23 June 2020

1) Speculation abounds over what the next stimulus package will have, such as extended income support for the unemployed and underemployed. New temporary subsidies for low wage workers. Cheap loans for small and medium size businesses with additional support for state and local governments. Cost estimates for a second stimulus program range from one to two trillion dollars. But like the first stimulus package, no one is offering ideas how this money will be paid off, especially if economic expansion doesn’t materialize.

2) The worlds fastest super computer is now Japan’s Fugaku supercomputer developed by Riken and Fujitsu with backing from the Japanese government. It has a speed of roughly 415.53 petaflops, which is 2.8 times faster than the US Summit supercomputers at 148.6 petaflops. The Fugaku was under development for six years and will start full time operation by April 2021, although it has been pressed into service in the coronavirus crisis, running simulations on how droplets would spread in office spaces with partitions. Previously, the fastest supercomputers have belong to America and China.

3) The sales of existing homes has dropped in May, a result of the coronavirus impact on the economy. The sales of existing homes in May fell 9.7% compared with April, which makes for an annual decline of 26.6%. This is the largest decline since 1982 when interest rates were 18%. There remains a shortage of housing which is helping to uplift the market, and therefore the economy as soon as the crisis has subsided.

4) Stock market closings for – 22 JUN 20:

Dow 26,024.96 up 153.50
Nasdaq 10,056.48 up 110.35
S&P 500 3,117.86 up 20.12

10 Year Yield: up at 0.70%

Oil: up at $41.13

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

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

16 June 2020

1) The markets sank Monday, down by 762 points, when the news of the Feds bond-buying plan became known, reversing the selling to buying which raised the Dow up 150 points. The downward slide was from fears of a second round of the Convid-19 virus with the possibility of more economic damage. The plan is for the Federal Reserve to buy individual corporate bonds, on top of the exchange traded funds it is already buying. This is a move to ease credit conditions to further stimulate the economy. The program can buy up to $750 billion dollars worth of corporate credit, which the Feds can buy on the secondary market, individual bonds that have maturities of five or less years. Bonds is how corporations typically fund their operations and expansion using debt, and this program will ease debt for corporations allowing them to grow more and provide jobs.

2) The oil giant BP (British Petroleum) has signaled to investors that the economic shock of the pandemic will reverberate for years. This in turn means less gas and oil needed by the world in the future. The company is expected to write down $17.5 Billion dollars of its oil and gas holdings this next quarter, meaning they are worth less in the future than what they are worth today. The coronavirus pandemic has caused steep declines in demand for gas and oil worldwide, and this is expected to last for a number of years. This write down is in the approximate class of the Deepwater horizon disaster in the Gulf of Mexico, which was $32 billion dollars.

3) Britain’s Brexit, the planned exit of Britain from the European Union, has been overshadowed by the world wide pandemic, but nevertheless Brexit trade talks have continued. But the talks have reached an impasse. Britain left the union at the end of January, but had not reached agreements on traded with the other European countries. Although Britain left the union, the two economies have continued operating as before Brexit, so there has been little changed in trading. But this is only to the end of the year, and with Britain a major trader of goods with Europe, it’s important to reach agreements before that time comes. One major point of contention is how future disagreements will be adjudicated or arbitrated.

4) Stock market closings for – 15 JUN 20:

Dow 25,763.16 up 157.62
Nasdaq 9,726.02 up 137.21
S&P 500 3,066.59 up 25.28

10 Year Yield: unchanged at 0.70%

Oil: up at $37.07

15 June 2020

1) The Independent Restaurant Coalition estimates that 85% of the independent restaurants may go bust by the end of 2020. The independent restaurants comprise 70% of all the restaurants in America. These restaurants rely more heavily on dine-in revenue, which the franchise chains don’t because of their drive up and take out business is well established, while also having a corporate safety net or support system to fall back on. It will be a long time before dine-in revenue returns to pre-pandemic levels because independents depend on densely packed dinning rooms to generate sufficient revenue to meet expenses, something that social distancing prevents. Most owners just don’t have the cash reserves to survive.

2) J.C. Penny stores will begin their ‘going out of business’ sales having just received bankruptcy court approval to begin liquidation sales at those stores closing permanently. There are 242 stores closing leaving about 600 stores to continue. Sales could start as early as this weekend. J.C. Penny is the largest company to file for Chapter 11 bankruptcy since the pandemic started. Penny faces a crucial deadline of 15 July for a business plan, which without one, the company is expected to pursue a sale instead, which could mean total liquidation.

3) Some are proposing negative interest rates for U.S. bonds as some European countries are doing. The rational for negative interest rates is they spur economic growth, which is controversial among economist with evidence that it really works being mixed. Lowering interest rates encourages businesses and individuals to invest and spend more, which helps the economy grow. The doubts about negative interest rates is companies and individuals would rather hold cash which cost nothing rather than pay to park their money in the bank. This encourages the money to be loan out rather than be parked, which often means riskier loans. While there are studies made of how effective negative interest rates are, so far the results are mixed.

4) Stock market closings for – 12 JUN 20:

Dow 25,605.54 up 477.37
Nasdaq 9,588.81 up 96.08
S&P 500 3,041.31 up 39.21

10 Year Yield: up at 0.70%

Oil: up at $36.56

11 June 2020

1) This last April, the government offered $349 billion dollars to small businesses, in their stimulates package called the Paycheck Protection Program or PPP, as a way of limiting the economic damaged from the shutdown orders and pandemic. This money was gone in just 13 days, so Congress approved a second round of $310 billion dollars, but so far there is $130 billion dollars left with more monies being returned than borrowed. Thousands of companies sent loan money back because loan terms were too restrictive, or the criteria for loan forgiveness was too murky. There has been about $3 billion dollars in loans that have been canceled or returned. Congress has moved to loosen the program’s rules giving businesses more flexibility in spending their aid. Nevertheless, many small businesses are facing closure amid the uncertainty of the economy and what the future holds.

2) America is on track for another 2008 class financial crisis with threats of financial collapse. The 2008 crisis forced banks to rethink their risk taking, and new regulations were put through designed to limit the risk that banks take in making loans. Already facing a prolong recession, the balance sheets of big banks could precipitate a collapsed of the financial sector, as almost happened in 2008. The last crisis was caused by CDO (Collateralized Debt Obligations) where sub-prime home mortgages were packaged and given ratings of high quality mortgages. When these over-rated CDOs began to default, the banks were on the verge of collapse, but the feds stepped in and saved the day . . . just barely. The banks have fallen back into their old habits now by using CLO (Collateralized Loan Obligations) which are like CDOs, however they are for businesses instead of home mortgages, but still having the high risk. With the threat of many small businesses failing from the coronavirus crisis, these CLOs could default causing the big banks to collapse, bringing the American economy down.

3) A record number of retail stores are expected to permanently close this year as consumer demand for discretionary items stalls and people shift to online shopping. As many as 25,000 retail stores could fold up, with more than 4,000 having all ready given up the ghost. It is anticipated the closures will snowball from the recession, adding to the effects of unsustainable debt levels. The retailers were struggling to stay afloat before the pandemic struck.

4) Stock market closings for – 10 JUN 10:

Dow 26,989.99 down 282.31
Nasdaq 10,020.35 up 66.59
S&P 500 3,190.14 down 17.04

10 Year Yield: down at 0.75%

Oil: up at $38.78

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

AFRICAN AMERICANS BENEFIT LEAST ECONOMICALLY FROM THE STOCK MARKET RALLYING.

By: Economic & Finance Report

With the national protests occurring in the United States. There has long been an issue about the income inequality among minorities and investment inequalities among minorities, especially African Americans.

Analytics and data collected from The Federal Reserve indicate that over 60% of white families have stock share holdings while only 30% of black families have stock holdings. Indicated is that only a third of African American families are seeing the benefits from the stock market rally, currently occurring.

The wealth gap between minorities and white families is also very wide. Median white family net worth is $171,000 while African American family median net worth is approx $18,000. These wealth gaps tend to have economical effect on minority and black families as they are not given a fighting chance to improve financially and economically amongst their counterparts. -SB

Source: Yahoo Finance; Federal Reserve Survey Consumer Finances (2016); Image Source: Vox.com

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

3 June 2020

1) The economic activity for the second quarter is down, while more than half the GDP (Gross Domestic Product) is now showing a 52.8% drop. Consequently, the personal consumption expenditures is expected to fall 58.1%, which makes up 68% of the nation’s GDP. The current recession is unique in that it was lead by the services sector instead of the traditional manufacturing or construction sectors.

2) Because of the Convid-19 shutdown, the retail industry has a mountain of apparel stock piling up in stores, distribution centers, warehouses and shipping containers. Those retailers now face the difficult decisions of what is best to do with this overstock and choked supple chain. Their options are to keep it in storage, hold sales, offload to ‘off price’ retailers who then sell at deep discounts or move it to online resale sites. None of these options are ideal, but they do limit the damage to company’s bottom line. For apparel that isn’t so fashion sensitive, such as underwear, t-shirts and chinos, warehousing for a short time to wait for demand to return is a viable option. But storing inventory cost money. The opposite strategy is to hold sales and sell stock to the off-price retailers. The ‘in store’ sales is usually better because dumping in bulk to the discounters usually brings only pennies on the dollar for retailers. This amounts to huge losses for the retailer. The most lucrative option is moving merchandise to online re-sellers who take a commission on sales, however this is largely only open for high end brands. No matter what options a retailer takes, it all spells out large losses for them because of the pandemic.

3) Southwest Airlines is offering buyout packages and temporary paid leaves to employees in an attempt to ensure survival, in anticipation of a slow recovery. The airline company has not imposed any layoffs or furloughs in its 49 year history, and while overstaffing isn’t tied to 100% capacity levels, it has never faced the drastic drop in passenger service as now seen with the pandemic. Therefore, Southwest if seeking to voluntarily reduce workforce as softly as possible.

4) Stock market closings for – 2 JUN 20:

Dow 25,742.65 up 267.63
Nasdaq 9,608.38 up 56.33
S&P 500 3,080.82 up 25.09

10 Year Yield: up at 0.68%

Oil: up at $36.90