itself.

It doesn’t fall out this way at every point in history, but this seems like a solid outline of what happened in this case. Four years is a very short period of time to see all of this unfold. But it is a fact that New York City was more-or-less civilized only four years ago. No one could have predicted that it would come to this so quickly.

But once the lockdowns happened, all bets were off. Here we had a policy that most directly trampled on all freedoms that we had taken for granted. Schools, businesses, and churches were slammed shut, with various levels of enforcement. The entire workforce was divided between essential and nonessential, and there was widespread confusion about who precisely was in charge of designating and enforcing this.

It felt like martial law at the time, as if all normal civilian law had been displaced by something else. That something had to do with public health, but there was clearly more going on, because suddenly our social media posts were censored and we were being asked to do things that made no sense, such as mask up for a virus that evaded mask protection and walk in only one direction in grocery aisles.

Vast amounts of the white-collar workforce stayed home—and their kids, too—until it became too much to bear. The city became a ghost town. Most U.S. cities were the same.

As the months of disaster rolled on, the captives were let out of their houses for the summer in order to protest racism but no other reason. As a way of excusing this, the same public health authorities said that racism was a virus as bad as COVID-19, so therefore it was permitted.

The protests had turned to riots in many cities, and the police were being defunded and discouraged to do anything about the problem. Citizens watched in horror as downtowns burned and drug-crazed freaks took over whole sections of cities. It was like every standard of decency had been zapped out of an entire swath of the population.

Meanwhile, large checks were arriving in people’s bank accounts, defying every normal economic expectation. How could people not be working and get their bank accounts more flush with cash than ever? There was a new law that didn’t even require that people pay rent. How weird was that? Even student loans didn’t need to be paid.

By the fall, recess from lockdown was over and everyone was told to go home again. But this time they had a job to do: They were supposed to vote. Not at the polling places, because going there would only spread germs, or so the media said. When the voting results finally came in, it was the absentee ballots that swung the election in favor of the opposition party that actually wanted more lockdowns and eventually pushed vaccine mandates on the whole population.

The new party in control took note of the large population movements out of cities and states that they controlled. This would have a large effect on voting patterns in the future. But they had a plan. They would open the borders to millions of people in the guise of caring for refugees. These new warm bodies would become voters in time and certainly count on the census when it came time to reapportion political power.

Meanwhile, the native population had begun to swim in ill health from substance abuse, widespread depression, and demoralization, plus vaccine injury. This increased dependency on the very institutions that had caused the problem in the first place: the medical/scientific establishment.

The rise of crime drove the small businesses out of the city. They had barely survived the lockdowns, but they certainly could not survive the crime epidemic. This undermined the tax base of the city and allowed the criminals to take further control.

The same cities became sanctuaries for the waves of migrants sacking the country, and partisan mayors actually used tax dollars to house these invaders in high-end hotels in the name of having compassion for the stranger. Citizens were pushed out to make way for rampaging migrant hordes, as incredible as this seems.

But with that, of course, crime rose ever further, inciting citizen anger and providing a pretext to bring in the police state in the form of the National Guard, now tasked with cracking down on crime in the transportation system.

What’s the next step? It’s probably already here: mass surveillance and censorship, plus ever-expanding police power. This will be accompanied by further population movements, as those with the means to do so flee the city and even the country and leave it for everyone else to suffer.

As I tell the story, all of this seems inevitable. It is not. It could have been stopped at any point. A wise and prudent political leadership could have admitted the error from the beginning and called on the country to rediscover freedom, decency, and the difference between right and wrong. But ego and pride stopped that from happening, and we are left with the consequences.

The government grows ever bigger and civil society ever less capable of managing itself in large urban centers. Disaster is unfolding in real time, mitigated only by a rising stock market and a financial system that has yet to fall apart completely.

Are we at the middle stages of total collapse, or at the point where the population and people in leadership positions wise up and decide to put an end to the downward slide? It’s hard to know. But this much we do know: There is a growing pocket of resistance out there that is fed up and refuses to sit by and watch this great country be sacked and taken over by everything it was set up to prevent.

Tyler Durden Sat, 03/09/2024 - 16:20

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Another beloved brewery files Chapter 11 bankruptcy

The beer industry has been devastated by covid, changing tastes, and maybe fallout from the Bud Light scandal.

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Before the covid pandemic, craft beer was having a moment. Most cities had multiple breweries and taprooms with some having so many that people put together the brewery version of a pub crawl.

It was a period where beer snobbery ruled the day and it was not uncommon to hear bar patrons discuss the makeup of the beer the beer they were drinking. This boom period always seemed destined for failure, or at least a retraction as many markets seemed to have more craft breweries than they could support.

Related: Fast-food chain closes more stores after Chapter 11 bankruptcy

The pandemic, however, hastened that downfall. Many of these local and regional craft breweries counted on in-person sales to drive their business. 

And while many had local and regional distribution, selling through a third party comes with much lower margins. Direct sales drove their business and the pandemic forced many breweries to shut down their taprooms during the period where social distancing rules were in effect.

During those months the breweries still had rent and employees to pay while little money was coming in. That led to a number of popular beermakers including San Francisco's nationally-known Anchor Brewing as well as many regional favorites including Chicago’s Metropolitan Brewing, New Jersey’s Flying Fish, Denver’s Joyride Brewing, Tampa’s Zydeco Brew Werks, and Cleveland’s Terrestrial Brewing filing bankruptcy.

Some of these brands hope to survive, but others, including Anchor Brewing, fell into Chapter 7 liquidation. Now, another domino has fallen as a popular regional brewery has filed for Chapter 11 bankruptcy protection.

Overall beer sales have fallen.

Image source: Shutterstock

Covid is not the only reason for brewery bankruptcies

While covid deserves some of the blame for brewery failures, it's not the only reason why so many have filed for bankruptcy protection. Overall beer sales have fallen driven by younger people embracing non-alcoholic cocktails, and the rise in popularity of non-beer alcoholic offerings,

Beer sales have fallen to their lowest levels since 1999 and some industry analysts

"Sales declined by more than 5% in the first nine months of the year, dragged down not only by the backlash and boycotts against Anheuser-Busch-owned Bud Light but the changing habits of younger drinkers," according to data from Beer Marketer’s Insights published by the New York Post.

Bud Light parent Anheuser Busch InBev (BUD) faced massive boycotts after it partnered with transgender social media influencer Dylan Mulvaney. It was a very small partnership but it led to a right-wing backlash spurred on by Kid Rock, who posted a video on social media where he chastised the company before shooting up cases of Bud Light with an automatic weapon.

Another brewery files Chapter 11 bankruptcy

Gizmo Brew Works, which does business under the name Roth Brewing Company LLC, filed for Chapter 11 bankruptcy protection on March 8. In its filing, the company checked the box that indicates that its debts are less than $7.5 million and it chooses to proceed under Subchapter V of Chapter 11. 

"Both small business and subchapter V cases are treated differently than a traditional chapter 11 case primarily due to accelerated deadlines and the speed with which the plan is confirmed," USCourts.gov explained. 

Roth Brewing/Gizmo Brew Works shared that it has 50-99 creditors and assets $100,000 and $500,000. The filing noted that the company does expect to have funds available for unsecured creditors. 

The popular brewery operates three taprooms and sells its beer to go at those locations.

"Join us at Gizmo Brew Works Craft Brewery and Taprooms located in Raleigh, Durham, and Chapel Hill, North Carolina. Find us for entertainment, live music, food trucks, beer specials, and most importantly, great-tasting craft beer by Gizmo Brew Works," the company shared on its website.

The company estimates that it has between $1 and $10 million in liabilities (a broad range as the bankruptcy form does not provide a space to be more specific).

Gizmo Brew Works/Roth Brewing did not share a reorganization or funding plan in its bankruptcy filing. An email request for comment sent through the company's contact page was not immediately returned.

 

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Revving up tourism: Formula One and other big events look set to drive growth in the hospitality industry

With big events drawing a growing share of of tourism dollars, F1 offers a potential glimpse of the travel industry’s future.

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Sergio Perez of Oracle Red Bull Racing, right, and Charles Leclerc of the Scuderia Ferrari team compete in the Las Vegas Grand Prix on Nov. 19, 2023. Tayfun Coskun/Anadolu via Getty Images

In late 2023, I embarked on my first Formula One race experience, attending the first-ever Las Vegas Grand Prix. I had never been to an F1 race; my interest was sparked during the pandemic, largely through the Netflix series “Formula 1: Drive to Survive.”

But I wasn’t just attending as a fan. As the inaugural chair of the University of Florida’s department of tourism, hospitality and event management, I saw this as an opportunity. Big events and festivals represent a growing share of the tourism market – as an educator, I want to prepare future leaders to manage them.

And what better place to learn how to do that than in the stands of the Las Vegas Grand Prix?

A smiling professor is illuminated by bright lights in a nighttime photo taken at a Formula 1 event in Nevada.
The author at the Las Vegas Grand Prix. Katherine Fu

The future of tourism is in events and experiences

Tourism is fun, but it’s also big business: In the U.S. alone, it’s a US$2.6 trillion industry employing 15 million people. And with travelers increasingly planning their trips around events rather than places, both industry leaders and academics are paying attention.

Event tourism is also key to many cities’ economic development strategies – think Chicago and its annual Lollapalooza music festival, which has been hosted in Grant Park since 2005. In 2023, Lollapalooza generated an estimated $422 million for the local economy and drew record-breaking crowds to the city’s hotels.

That’s why when Formula One announced it would be making a 10-year commitment to host races in Las Vegas, the region’s tourism agency was eager to spread the news. The 2023 grand prix eventually generated $100 million in tax revenue, the head of that agency later announced.

Why Formula One?

Formula One offers a prime example of the economic importance of event tourism. In 2022, Formula One generated about $2.6 billion in total revenues, according to the latest full-year data from its parent company. That’s up 20% from 2021 and 27% from 2019, the last pre-COVID year. A record 5.7 million fans attended Formula One races in 2022, up 36% from 2019.

This surge in interest can be attributed to expanded broadcasting rights, sponsorship deals and a growing global fan base. And, of course, the in-person events make a lot of money – the cheapest tickets to the Las Vegas Grand Prix were $500.

Two brightly colored race cars are seen speeding down a track in a blur.
Turn 1 at the first Las Vegas Grand Prix. Rachel Fu, CC BY

That’s why I think of Formula One as more than just a pastime: It’s emblematic of a major shift in the tourism industry that offers substantial job opportunities. And it takes more than drivers and pit crews to make Formula One run – it takes a diverse range of professionals in fields such as event management, marketing, engineering and beyond.

This rapid industry growth indicates an opportune moment for universities to adapt their hospitality and business curricula and prepare students for careers in this profitable field.

How hospitality and business programs should prepare students

To align with the evolving landscape of mega-events like Formula One races, hospitality schools should, I believe, integrate specialized training in event management, luxury hospitality and international business. Courses focusing on large-scale event planning, VIP client management and cross-cultural communication are essential.

Another area for curriculum enhancement is sustainability and innovation in hospitality. Formula One, like many other companies, has increased its emphasis on environmental responsibility in recent years. While some critics have been skeptical of this push, I think it makes sense. After all, the event tourism industry both contributes to climate change and is threatened by it. So, programs may consider incorporating courses in sustainable event management, eco-friendly hospitality practices and innovations in sustainable event and tourism.

Additionally, business programs may consider emphasizing strategic marketing, brand management and digital media strategies for F1 and for the larger event-tourism space. As both continue to evolve, understanding how to leverage digital platforms, engage global audiences and create compelling brand narratives becomes increasingly important.

Beyond hospitality and business, other disciplines such as material sciences, engineering and data analytics can also integrate F1 into their curricula. Given the younger generation’s growing interest in motor sports, embedding F1 case studies and projects in these programs can enhance student engagement and provide practical applications of theoretical concepts.

Racing into the future: Formula One today and tomorrow

F1 has boosted its outreach to younger audiences in recent years and has also acted to strengthen its presence in the U.S., a market with major potential for the sport. The 2023 Las Vegas race was a strategic move in this direction. These decisions, along with the continued growth of the sport’s fan base and sponsorship deals, underscore F1’s economic significance and future potential.

Looking ahead in 2024, Formula One seems ripe for further expansion. New races, continued advancements in broadcasting technology and evolving sponsorship models are expected to drive revenue growth. And Season 6 of “Drive to Survive” will be released on Feb. 23, 2024. We already know that was effective marketing – after all, it inspired me to check out the Las Vegas Grand Prix.

I’m more sure than ever that big events like this will play a major role in the future of tourism – a message I’ll be imparting to my students. And in my free time, I’m planning to enhance my quality of life in 2024 by synchronizing my vacations with the F1 calendar. After all, nothing says “relaxing getaway” quite like the roar of engines and excitement of the racetrack.

Rachel J.C. Fu does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.

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