9 November 2020

1) Missouri, in what some are calling the lawsuit heard round the world, is suing China, to hold the global heavyweight responsible for the losses of life and commerce from the COVID-19, which originated in Wuhan, China. Other states are also filing class action suits in U.S. federal courts, but Beijing is aware that sovereign nations, including the U.S., have wide immunity from such claims. Experts warn that a potential decoupling of the world’s largest economies, the United States and China, is causing further concern. Even before the pandemic, there were concerns as China took dramatic steps in recent decades to grow its reach in the world. China is part of massive shifts in the balance of global powers, with some countries reasserting themselves and others finding it difficult to keep up with technological advancements and reap their economic rewards.

2) The giant ExxonMobil has low debt, high yield, and commitment to its dividend. Chevron is like ExxonMobile having a relatively low leverage (in the industry), and long histories of annual dividend increases behind them. But then the pandemic upended the supply/demand dynamics of the oil industry which sent company’s shares tumbling. This has brought the two oil companies dividends into question, and therefore the desirability of the stock as an investment. Major foreign oil companies are facing the same dilemma. Royal Dutch Shell and BP (British Petroleum) have both said they plan to also cut their dividends because of the shift. The dividends can be supported as long as the average oil price sticks around the $40 level.

3) US government has seized a $1 billion dollars in bitcoin as the cryptocurrency rockets past $15,000 per coin, the highest value since January 2018. The organization Silk Road was the most notorious online criminal marketplace of its day, until its founder was prosecuted in 2015 leaving a billion-dollar question of where did all the money go? It remained in the digital wallet for many years before a unit within the Internal Revenue Service, that tracks digital currencies, noticed 54 new transactions from the wallet, prompting the seizure of currency. Analysts noted the movement of more than 69,000 bitcoins in a single transaction from a digital wallet tied to Silk Road founder Ross Ulbricht, which held the fourth-highest bitcoin balance of any in the world. But the Silk Road founder is serving two consecutive life sentences in a maximum-security federal prison, which prompted the government to seized the money, however, the government must prove its case before it can keep the forfeited assets.

4) Stock market closings for – 6 NOV 20:

Dow 28,323.40 down by 66.78
Nasdaq 11,895.23 up by 4.30
S&P 500 3,509.44 down by 1.01

10 Year Yield: up at 0.82%

Oil: down at $37.49

30 October 2020

1) The Boeing Aircraft Co. is selling new bonds to help repay its nearly $3 billion dollars of debt. Boeing announced the sale just minutes after a downgrade to the company’s credit rating. Fitch Ratings put out a report reducing Boeing’s credit rating down to BBB-, the lowest investment-grade rating, with a negative outlook. The company has burned through about $22 billion dollars of its free cash since March 2019, when the company’s best-selling jet, the 737 MAX, was grounded. It is anticipated that it will take two years until Boeing’s financial metrics return to that of a credit rating one level higher.

2) The Philippines has removed a major hurdle in advancing oil exploration with Beijing in the South China Sea, but the two nations will have to navigate their overlapping claims in the area to reach a deal. The island nation has lifted a six-year ban on oil exploration to stop activities that might annoy China. The Philippines has recently toughened its stance against China and is leaning back towards the U.S. It is estimated that 4 trillion cubic feet of gas reserves, that’s worth billions of dollars, could be found in South China Sea areas that is claimed by the Philippines and disputed by China. However an international arbitration court has ruled in favor of the Philippines in 2016. The two nations could set aside the ownership issue and proceed with joint development.

3) Exxon announces additional job cuts, that it intends to reduce its U.S. staff by around 1,900 employees. These reductions will be both voluntary and involuntary, a result of COVID-19 on the demand for oil aimed at improving efficiency and reducing costs. Amid declining oil prices, energy companies are taking drastic measures to improve their balance sheets, including reducing staff and in some cases suspending dividends, with the company’s fourth quarter dividend at 87 cents per share, although this is the first time since 1982 that it didn’t raise its dividend.

4) Stock market closings for – 29 OCT 20:

Dow 26,659.11 up 139.16
Nasdaq 11,185.59 up 180.73
S&P 500 3,310.11 up 39.08

10 Year Yield: up at 0.84%

Oil: down at $36.10

4 September 2020

1) For first time since World War II the U.S. government’s debt will nearly equal the size of the entire American economy. By the end of 2020, the amount of debt owed by the United States will be about 98% of the nation’s gross domestic product with a debt that is about three times the 2019 level. The huge surge in debt is a result of the Congress spending an additional $3 trillion dollars in emergency funding since March, a result of the economic downturn from the coronavirus crisis. This is why some members of Congress and the White House have balked at approving an additional $2 trillion dollars in spending in view of the weak economy coupled with having little promise of improving soon. Few experts believe the Congress is likely to do something to reduce the deficit in the short term, all the while unemployment remains near 10 percent. Interest rates are low, which makes it less costly for the federal government to borrow. In addition to increase emergency spending, tax revenues fell as business slowed and many people lost their jobs.

2) After a steady increase in the markets, setting new records for highs, the stock markets took a sudden nose dive. This was caused by a massive and sudden sell off of the technology sector. The tech stocks had been on a ten day winning streak then a sudden overnight change which caught everyone by surprise. The Nasdaq dropped almost 600 points while the Dow was down 800 points. Market experts are left wondering what will come next, especially with the next jobs report for August coming out.

3) The pace of rehiring is expected to slow in August, so the economy will likely add fewer jobs than in July, while workers continue to be laid off. Because of the pandemic, America lost about 22 million jobs in March and April. In May through July, about 9.3 million jobs came back, so we are still short about 12 to 13 million jobs. Part of this is a result of so many small businesses having gone bust, so it will take a long time to replace those businesses and therefore replace the jobs they had. Economic turmoil is when technology displacement is prevalent as business seek the means to survive by reducing labor cost (eliminating jobs).

4) Stock market closings for – 3 SEP 20:

Dow 28,292.73 down 807.77
Nasdaq 11,458.10 down 598.34
S&P 500 3,455.06 down 125.78

10 Year Yield: down at 0.62%

Oil: down at $41.03

18 August 2020

1) A good sign for the U.S. economy, the American shale oil companies plan to restore nearly all oil production by the end of the third quarter. This will return production to nearly what it was when the shut down came resulting in the oil crash. As oil prices raised to $30 to $40 per barrel range, oil production started to rise. By September, nearly all of the production is expected to be restored. There were fears that shutting down shale oil wells prematurely could hamper future production, but nearly all of the restarted wells are producing normally because of a buildup of pressure. Most companies report a smooth return of operations.

2) Pizza Hut is closing up to 300 locations as part of a deal between the pizza chain and its largest franchisee, NPC International, who is filing for bankruptcy. These will be under performing restaurants, mostly with dine in facilities. The franchisee will put its remaining 927 Pizza Hut locations up for sale. NPC also operates nearly 400 Wendy’s restaurants, but has had to file for chapter 11 protection because of its $1 billion dollar debt. In recent years, Pizza Hut has drawn away from the dine-in business and concentrated more on delivery and takeout. Final determinations has not been made as to which locations will close or when.

3) In an indication of just how quickly the virus can pop up, the Oklahoma State sorority Pi Beta Phi has had 23 members test positive for the coronavirus, resulting in the entire sorority being put in quarantine. So far, none of the girls have been hospitalized and any who are ill are experiencing minor effects from the virus. The sorority members moved into the sorority house (off campus) between August 2 and 6, with all testing negative for the Covid-19. Then on 11 August, a small group of members who reside outside the house joined the chapter for a short informal gathering at the house. Within just a few days, the members in the sorority house tested positive. There has been a major spike in the pandemic, with the number of cases surpassing the previous peak levels on 31 of May, with 78% of new cases in the Sun Belt states.

4) Stock market closings for – 17 AUG 20:

Dow 27,844.91 down 86.11
Nasdaq 11,129.72 up 110.42
S&P 500 3,381.99 up 9.14

10 Year Yield: down at 0.68%

Oil: up at $42.77

27 July 2020

1) Another indication of the contraction of the oil business is the oil services company Schlumberger who cut 21,000 jobs or about one fifth of its 105,000 global employees. This is a direct result of an expected 25% drop in the number of oil wells drilled worldwide. Revenues fell 58% from last year for north American operations. The world wide cornavirus crisis caused a massive drop in oil demand, which collapsed the price of oil.

2) Boeing aircraft is facing another trouble, this time with their older Boeing 737 jets. The FAA was warned of corrosion which could cause dual-engine failure, and has ordered inspections. The corrosion problem is a result of hundreds of aircraft now in storage that have been idled because of the drop in air travel from the virus. The order requires aircraft that have not been operated for a week or more must be inspected which will impact about 2,000 aircraft. The corrosion is in engine valves, which has caused single-engine shutdowns which resulted from engine bleed air valves being stuck open.

3) Junk bonds are back again, but are packaged in a format met to appeal to investors, avoiding their seamy 1980s era reputation. Low interest rates driven by the Federal reserve is encouraging companies to borrow, which has lead to a record $51.5 billion dollars worth of junk bonds issued in June. Junk bonds are bonds with high yields (interest rates) but having a lot higher risk. The high risk comes from companies fiscal ability to pay out the bond on maturity or dividends. In a recessionary environment awash in cheap money, a troubled company can collapse under the weight of their debt. But extensive use of junk bonds pose the same dangers of the mortgage backed securities in 2008 with massive failing of businesses pulling the already fragile economy down.

4) Stock market closings for – 24 JUL 20:

Dow 26,469.89 down 182.44
Nasdaq 10,363.18 down 98.24
S&P 500 3,215.63 down 20.03

10 Year Yield: up at 0.59%

Oil: up at $41.34

24 July 2020

1) The parent company of Ann Taylor and Lane Bryant clothing chains, the Ascena Retail Group Inc., will close more than half its stores, a total of more than 1,000 stores. The troubled retailer was struggling like many other retailers to remain afloat, but the Covid-19 crisis tipped the scales into bankruptcy. Ascena has about 40,000 employees and there’s the expectation of cutting its 2,800 stores down to just 1,200 with significant losses of jobs. The chapter 11 will erase about $1 billion dollars in debt from its $12.5 billion dollars of liabilities, which includes $1.6 billion dollars of funded debt. Retailers have been among the hardest hit by Covid-19 lockdowns coupled with online shopping, which drained revenues and pushed so many retailers into bankruptcy.

2) Almost 16,000 restaurants have closed permanently from the Covid-19 pandemic, an indication of just how deeply the virus has affected the food industry, especially the restaurants. So far, about 60% of the restaurant closures have been permanent, with the number increasing with time. Restaurants now surpass the retail industry in the highest total business closures since the start of the pandemic. Bars and the night life industry has met the same fate, with 5,454 total business closures of which 2,429 are considered permanent closures, or 44% lost.

3) There is mounting evidence that America’s fragile economic recovery is faltering even as the pandemic seems to be leveling out. Reservations for restaurants are waning, air traffic is leveling off and foot traffic at stores is dwindling again. With rising infections in California, Texas and Florida, there is a growing sense that the recovery is fading. Small businesses have suffered the worst, having limited cash reserves and ability to obtain loans, and therefore are failing at record numbers. To compound the problem, there is weaker spending by consumers. Hopes for a real recovery depend more and more on an effective vaccine being created and available. Until there is one, there appears little hope that the economic will make any real lasting progress towards recovery.

4) Stock market closings for – 23 JUL 20:

Dow 26,652.33 down 353.51
Nasdaq 10,461.42 down 244.71
S&P 500 3,235.66 down 40.36

10 Year Yield: down at 0.58%

Oil: down at $41.21

1 July 2020

1) The credit worthiness of automakers has been lowered by Moody’s Investors Service, downgrading about $130 billion dollars in global automakers’ debt. Nine out of 22 global car makers have had their ratings lowered. General Motors Co. has a Baa3 rating for unsecured notes, the lowest investment grade rating and has a negative outlook. Ford Motor Co.’s senior unsecured debt is rated at Ba2, which it two notches below investment grade and also has a negative outlook. Thirteen of the automakers were not downgraded because of their better operating profiles and liquidity, but 75% have a negative outlook. World automakers were having troubles before the pandemic, but now are facing more declining auto sales and low prospects for near term improvement.

2) China has adopted a national security law that allows Beijing to override Hong Kong’s judicial system. The intent of China is to strangle and suppress political opponents in Hong Kong and subjugate the freedom of its citizens. This is another example of the re-emergence of Red China as a totalitarian state, and therefore represents a threat to surrounding nations. It strips the territory of autonomy promised under the handover agreement with Britain, with possible retaliation from America. The move by China has resulted in visa restrictions on officials from both sides, and a threat of future retaliation measures coming.

3) Fears of another virus pandemic have surface with the discovery of a new swine flu virus in Chinese pigs. The new strain, called G4 H1N1 has many of the same characteristics of H1N1 that caused the 2009 global pandemic, and can bind to, infect and replicated in tissue cells located in human airways. While not an immediate threat, the virus bears watching, but on top of the Covid-19 pandemic, the problem of controlling either outbreaks would be multiplied, especially with the now overstretched health care and hospital systems.

4) Stock market closings for – 30 JUN 20:

Dow 25,812.88 up 217.08
Nasdaq 10,058.76 up 184.61
S&P 500 3,100.29 up 47.05

10 Year Yield: up at 0.65%

Oil: up at $39.86

22 June 2020

1) Oil has passed$40 a barrel, continuing a slow but steady recovery. This could be signaling a reawakening of the U.S. shale oil production. This rally allows the oil industry some breathing room with its high debt burden as the shale oil industry seeks to rebuild after the worst price collapse in a generation. This is far different than earlier this year when oil producers were paying to have their oil taken away. OPEC+ continues efforts to re-balance the global oil market, now abundantly clear that everyone loses in a price war.

2) More encouraging economic news with Ford Motor and Fiat Chrysler returning to pre-coronavirus pandemic production schedules in their American plants. Ford plans to fully return to production levels by July 6 while also ramping up their production facilities in Mexico. Although not given any firm dates, Fiat Chrysler is also returning to former production levels as rapidly as possible.

3) Experts are predicting the restaurant business, as we know it, is coming to an end because of the Convid-19 crisis. The industry generates $900 billion dollars a year, employs 15 million people, which is 15 times more than the airline business, which many are so concerned about now. Estimates vary widely of 20 to 80% of the privately own restaurants succumbing to the pandemic. The big franchise restaurant chains are expected to mostly survive and continue, but the independents are expected to fade out. One factor is change, which is coming too fast for small operations to adapt and keep pace with. The general consensus is that the business was in trouble long before the pandemic, struggling with poor working conditions, very thin profit margins, low wages and increasing competition. But it’s not just the restaurants themselves, for behind them is farming, distribution, suppliers and commercial real estate. It’s apparent that the demise of a significant number of independent restaurants will spell a significant change to the American business environment.

4) Stock market closings for – 19 JUN 20:

Dow 25,871.46 down 208.64
Nasdaq 9,946.12 up 3.07
S&P 500 3,097.74 down 17.60

10 Year Yield: unchanged 0.70%

Oil: up at $39.43

10 June 2020

1) President Trump is slipping in the polls, and this may pose a risk to the markets. Even though the wild swings of the markets have subsided and then surged upwards, with the Democrat Joe Biden gaining in the polls, there is concerns that the markets will take a down turn as Biden becomes stronger. The President is facing criticism over his handling of the coronavirus pandemic and the protest from the killing of George Floyd by the police. A victory by Joe Biden and a Democratic sweep are considered more ‘market unfriendly’ outcomes. Taxes are one major area of contrast between the candidates, with taxes a major concern for American businesses. These fears are fueled by the Dow sliding downwards for the first time this month as the rally pauses.

2) Borrowing by the British government to pay for the coronavirus shutdown is soaring to levels not seen since World War II. This is on top of the financial problems from Brexit with Britain’s debt jumping five-fold to a 300 billion pound deficit ($380 billion dollars) . This could leave Britain with a 2.2 trillion pound debt and the need to raise taxes with an impact on economic growth. Britain is funding this expenditure with sales of bonds, but have fears of a Greece style loss of confidence among investors. The government is hoping for a fast recovery after restrictions are lifted, allowing the debt to quickly be paid down.

3) There are fears that the U.S. dollar is entering a bear market so may no longer be the safe haven for investors. This bear market could go for five to ten years. This would occur if the global economy really is bottoming out and thereby rebound again, while U.S. interest rates are at zero, with potential growth lower than the merging markets. The U.S. dollar is depreciating against many international peer currencies these last few days.

4) Stock market closings for – 9 JUN 20:

Dow 27,272.30 down 300.14
Nasdaq 9,953.75 up 29.01
S&P 500 3,207.18 down 25.21

10 Year Yield: down at 0.83%

Oil: down at $38.39

5 June 2020

1) The bankers are suggesting to America’s debt laden companies- raise money now, because things could get a lot worse! Although there is plentiful optimism across the county for a quick economic recovery, there are some real concerns for the near and far future, such as a new wave of coronavirus in the fall, an extended period of double-digit unemployment, spike in defaults and a slower than expected economic recovery as business adapt to prolonged social distancing. These all translate into reduced revenues for many months or even years. This is particularly hard on companies carrying a heavy debt load. Hard times means companies need to have as much cash reserve as possible to weather any fiscal storm over the horizon. Even companies like Uber Technologies, Inc are selling bonds, in this case $1 billion dollars of bonds last month even with a first quarter giving $8 billion dollars of cash. The mantra for businesses this day and age is ‘Cash is survival’.

2) Airlines in America are adding summer flights as passengers slowly return to traveling. The air carrier American Airlines plans to fly 55% of its domestic schedule in July, up dramatically from just 20% in May. Slowly, the airline business is coming back to life as more flights are being added to schedules in anticipation of a recovery across the country. While increased passengers is encouraging, passenger levels in the U.S. remain extremely depressed from the pandemic. The question is, are air carriers getting ahead of themselves in bring back service too fast, because if service grows faster than the number of passengers, airline companies could lose money by flying airplanes with too few paying people.

3) The job loss from the coronavirus may not be over with yet. About 6 million white collar workers, higher paid workers, could lose their jobs as the pandemic’s fallout slams other sectors of the economy. These are people who are supervisors at restaurants and hotels, real-estate and finance services. A second wave of layoffs is coming despite states starting to reopen their economies, but this time it’s the well paid workers and not the low wage workers as before who are losing their jobs.

4) Stock market closings for – 4 JUN 20:

Dow 26,281.82 up 11.93
Nasdaq 9,615.81 down 67.10
S&P 500 3,112.35 down 10.52

10 Year Yield:up at 0.82%

Oil: up at $37.35