30 April 2020

1) Experts are speculating on the interest rates going negative in the near future, something that President Trump wants. Negative interest rates have been a reality in the EU (European Union), with studies showing that investors do not significantly increase their equity holdings as interest rates decline. But when the rates go negative, they start increasing their equity holdings significantly. This in turn is a big boost to the stock market. Interest rates are an excellent predictor of long range growth potential, today’s level reflecting the markets expectation of sustained low future growth.

2) Larry Kudlow, the top White House economist, is calling for stimulate measures before a slowdown of the economy. Measures include tax breaks such as payroll tax holiday and deregulation of small businesses. This is in anticipation of growth in the second quarter worse than in the first, which shrank 4.8%. Additionally, he supports a second stimulus package to create incentives to grow in the medium and long term. Also more investment in infrastructure should be included.

3) After posting a massive first quarter loss, Boeing has announced they will slash staff and production of about 16,000 people or about 10% of its personnel. Demand for air travel evaporated because of the coronavirus, so Boeing is drastically scaling back production of the two widebody passenger jets, its 787 Dreamliner and the 777. Boeing lost $1.7 billion dollars, while shutting down its factories, because of the pandemic, added another $137 million dollar lost.

4) Stock market closings for – 29 APR 20:

Dow 24,633.86 up 532.31
Nasdaq 8,914.71 up 306.98
S&P 500 2,939.51 up 76.12

10 Year Yield: up at 0.63%

Oil: up at $15.35

HEB and the Great Race in the Grocery Stores

There is now a great ongoing race between the supermarkets, a race of technologies to see who will fully automate . . . and who will eventually go out of business.

James Lyman BSAE, BSEE, MSSM

It’s not a race to win a trophy or a gold star, it’s a race to develop the machines to fully automate your grocery shopping and close down those ‘dinosaurs’ you are presently shopping in called the supermarket. The machines, like any others of automation, are designed to replace all those workers and cashiers you see whenever you walk into the store. You see, whoever is able to replace those workers with machines will be able to drastically cut their operating cost, and therefore be able to sell their groceries cheaper.

To the right, you see a picture of robots gliding along a matrix of tracks with tote bins or boxes below, so a robot is able to drop something in the box just by parking over it, to ultimately be delivered to a customer. You see five robots in the picture, two with blue tops and three with black. Each has two sets of four wheels, where the robot can raise one set and lower the other to change directions, allowing it to easily go back and forth or up and down the track rows at will.

The totes sit on conveyers, so totes can be moved out from underneath the robots to other conveyers allowing the computer to group totes together for delivery to the customer. If you look closely, you can see tote boxes having multiple items in them. Through the controlling computer, robots know which tote is for which customer’s order, and so they can go to a tote to drop an item in. This method of using robots for sorting is call ‘swarm robots’, and much like a nest of ants, you have a large number of individuals working independent, yet together in a common cause, to get a job done.

Walmart and Kroger are doing extensive work with robotic systems to develop online grocery shopping, which is not only more convenient with less shrinkage than traditional retail stores, but also cheaper, a great incentive for shoppers to use the service. Using human labor to fill grocery orders is much too expensive, so robots are needed that can quickly and accurately fill each person’s grocery order at a minimum cost. These companies tend to be tight lipped about what they’re doing, nevertheless enough has been said to indicate that great progress has been made to bring automated grocery stores to reality. But such research is expensive requiring strong cash reserves to undertake, so the question is, ‘Does HEB have the kind of resources needed to build similar automation?’

The H.E. Butt Grocery Co. of San Antonio, is a long established (1905) grocery retailer that has been very successful over the decades, and now is a large chain of ‘super’ supermarkets across Texas and several adjacent states. Years ago, when Walmart moved in with their super-stores, including grocery, one company official made a snide remark to the newspaper, that HEB should just give up, because Walmart was going to run over HEB. What the official didn’t realize was Walmart’s success came from being so highly automated, and furthermore . . . he didn’t realize that HEB was just as highly automated. Not only did HEB survive Walmart, but it thrived!

Like the other grocery retailers, HEB has a stopgap shopping service where employees drag these blue wire frame carts around the store filling orders by picking items off the shelves for later pickup. Very labor intensive and very expensive, a cost that HEB cannot absorb, so customers must pay five dollars for this custom service. But a quick peruse across the internet turned up pictures, such as the one above, of Kroger and Walmart’s robotic efforts . . . massive expensive technological machines that can automatically fill a person’s grocery shopping list and send it on it’s way without all that expensive manual labor. However, I turned up very little about HEB. Certainly, no pictures of similar robotic warehouses, just news articles about how HEB is implementing a new in-store inventory-control and payment-processing system to enhance store automation, a second-generation autonomous delivery vehicle for robot delivery trials, the opening of a new Austin technology hub plus the hiring of about 1,500 digital technical people. All needed, but far from what the others are already doing to fully automate grocery shopping and ultimately dispense with all those massive labor hungry stores, and thereby becoming one of the survivors of the Great Race.

These Walmart robots are very expensive to develop requiring large numbers of highly educated and skill technologist to implement and make workable. And while HEB is a big company, I’m left wondering if this race may be a little too big for them to compete, especially the money part. Does HEB have the cash reserves to undertake such a massive technological project? Do they have the corporate culture to take the company so far into the twenty-first century? For the last several years, I’ve noticed gaggles of middle and low level managers touring the stores, having conference meetings in the aisles. I have the impression that HEB’s tooth-to-tail ratio is dropping, and bloated management introduces inertia and resistance to new ways and things. Does HEB have plans for such sophisticated robotic technology or are they just a late starter? In a race, and HEB is defiantly in a race for survival, such a late start can be just as fatal as not making the effort. The whole consumer landscape is changing with forecast of a 100,000 retail stores to close in the next five years, so the whole game is changing for everyone at all levels and segments of all markets. Those who are not fleet footed, will be left behind to wither on the vine. It’s happened in the past, so we can expect it to happen again.

The challenges of assimilating new technologies into a business can be daunting, even for small businesses. An example is a favorite Tex-Mex restaurant of mine, El Chaparral of Helotes Texas, which I frequent . . . a family own business since 1972, that has been a very successful business growing over the years. Like so many other restaurants, El Chaparral decided to compensate for lost coronavirus business by offering takeout, and so they hung out a large banner offering takeout service. I was delighted, and several times called in an order on the way out of town . . . only to have no one answer the phone. So, I sat in rather long takeout lines of other restaurants, for many minutes waiting for my food, but as I drove by El Chaparral I’ve found no cars waiting. This didn’t come as a surprise, because I had also gone to their website for their menu, only to find the ‘boob’ they hired to do their website wrote code that only works with play phones! (I say ‘play phone’ because I’m always seeing millennials and generation-Zs sitting on their butts playing with their smart phones while waiting to be replaced by a machine) so therefore, people using real computers couldn’t use their website! This only shows the challenge facing so many non-technology based businesses as they try to quickly assimilate technologies they don’t have skills at. At a time when survival for so many small businesses is in peril, when every sale is desperately needed, they’re at an even greater risk from not being able to quickly assimilate and use technology. You don’t have to be a large corporation to stumble in the world of technology.

Several years ago, some politician was going around, crowing about how he wanted to fundamentally change America, but not being a twentieth century person, didn’t realize there has already been a fundamental change in America . . . and that change didn’t include a large number of Americans. Now that change is becoming readily apparent, as the new social-economic system sluffs off so many people because they are not prepared for the twenty-first century. It’s going to be very hard to address problems in a fair and equitable manner. In addition to those 100,000 stores closing in the next five years, it’s forecast that technology will eliminate up to 50% of American jobs in the next 15 to 25 years. Everywhere, for everyone, the Great Race is on! So . . .

This is not the time for people or businesses to doddle around.

It will be interesting to watch HEB and others as they struggle to find their place in the twenty-first century. As for me, I look forward to foregoing the weekly chore of grocery shopping, irrespective of who wins the grocery race. More to follow.

29 April 2020

1) The ‘consumer confidence index’ dropped in April by the largest amount on record. The index dropped from 118.8 in March to 86.9, while the ‘present conditions index’ plunged from 166.7 to 76.4, its 90 point drop the largest on record. The ‘expectations index’, which is based on the future outlook, improved slightly from 86.8 to 93.8. The sharp drops are a result of the sudden massive unemployment from the shelter in place orders met to contain the coronavirus. But business is stirring with retailers starting to open up again. Simon Property Group, which is the largest mall owner in the U.S., is opening 49 of its malls and outlet centers in May across the country.

2) Another housing economic crisis could be building for the near future. The mortgage market has been disrupted with millions of borrowers having to postpone payments because of the pandemic and shelter in place, a result of massive layoffs. While some mortgage companies are allowing deferment of payments during the business shutdown, there’s the rising question of how to make up those payments after returning to work. Experts expect a repeat of the 2008 fiscal crisis with mortgages, because borrowers are already stretched thin financially, now having extra debt, but not the resources to service it. There could be another wave of foreclosures coming.

3) As nations scramble to get cash for economic stimulus efforts, they are selling off bonds at a frantic rate, much of it being bought by central banks. This is particularly true for the Asian bond market, with many experts saying this hasn’t come too soon, despite the long term risks. This frenzy in government selling bonds has cause a ‘whip-saw’ reaction in yield rates. Many central banks could be in big trouble if stimulus spending fails to avoid economic recovery, or worst yet an economic collapse.

4) Stock market closings for – 28 APR 20:

Dow 24,101.55 down 32.23
Nasdaq 8,607.73 down 122.43
S&P 500 2,863.39 down 15.09

10 Year Yield: down at 0.61%

Oil: up at $13.27

28 April 2020

1) The economic woes of the coronavirus may not be over yet. Forecast are that the U.S. economy later this year could contract at a faster rate than for the Great Depression, with a 30% contraction of the second quarter. Durable goods have plunged 14.4% in March as the economy came to a near halt, while the unemployment rate for the same time rose 4.4%. The number of people losing jobs in the last five weeks is 26.4 million, which has wiped out all the job gains made after the Great Recession.

2) Oil continues its troubles, sliding down in price with fears of it reaching zero again. There remains a critical shortage of storage for bulk oil, so there’s no place to put new oil pumped up, and that drives the price of futures down. Oil prices plunged nearly 25% at the start of the week amid fears of limited storage. Global energy demand has fallen drastically from the pandemic shutting factories and putting limits on travel around the world, leaving a glut of oil. With the world economy down, there isn’t any light at the end of the tunnel, and therefore not much hope that the oil glut will ease significantly in the foreseeable future.

3) Fannie Mae and Freddie Mac have announced that borrowers who skip mortgage payments (called forbearance status) due to the coronavirus pandemic won’t have to make lump-sum repayments when the crisis is over. The administration is encouraging other mortgage lenders to adopt similar policies to avoid undue stress to the people and economy during a recovery. Almost 6% of borrowers have delayed making mortgage payments as of April 12, up from 3.7% a week earlier. It’s still not clear just when or how forbearance status will be granted to a borrower, thus allowing the deferment of payments to a later date.

4) Stock market closings for – 27 APR 20:

Dow 24,133.78 up 358.51
Nasdaq 8,730.16 up 95.64
S&P 500 2,878.48 up 41.74

10 Year Yield: up at 0.66%

Oil: down at $12.93

27 April 2020

1) People are tantalized by the incredibly low oil prices, thinking only of lower gas prices. But economically, there is much more to oil and its low price. First, there is the destruction of America’s shale oil (fracking) industry, which has made us independent of foreign oil. There are fears that if oil doesn’t pick up, then the world could see a major shift in global power. The economies of several nations are very dependent on oil sales, the revenue being the bulk of their GDP. For instance, Saudi Arabia’s oil revenues account for 60 percent of its GDP (Gross Domestic Product), two-thirds of its budget, and nearly three-quarters of its exports. For Russia, one-third of its GDP is petroleum, half its budget, and two-thirds of its exports. The turbulent Middle East has states with greater dependence on oil: including Iran, Iraq, Qatar, and Kuwait. For America, oil accounts for only 8% of our GDP. The coronavirus pandemic has drastically reduce oil consumption world wide, and if it’s slow in returning to pre-pandemic levels, some countries could find themselves in serious financial and geopolitical trouble, with their influence waning and other nations displacing them in the world pecking order. It’s anyone guess how things could settle out and in whose favor.

2) Amazon has been using data about independent sellers on its platform to develop competing products, which their stated policies forbid. Such practices would give the online retailer tremendous advantage in competing against similar products, but is using proprietary information. Information includes total sales, vendor cost for Amazon’s marketing and shipping, and how much Amazon made on each sale, and other non-public information.

3) President Trump stated he would veto an emergency loan for the U.S. Postal Service if the USPS didn’t immediately raise its prices for package delivery. The President considers package delivery prices need to be four times the present charges. He has been critical of the USPS for years, considering the postal service problems are a result of mismanagement.

4) Stock market closings for – 24 APR 20:

Dow 23,775.27 up 260.01
Nasdaq 8,634.52 up 139.77
S&P 500 2,836.74 up 38.94

10 Year Yield: down at 0.60%

Oil: up at $17.18

24 April 2020

1) The American unemployed continue to climb with an additional 4.4 million for last week. This brings the five week total of more than 26 million workers now unemployed in America, or about 16% of the labor force. Nearly one in six workers have lost their jobs in the last few weeks. But because of lags in the reporting system, these numbers don’t fully show the extent of the problem. With people needing money to pay rents, mortgage, buy food and pay utilities, state governments are facing increasing pressure to retract the ‘shelter at home’ orders and forced closing of businesses, despite dangers of virus flare-ups. Experts warn such moves could undo all the containment that’s been accomplished at the economic cost of the last five weeks. To make things worst, layoffs are expected to continue, that we have not reached the unemployed plateau yet. State, county and city workers may form the next wave of layoffs as tax revenues needed to pay salaries plunge from the pandemic.

2) The clothing retailer Gap, has warned that its existing cash reserves may not be enough to continue operations, something that mirrors the predicament of so many American businesses, especially small businesses. The company says it must take further actions to find liquidity over the next twelve months, including job cuts and new debt financing. The chain has stopped paying rent for its stores, thereby amassing an additional debt of $115 million dollars. Its stock has fallen nearly 60% this year.

3) The coronavirus pandemic is spawning another economic consequence- lawsuits! Carnival Corp. is facing suits from several passengers who claimed they weren’t warned of the high risk from virus onboard ships. Wells Fargo, Bank of America, JP Morgan Chase and US Bancorp are being sued by small businesses who missed out on coronavirus rescue loans. Even universities are threaten with lawsuits for reimbursements of tuition, fees and housing. Judging from past disasters, it’s expected that more lawsuits will emerge in waves, as people seek someone to blame for their misfortunes while opportunistic attorneys capitalize on the crisis.

4) Stock market closings for – 23 APR 20:

Dow 23,515.26 up 39.44
Nasdaq 8,494.75 down 0.63
S&P 500 2,797.80 down 1.51

10 Year Yield: down at 0.61%

Oil: up at $16.72

23 April 2020

1) The present unemployment rate is thought to be higher than anytime during the Great Depression, raising the question if the present day recession will last as long as the Depression, which was almost ten years. While some sever recessions have been short lived, usually they are long affairs. Lowering the interest rates is a traditional tool used by the government to counter a recession and stimulate the economy, but interest rates are already near zero when the coronavirus hit, so the government didn’t have its primary tool. Many economist are considering the strategy ‘America is back open for business’ as unlikely to create a huge surge in growth. There are three other major factors to consider- 1) the other world economies are continually pulling America’s down 2) the big mess that oil is in and 3) predictions from several different experts that in the next 15 to 25 years as much as 50% of the jobs will disappear to technology. It will be difficult for employment to return to pre-coronavirus levels if jobs are continually disappearing faster than people are being rehired. One interesting point, a financial analyst is predicting that Disney World, Disneyland and their overseas parks will not be able to reopen until January 2021, and if such a cash rich company is having so much difficulty reopening, how about the multitude of smaller companies with much more limited resources?

2) U.S. automakers are taking the first steps to bring workers back and start manufacturing operations again, but are finding it easier said than done. There are negotiations with the United Auto Workers union, for the manufactures to provide protective gear, frequently sanitize equipment and take worker temperatures to prevent infection of the virus to the union members. As much as workers want to return to a paycheck, there are real fears of catching the virus. Fiat Chrysler has announced May 4 as the gradual restart date, with General Motors and Ford expected to quickly follow.

3) Reports are building that the coronavirus may cause lasting damage to some organs such as the kidneys. There are fears from reports that the virus may cause damage to the heart, lungs and possibly the liver. Furthermore, the blood from Covid-19 patients is having unprecedented blood clotting, evident by blood clots forming while trying to insert IVs or taking blood samples. Internal blood clots can be life threatening, and autopsies are finding such internal blood clots.

4) Stock market closings for – 22 APR 20:

Dow 23,475.82 up 456.94
Nasdaq 8,495.38 up 232.15
S&P 500 2,799.31 up 62.75

10 Year Yield: up at 0.62%

Oil: up at $14.23

22 April 2020

1) Many retailers have closed their stores because of the COVID-19 outbreak. Analysts think that over the coming years, many of these stores will remain closed for good. Analysts forecast that 100,000 stores will close by fiscal 2025, the hardest hit will be the apparel retailers accounting for 24,000 closures. Most retail categories will be impacted, with consumer electronics to see about 12,000 closures, while home furnishings and grocery retailers will each have about 11,000 closures. The most insulated retailers are those that have fared best during the pandemic, including Walmart, Target and Costco Wholesale. Home Depot and Lowe’s, plus dollar stores such as Dollar General and off-price retailers like Ross Stores and TJ Maxx are also well-positioned to survive. The once powerful department stores, which were the shopping meccas that anchored malls and main streets, are now considered in their death throes with very few expected to survive.

2) As oil futures continue to slide down, the extra oil is being stored in giant ocean supertankers as oil traders scramble to find places to keep their product. There is now 160 million barrels of oil which is being stored on tankers, a record amount. The previous record was 100 million barrels during the 2009 financial crisis. A large portion of this oil is stored in about 60 super tankers called very large crude carriers (VLCC) which can hold up to 2 million barrels each. Every conceivable place to store oil is being explored, while also the U.S. government is replenishing its strategic reserves stored in old underground oil fields.

3) The Bank of America is expecting gold prices to rise to $3,000 an ounce amid the deepening world economy, which is more than 50% above the existing price record. Much of this is driven by fears that the Federal government is just printing money for the trillions of dollars being spent to counter the stopped economy because of the coronavirus. The feeling being that the ‘feds can’t print gold’ and so it will hold its value. Historically, gold has been a ‘panic investment’, a safe heaven for hard economic times, a hedge against money dropping in value.

4) Stock market closings for – 21 APR 20:

Dow 23,018.88 down 631.56
Nasdaq 8,263.23 down 297.50
S&P 500 2,736.56 down 86.60

10 Year Yield: down at 0.57%

Oil: up at $13.12

21 April 2020

1) The second wave of unemployment is coming after an unprecedented spike in layoffs from the cornonavirus ‘stay at home’ orders. But while businesses will soon start rehiring workers, many will take the opportunity to replace their workers with cheaper and more contingent labor. The crisis will accelerate trends towards industry consolidation that reduces potential employers, automation, which replaces human labor, and worker precarity when convenience of employers and customers entirely overrides the well being of workers. Further aggravating employment will be the large number of small businesses expected to succumb to the recession leaving fewer employment opportunities. Also, the force isolation is changing people’s buying habits with more online shopping, delivery services and self service kiosks. These methods of automation also represent cost cutting methods, which companies will cultivate to make more wide spread. All this promises to make the second round even harsher.

2) Oil prices continue their downward spiral, with futures at record lows as investors worry about lack of storage and the world economy. German and Japanese data indicates a bleak global economy, which will in turn pull America’s down. Despite measures being taken to reduce the supply, the glut will continue for the foreseeable future. Numerous statistics and prices point to a continual crisis for the world and American economies.

3) Restaurants are particularly hard hit by the coronavirus economy, with more than 8 million workers having lost their jobs, about two-thirds of the restaurant labor force. About four in ten restaurants have closed, while many others struggle to stay afloat by providing curbside service. The National Restaurant Association is asking for more monies to support survival of restaurants during this period of government enforced business closure. Like so many other small businesses, the future for many restaurants is looking very doubtful.

4) Stock market closings for – 20 APR 20: Oil drops from $18.12 for Friday to -$16.10, almost a complete inversion in price.

Dow 23,650.44 down 592.05
Nasdaq 8,560.73 down 89.41
S&P 500 2,823.16 down 51.40

10 Year Yield: down at 0.63%

Oil: down at -$16.10

20 April 2020

1) The coronavirus pandemic and subsequent ‘sheltering in place’ is changing the American supermarkets. Online shopping of groceries had been somewhat of an awkward luxury service, that was growing ever so slowly, despite efforts of retailers to promote the new service. But the lockdown, stay at home orders have catapulted the service forward by up to a fifty times (not percent) increase in usage. Stores have been left struggling to meet the demand with many unable to keep up with that demand. When the pandemic ends, it will have forever changed the supermarket for many Americans, for once customers have used and got use to the service, then they will most likely continue using online grocery shopping, at least in part. But online shopping eliminates one of the big mainstays of modern supermarkets, the psychology of shopping with the browsing and impulse buying. The counter to this is automation which reduces the staff and labor cost of traditional retail stores, just as Amazon has done with dry goods.

2) The Chinese maker of driverless cars, Pony.ai, has launched a delivery service in Irvine California using its robot cars to deliver to people stuck at home from the virus. Teaming up with the e-commerce site Yamibuy, orders from Yamibuy get delivered to the customers homes. Each car can deliver between 500 to 700 packages a day. A year ago the company launched a robo-taxi service in Irvine, but with the ‘shelter in place’ order, their taxis were repurposed for deliveries.

3) Everyone is baffled over how the stock market continues to hold, even climbing, with what is happening today. For example-
a) Unemployment is now at 22 million and still climbing
b) Threat of large numbers of businesses going bankrupt
c) Recession starting, which most expect will last at least 12 months
d) Automation expected to eliminate up to 50% of jobs in 15 to 25 years
e) Global coronavirus cases surpass 1.5 million and continue growing
At a time when the markets would normally be crashing down from all the uncertainty, what is holding them up? Experts think because of the quick reaction of the government in passing the $2.2 trillion dollar economic stimulus waylaid market fears by showing something is being done. Also, Warren Buffett’s axiom, “Be fearful when others are greedy, and be greedy only when others are fearful.” Finally, the ‘social distancing’ measures seems to be controlling the virus, thereby lessening its economic effects in the long run.

4) Stock market closings for – 17 APR 20:

Dow 24,242.49 up 704.81
Nasdaq 8,650.14 up 117.78
S&P 500 2,874.56 up 75.01

10 Year Yield: up at 0.65%

Oil: down at $18.12