Sunday, December 19, 2021

The Lesson From Central Freight Lines - by Karl Denninger

 You ought to pay attention to this.

Waco, Texas-based Central Freight Lines has notified drivers, employees and customers that the less-than-truckload carrier plans to wind down operations on Monday after 96 years, the company’s president told FreightWaves on Saturday.

“It’s just horrible,” said CFL President Bruce Kalem.

A source close to CFL told FreightWaves that CFL had “too much debt and too many unpaid bills” to continue operating, despite exploring all available options to keep its doors open.

The simple man (or simple family) has decent reserves, no debt beyond a modest mortgage, paid-for vehicles and thus, while they won't like a disruption of income or tough times, will be ok.

Nearly all of the so-called "betters" running around screwing you with this or that are the precise opposite.

Indeed, that "virtue signaling" is expensive.  Those solar panels?  They're a lease, basically.  That Tesla?  It has a note on it.  That nice, expensive house?  It has both the original note and probably a HELOC too.  That fabulous nearly-new boat?  Anyone care to bet what the odds are the bank actually owns it?

Every one of these levered things has serious and unavoidable cost associated with it.  So long as everything is fine in your world that's ok, or so you think.  It all pencils out; you can meet the cash flow requirements and in a low interest-rate environment those look reasonable and safe.

You're wrong.

Leverage is dangerous and not just from potential refinancing (e.g. rollover risk on existing commercial credit lines) and debt-service cost risk either.  One of the more-serious risks that is frequently unappreciated is the risk of insurance becoming either prohibitively expensive or unobtanium at any price on some or all of those levered "assets" (which really aren't theirs, when you get down to it; the bank owns them.)  This can happen very rapidly to either a corporation or a person, and when it does and covenants you've agreed to (say, on a mortgage) cannot be fulfilled at a reasonable price or worse, at all you're instantly screwed.

Incidentally when it comes to persons there is a thing called "CLUE" that many people do not even know exists.  It is a database used by every single property and liability insurer -- and lender -- in the United States.  It records all losses and "events" tied to a property or person that any affiliated business, firm or other organization learns of whether or not insurance paid out on them.  It is legal because of McCarren-Ferguson, without which it would be wildly illegal under 15 USC Chapter 1.

Noodle on that for a bit as to where the risk really lies and who is in fact swimming naked between "Joe Average" and "The Betters."