by Simon Black, Sovereign Man:

By 1920, former New York Yankees outfielder George Halas’s baseball career was finished.

Halas had only played 12 games as a professional when a hip injury abruptly ended his dream of making it big.

Being a baseball player was all Halas really knew, and with his career finished, he had limited prospects.

Eventually he was able to find steady work in Decateur, Illinois, a small town about 3 hours from Chicago, where he took a job with the A.E. Staley Company.

The company’s founder, Augustus Staley, loved sports, and he recruited some of his employees to play on a company team that competed in a regional gridiron football league.

The team was known as the Decateur Staleys, and Halas became the manager.

Halas didn’t have much football experience, but he did well as team manager. The Staleys earned a 6-1 record in their first season and won the central Illinois Football Championship.

But Augustus Staley lost a ton of money.

Game attendance was pitiful, so his football team brought in almost zero revenue. But he had to pay the players, pay for the equipment, pay for team travel, etc.

Staley knew if things continued that way that he’d lose a fortune. He didn’t want to shut down the team that he loved, but he didn’t want to continue losing money.

So in 1921, Augustus Staley PAID George Halas $5,000 (which was a lot of money back then) to take the team off his hands.

George Halas jumped at the chance. He took the team (and the money) to Chicago, and eventually renamed it the Chicago Bears.

Today the team’s estimated worth is nearly $3.5 billion. But its remarkable to think that a century ago the team actually had NEGATIVE value.

This isn’t incredibly common, but it does happen from time to time: businesses can be worth less than zero. And most of the time they don’t have such a remarkable turnaround story.

Case in point: Hertz, the rental car company, has $14.4 billion worth of vehicle loans according to its most recent financial statements.

But the company estimates that its vehicles are actually worth LESS than the debt they owe. This means that Hertz’s rental cars have negative equity.

Including the company’s other assets and liabilities, Hertz has NEGATIVE $2.8 billion in net tangible assets… so the entire company is worth less than zero.

They’re also quickly burning cash with no end in sight. Unsurprisingly, Hertz filed for bankruptcy a few days ago.

Similarly, the retail chain JC Penny also recently filed for bankruptcy. According to its financial statements, JC Penny has an accumulated deficit of MINUS $3.7 billion, and negative net tangible assets (including interest rate derivatives).

WeWork hasn’t declared bankruptcy (yet). But the company barely has any assets at all despite having an unbelievable $47 billion in lease liabilities.

So WeWork is probably also worth far less than zero.

Frankly it’s not unreasonable to think that a LOT of companies are in this position right now.

Stock markets around the world are surging higher because investors are looking for any excuse to believe that everything is about to be back to normal.

That’s human nature; our ‘normalcy bias’ warps our brains into completely ‘misunderestimating’ obvious threats and full-blown disasters.

Right now as I write these words, in fact, the US stock market is worth roughly the same amount as it was in early 2019.

That strikes me as completely ridiculous.

In early 2019 there weren’t tens of millions of unemployed, countless businesses shuttered, and unfathomable looming bankruptcies.

Plus today we have to contend with the obvious risks of subsequent virus outbreaks, more shutdowns,  travel and trade barriers, the looming Cold War between the US and China, and higher tax rates to pay for all the bailouts.

It’s fair to say that economic conditions and earnings prospects today are completely different (and a lot uglier) than they were in early 2019. So how can stocks possibly be worth the same amount?

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