3 July 2020

1) The aircraft manufacturer Boeing Aircraft is discontinuing production of it’s iconic 747 jumbo jet after a fifty year run. The last 747-8 will be completed in two years. This marks the end of an era of giant airliners with Airbus also discontinuing its A380 production. The number of routes in the world which requires a jumbo jet are few, with airline companies preferring the twin engine aircraft for long range flights. The 747 made its debut in 1970, and went on to rack up 1,571 orders over its production life, a record seconded only by the wide body 777. Boeing has lost 40$ million dollars for each 747 since 2016, with production down to just 6 units a year. The last 747 for passenger service was Air Force One. With air travel curtailed by the Covid-19 crisis, air carriers don’t expect air travel to recover fully until the mid decade, so airlines are culling out aging jetliners and four engine jumbos from their fleets to limit spending.

2) With interest rates near zero, the most used tool for the Feds to stimulate a sagging economy is becoming ineffective in reversing the pandemic induced recession. Therefore, the Feds are considering using quantitative easing or large scale assets purchases. This is where the U.S. central bank buys hundreds of billions of dollars in assets, most of which are U.S. Treasury and mortgage backed securities. By taking bonds (mostly 2 and 10 year Treasuries) off the market it replaces them with cash in the system, meaning there is now more cash available for lending to consumers, businesses and municipalities.

3) The Senate is considering a bill which would punish retailers for refusing cash payments. Retailers have been pushing for electronic payments to reduce the risk of virus contamination from contact of paying cash. The objective of the bill is to prevent disenfranchise of minorities who have limited to no banking access.

4) Stock market closings for – 2 JUL 20:

Dow 25,827.36 up 92.39
Nasdaq 10,207.63 up 53.00
S&P 500 3,130.01 up 14.15

10 Year Yield: down at 0.67%

Oil: up at $40.32

17 June 2020

1) As restaurants start to reopen, they are finding a serious problem- it takes cash to reopen again, cash that many don’t have in the bank. The cost of food, staff, cleaning and training for new sanitary protocols is proving daunting, with one independent owner calculating he needs $80,000 cash to reopen. The suppliers are facing a similar problem since many of their restaurant customers still own them money, but need supplies on credit to reopen, so many suppliers are threatened with bankruptcy too. And if that’s not enough, restaurants that had opened in some major cities are threatened with another shutdown as the virus pandemic re-emerges again, and so not only face another loss of sales revenue, just when they need the money the most, but also have additional cash outlays for reopening. The closing of restaurants has shed more than 8 million jobs.

2) In a month filled with economic bad news, retail sales have posted their largest monthly jump upwards ever. With the cornonavirus lockdown coming to an end, consumers are out shopping again making a 17.7% headline gain including food sales, which beat the previous record of October 2001. Clothing and accessories were the biggest gains of 188%. This gain reverses the 16.4% plunged from a month ago. While very encouraging, the economy still has a lot to regain.

3) There is a faster than expected turnaround in home buyer demand, after a sharp drop-off at the start of the coronavirus pandemic. The National Association of Home Builders/Wells Fargo Housing Market Index jumped 21 points in June to 58, where above 50 indicates a positive market. In April, the index dropped a record 42 points to 30. Builders report increase demand for families seeking single family homes in inner and outer suburbs featuring lower density neighborhoods.

4) Stock market closings for – 16 JUN 20:

Dow 26,289.98 up 526.82
Nasdaq 9,895.87 up 169.84
S&P 500 3,124.74 up 58.15

10 Year Yield: up at 0.76%

Oil: up at $37.76

11 February 2020

1) Senator Josh Hawley (R) aims to overhaul the Federal Trade Commission to counter the power wielded by big tech companies like Google and Facebook. He proposes dismantling the current agency tasked with protecting US consumers and place it under the Department of Justice. The Missouri senator says the current FTC lacks the teeth needed to hold high tech companies accountable for data breaches or lost of consumer information as well as privacy issues.

2) The genetic testing business for consumers, which has been growing over the past decade, now seems to be slowing because of concerns for privacy and market saturation. One major company announced a 6% layoff of employees with another laying off 14% as a result of slowdown of demand over the last eighteen months. Cost for testing is becoming another factor, especially for amateur genealogical researchers.

3) The U.S. is using technologies such as drones to scout for potential rare-earths reserves at home and aborad. Presently, America is almost 100% dependent on foreign supplies for the critically needed natural resource, most coming from China. Rare-earths are used in applications such as cellphones, wind turbines and missiles. While the U.S. does mine some rare-earths, it all must be shipped overseas, principally China, to be processed. America doesn’t have any processing plants of her own.

4) Stock market closings for – 10 FEB 20:

Dow 29,276.82 up 174.31
Nasdaq 9,628.39 up 107.88
S&P 500 3,352.09 up 24.38

10 Year Yield: down at 1.55%

Oil: down at $49.65

4 February 2020

1) All ready shaken by the trade war, China is now being racked by the coronavirus, with fears of the virus pushing the Chinese markets down by $393 billion dollars on the first day of trading since the Lunar New Year. This is an 8% drop on the Shanghai composite index, the biggest drop in more than four years. This is despite the biggest cash injection of China’s financial system since 2004. Additionally, commodities contracts have all posted sharp drops, a strong indication of an economic slowdown.

2) The shopping malls are dying as shopping habits of consumers change over to the internet. It’s estimated that 25% of American malls will shut their doors by 2022, and more of the 9,300 retail stores that closed in 2019 were in malls. Mall owners are searching for ways to halt the trend of shrinking retailing in malls, including buying major retail companies such as Forever 21 and Aeropostale.

3) As traditional brick-and-mortar stores continue its slide downwards, a number of companies are considered at risk of bankruptcy this next year. Stores like Neiman Marcus ply their way in red ink, including J. Crew, Francesca’s, Rite Aid, JCPenny, Pier 1, Dressbarn, Destination Maternity, Men’s Wearhouse and Stein Mart. Companies heavy into cloths and fashion ware are the ones struggling the most to avoid the bankruptcy courts.

4) Stock market closings for – 3 FEB 20:

Dow              28,399.81    up    143.78
Nasdaq          9,273.40    up     122.47
S&P 500         3,248.92    up       23.40

10 Year Yield:    unchanged   at    1.52%

Oil:    down   at    $49.91

24 January 2020

1) After two friendly attempts to merge with HP, Xerox is launching a hostile takeover bid. Xerox will nominate eleven new directors to replace all of HP board members, thus leaving Xerox in control of the company. HP claims that Xerox’s proposal significantly undervalues HP and creates risk for the HP shareholders, while Xerox claims combining the similar companies will create significant cost savings.

2) The number of claims for unemployment benefits for mid January rose slightly, but layoffs remain near a fifty year low. There are no signs of the strongest U.S. labor market in decades deteriorating. The number of people actually collecting unemployment benefits has fallen by a small amount. The U.S. economy is still growing but at a slower rate.

3) Fair Isaac Corp. announced changes on their scoring of consumer credit, the making of their FICO score. Soon, they will start scoring consumers with rising debt levels and those who fall behind on loan payments with lower scores. The changes will create a bigger gap between consumers considered good and bad credit risks. Also, scores are considering bank account balances and utilities payments. The new FICO changes reflect a shift in U.S. lenders’ confidence in the economy.

4) Stock market closings for – 23 JAN 20:

Dow              29,160.09    down    26.18
Nasdaq           9,402.48          up    18.71
S&P 500          3,325.54          up      3.79

10 Year Yield:    down   at    1.74%

Oil:    down   at    $55.66

10 January 2020

1) HP’s board has rejected Xerox’s $33 billion dollar takeover bid, for the same reason as Xerox’s previous offer, that the proposal significantly undervalues HP. Xerox first moved to acquire HP in November, but was rejected because HP stock holders would lose much of their value in the company. HP is a 2015 spinoff of giant Hewlett-Packard who has a market value of $300 billion dollars that dwarfs Xerox’s value of 7.7 billion dollars.

2) Mack Trucks, the manufacturer of large commercial trucks, announced plans to layoff 305 employees, which is about 13% of their payroll. After two years of high volumes of production, marked demand has dropped so the company must adapt to the lower demand. There are expectations of the truck market in America being down 30% this next year.

3) The American consumer continues to shun the traditional big department stores. Despite the monster holiday shopping season, America’s biggest department stores still lost money. This is a trend that has been in progress for several years as typified by Sears’ decline. Department stores such as JCPenny, Kohl’s and Macy’s continue to decline with dropping sales and store closings. Consumers are now going to big box stores and the internet commerce to save money, signaling a fundamental change in American consumerism.

4) Stock market closings for – 9 SEP 20:

Dow              28,956.90    up    211.81
Nasdaq           9,203.43    up      74.18
S&P 500          3,274.70    up      21.65

10 Year Yield:    down   at    1.86%

Oil:    down   at    $59.59

6 January 2020

1) The U.S. manufacturing sector contracted the most in December, more than for a decade. Order volumes crashed to a near eleven year low with factory employment falling for a fifth straight month. The index of national factory activity fell to 47.2 last month from 48.1 for November and is the lowest reading since June 2009. A value of 50 or above indicates expansion, while below is contraction.

2) The electric auto maker Tesla sold more cars in 2019 than the two previous years combined. Tesla sold 367,500 cars in 2019, although its on the low end of the 360,000 to 400,000 cars the company estimated at the beginning of 2019. Its newly opened plant in China will sell its Model 3 automobile in China thus avoiding transport and import cost. China promises to be a major increase in Tesla sales for next year.

3) Despite worries by experts expecting a decline of spending by American consumers, many consider the consumer will keep the economy humming through the next year. This Christmas shopping season appears it will set new records in spending, despite trade tensions, Washington being absorbed in impeachment and oil prices creeping up. With the economy always on the minds of voters, a good economy bodes well for incumbents with 2020 being a presidential election year.

4) Stock market closings for – 3 JAN 20:

Dow              28,634.88    down    233.92
Nasdaq            9,020.77    down       71.42
S&P 500         3,234.85    down      23.00

10 Year Yield:    down   at    1.79%

Oil:    up   at    $63.04

18 November 2019

1) Experts question if proposals to tax the billionaires, the so call wealth taxes, really work in practice? Lawyers and advisers to the wealthy say the tax would never collect the amounts claimed by proponents, simply because a yearly determination of assets isn’t easy and straight forward. There are just too many strategies that can be used to shelter assets, including moving them off shore. Attempts to tax the wealthy in other nations have been far from successful, the Great Brain Drain of Britain is a prime example. The rich simply move somewhere else.

2) While U.S. retail sales rebounded in October, consumers cut back on purchases of big ticket household items and clothing. This could temper expectations for a strong holiday shopping season. Still, compared to October of last year, retail sales are up 3.1%. Consumer spending accounts for more than two-thirds of the economy.

3) NextEra Energy Inc., the world’s first utility with capitalization of $100 billion dollars plus, owes its success to clean power business. Two decades ago this Florida utility plowed some of its extra cash into a wind farm in Oregon. Then NextEra made loans to wind-farm developers, and when some ran into financial troubles, NextEra forgave debts in exchange for majority stakes in the farms. Without any master plan for renewables, NextEra grew in the industry to become the largest.

4) Stock market closings for – 15 NOV 19:

Dow             28,004.89    up    222.93
Nasdaq          8,540.83    up      61.81
S&P 500         3,120.46    up      23.83

10 Year Yield:    up   at    1.83%

Oil:    up   at    $57.93

24 October 2019

1) Several high profile companies have missed their third quarter earnings, making analysts worry if a long feared earnings recession may be getting closer. Earnings missed from expectations are FedEx by 3%, McDonald’s 5%, Caterpillar 8% and Boeing 30%. Texas Instruments has given a very poor revenue guidance for the fourth quarter of 11% below consensus. This quarter, 83% of reporting companies have beaten expectations by 4.2% average, so earnings misses by large companies is fairly rare.

2) Walmart will start its holiday sales earlier this year, starting this Friday at midnight. This is about a week earlier than last year. Retailers are facing a short holiday shopping season this year, which is just 26 days between Thanksgiving and Christmas. This is about a week shorter than the same period last year.

3) Car prices have been rapidly increasing, leaving consumers having a hard time affording new vehicles. This forces buyers to take out long term auto loans making a further burden on hard pressed consumers. The average new car purchase price in the U.S. is $36,718 with interest rates at about 6%, which is up 2% from 2017. A decade ago, the average price for a new car was $23,900, while average wages has remained static.

4) Stock market closings for – 23 OCT 19:

Dow         26,833.95    up    45.85
Nasdaq      8,119.79    up    15.50
S&P 500     3,004.52    up      8.53

10 Year Yield:    down   at    1.76%

Oil:    up   at    $55.88

26 June 2019

1) The problem of student loan debt is becoming more acuate. The effects of the $1.6 trillion dollar student loan debt, which represents about 8% of national income, is a massive burden, which has doubled since the mid 2000s. The consequences for massive student loans is that young people are delaying marriage and family formation, hampering the growth of small businesses, delaying the purchases of first homes, saving for retirement and in general reducing the discretionary income of young people. For a consumer based economy, all these spell an adverse overall effect on America’s economy.

2) The consumer confidence has fallen to its lowest level in 21 months with people more pessimistic about business and labor market conditions. Worries about recent increase in trade tensions between China and the United States further erodes consumer confidence. The consumer confidence index dropped 9.8 points to 121.5 for this month, the lowest since September 2017. While the index remains high, the drop has fueled fears of a continual downward slide reflecting a reluctance for consumers to make purchases other than essentials.

3) The British fund manager H2O, which had stellar returns with surging assets from clients buying in, last week clients starting pulling their money out. The investment manager lost $3.4 billion dollars in just three days. H2O is fighting back taking measures to assure investors the company can meet redemptions, but also making it more adverse for getting out. Their goal is to avoid fund freeze that has thrown other fund managers into chaos.

4) Stock market closings for- 25 JUN 19: Stocks decline after weak consumer confidence report.

Dow                 26,548.22    down    179.32
Nasdaq             7,884.72    down    120.98
S&P 500            2,917.38    down      27.97

10 Year Yield:    down   at    1.99%

Oil:    up   at    $58.77