22 October 2020

1) Many consider the next economic crisis to be the growing profusion of empty retail space, as tenants stop paying rent and reduce their offices, leaving commercial real estate in a pinch. Commercial real estate is in trouble, the $15 trillion dollar market is threatened with decline, and the longer the pandemic persists the more ill effects on hotels, retailers and office buildings, therefore the more difficult it is for property owners to meet their mortgage payments. The widespread downgrades, defaults and eventual foreclosures, coming from companies like J.C. Penney, Neiman Marcus and Pier 1 filing for bankruptcy, has retail properties losing major tenants with nothing to replace them. Motels and hotels are running below 50 percent occupancy, with the stimulus bill having no provisions to prop them up, the government hoping the commercial mortgages will just heal by themself.

2) The Justice Department is accusing the internet giant Google of illegally protecting its monopoly over search and advertising. The company is accused of building an illegal monopoly over parts of the internet. The Justice Department accused Google of building a monopoly over central parts of the internet. The main concern is Google working with other major internet companies to channel the internet to Google’s search engine, as the default search engine, by Google providing the engine to include in other company’s products through exclusive business contracts and agreements. The government contends that Google has used anti-competitive tactics to maintain and extend its monopolies in the markets for general search services, search advertising and general search text advertising which is the cornerstones of its empire. It is considered this will be a major test of the antitrust law. A victory for the government could remake one of America’s most recognizable companies and the internet economy.

3) NASA OSIRIS-REx spacecraft mission has successfully touched down on the asteroid Bennu to bring a rock-soil sample back to earth for analysis. The van-size spacecraft briefly touched down on a landing site the width of a few parking spaces. It collected a sample between 2 ounces and 2 kilograms, then the spacecraft backed away to safety. Bennu is a boulder-studded “rubble pile” asteroid shaped like a spinning top and is as tall as the Empire State Building. If everything runs smoothly, the spacecraft and its prized sample will begin the long journey back to Earth next year and land the sample on Earth in 2023.

4) Stock market closings for – 21 OCT 20:

Dow 28,210.82 down 97.97
Nasdaq 11,484.69 down 31.80
S&P 500 3,435.56 down 7.56

10 Year Yield: up at 0.82%

Oil: down at $40.00

4 August 2020

1) Tailored Brands, who owns Men’s Wearhouse and Jos. A. Bank, has filed for bankruptcy, becoming the latest retailer to succumb to the pandemic. The Covid-19 has wiped out demand for office attire forcing the layoffs of 20% of its workforce and closing up to 500 stores. Lord & Taylor, one of the oldest department stores in America has also filed for bankruptcy. It has started liquidating 19 of its 38 stores. In the first half of 2020, more than 3,600 companies have filed for bankruptcy, with experts predicting that things are only going to get worse. Retail names such as Justice, Ann Taylor, Lane Bryant, Luck Brand, J.C. Penny, Brooks Brothers, Sur La Table, Neiman Marcus, Tuesday Morning, Tailored Brands, GNC and J. Crew have gone into bankruptcy. Such a large number of retailers in trouble can only signal a fundamental change in the American economy.

2) The airline industry in America is facing a round of layoffs in the near future without additional federal aid to save jobs. The airlines received $32 billion dollars in federal payroll support from the CARES Act, with the condition of no layoffs until 30 September, and the anticipation of air traveling increasing by then. But this hasn’t occurred, so as the end of September approaches, layoffs loom. The airline unions have been pushing for an extension in payroll support to preserve the jobs sector of the airlines. American Airlines and United Airlines warn that more than 60,000 employees risk losing heir jobs when the aid terms expire. Other airlines like Alaska, Sprint and Frontier also warn of upcoming layoffs.

3) The owner of 7-Eleven is buying Marathon Petroleum’s Speedway gas stations for $21 billion dollars in cash. This will increase the present 9,800 convenience store chains by another 4,000. Investors were unnerved by the steep price for the deal, with shares falling nearly 9%. Like many other retailers, the chain has also been hit hard by the coronavirus pandemic, with profits down significantly. Another acquisition that finalized is T-Mobile buying Sprint, with the Sprint brand name disappearing from the American business scene.

4) Stock market closings for – 3 AUG 20:

Dow 26,664.40 up 236.08
Nasdaq 10,902.80 up 157.52
S&P 500 3,294.61 up 23.49

10 Year Yield: up at 0.56%

Oil: down at $40.76

25 June 2020

1) There are ten companies that may not make it through the summer. These are high brand names of Hertz, J.C. Penney, Pier 1 Imports, Tuesday Morning, J. Crew, Neiman Marcus, Gold’s Gym, Tailored Brands (Men’s Warehouse and Jos. A. Banks) and Diamond Offshore Drilling, which are all in bankruptcy now. The high number of retailers shows the ongoing retail apocalypse with the retail sector, which had already hit before the pandemic by falling sales, lower costumer traffic and too many stores. Retail was near the edge of collapsed with last years Christmas holiday shopping doing little to boost business, especially those located in malls. Last year, 9,500 retail stores closed, with estimates of 15,000 stores closing for good in 2020. This may indicated a fundamental shift in America’s economy, a shift away from hyper-consumerism to something else besides a service based economy. Shopper visits to stores are about half of last year’s numbers, and that’s with businesses reopening after more than two months on lockdown.

2) Fears continue to grow that we are not finished with the Convid-19 crisis yet, as the number of new cases continues to increase. This is happening with states and cities easing their shutdown measures to reopen the economy to start a recovery. The seven day average of new virus cases has swung up 30% from a week ago. It was hoped the warm weather would suppress the virus spread as it does with the flu, but if the virus is resurrecting, then the shutdown may need to returned with the resulting economic impact.

3) The Ford Motor Co., who is in the process of its global restructuring plan and paying off debt related to the coronavirus pandemic, is betting its future on its new line of pickups. Ford is offering its popular F-150 model in traditional internal combustion engines, new hybrids and all electric versions. The Ford F-150 has been the country’s top selling truck for more than 40 years, the best selling for the last consecutive 38 years. Their F-150 is a key part in Ford’s plans to profitably grow their business, to help in the $11 billion restructuring cost and pay off the $20 billion dollars in new debt.

4) Stock market closings for – 24 JUN 20:

Dow 25,445.94 down 710.16
Nasdaq 9,909.17 down 222.20
S&P 500 3,050.33 down 0.96

10 Year Yield: down at 0.68%

Oil: down at $38.07

18 May 2020

1) The federal government has warned that the financial sector faces significant vulnerabilities because of the coronavirus pandemic. Both businesses and households are struggling with fragile finances and will be for the foreseeable future. So far, the banking system has withstood the initial downturn, but there are significant risk if the virus crisis proves to be lengthy and/or more sever than hoped for. The financial stress will continue to build if the crisis persists from households and businesses being deprived of wages and revenues. No sectors would be immune from the risk they face from default on debt, being forced to sell off assets, bankruptcy or having value of assets dwindled. Forceful early interventions have been effective in resolving liquidity stresses. There are fears that what might start out as a cash crunch could spiral into something worse, that few if any parts of the economy are safe.

2) The retail industry has been devastated by the coronavirus crisis with April sales diving down 16.4% (Manufacturing is also down by 13.7%) with major retailers such as J.C. Penny, J Crew and Neiman Marcus filing for bankruptcy recently. However, discount retail chains such as Dollar General and Aldi seem to be thriving as consumers cut back on discretionary spending while continuing to spend on food and household essentials. The Dollar style stores are gaining because of their low prices and close proximity to customers, with people buying things they have run out of between their larger routine shopping trips. In recent years, the Dollar style stores have significantly increased their number of stores thereby enabling them to capture more retail sales from the traditional retailers.

3) Some are predicting that the pandemic has permanently changed the auto industry, with some automakers made stronger while others are left too weak to survive. The pressure from the electric automobiles will become stronger with fewer conventional automakers able to make the transition. There are fears that people have discovered they need to travel much less, that they can get a surprisingly amount done from home. This translates into lower demand for automobiles. Demand for new cars was expected to be low before the pandemic, now things are expected to get very brutal for survival of some automakers.

4) Stock market closings for – 15 MAY 20:

Dow 23,685.42 up 60.08
Nasdaq 9,014.56 up 70.84
S&P 500 2,863.70 up 11.20

10 Year Yield: up at 0.64%

Oil: up at $29.78

8 May 2020

1) The shutdown orders are being lifted in many states, which also includes the shopping malls, but those malls remain eerily quite, almost void of humans, where once mobs crowded and surged in the hallways. People are electing to do a minimum of shopping or to shop online instead. The change is in part from fears of the virus and in part because of the high unemployment and fears of the economy floundering. There are questions of how much the American shopping ethos will return, or if consumerism is experiencing a fundamental change. The big department stores and big box stores were already suffering from changes in shopping habits and the virus may have accelerated that trend, plus many malls across America had already closed up before the pandemic. With consumerism accounting for half the economy, the future of shopping is a serious question.

2) A second major retailer has filed for bankruptcy during the coronavirus crisis. The 113 year old chain Neiman Marcus Group, which has been struggling with a $5 billion dollar debt much of it from leveraged buyouts in 2005 and 2013. With having to close 43 of its stores and laying off most of its 14,000 worker, the pandemic forced reduction of revenues that made the debt unsustainable. And that’s what broke their financial back. More than 263,000 stores in America have had to closeup leaving them with little to no revenues while their monthly fix cost remained unchanged, so questions abound of how many others will follow in the next few months, particularly if jobs don’t quickly return. On the positive note, restaurants doing takeout service, like Papa John’s Pizza, have done quite well.

3) The number of jobless Americans reached 33 million with the addition of another 3.2 million filings for unemployment benefits. This is over a seven week period, while previously 200,000 a week had once been the norm. There just doesn’t seem to be any letup in unemployment in sight from the virus crisis, with deepening fears a recession could be a long affair. On a positive note, this is the fifth week where the jobless claims have fallen, but still there are worries that the total number may go over 40 million before returning back to normal.

4) Stock market closings for – 7 MAY 20:

Dow 23,875.89 up 211.25
Nasdaq 8,979.66 up 125.27
S&P 500 2,881.19 up 32.77

10 Year Yield: down at 0.63%

Oil: down at $23.81

17 April 2020

1) The troubles of the shale oil industry, and their decline, are well known, but another much less know part of these economic troubles is the multitude of suppliers who no longer have someone to sell to. Drilling and producing shale oil is an intensive industrial operation requiring a mired of mechanical and chemical supplies consumed in the operation, and there are a large number of suppliers for these items who depend on the oil industry for their business. With the low oil prices, shale oil companies have been forced to abandon drilling. Since the start of 2019, the oilfield service sector has lost almost 50,000 jobs, with the near future forecast to be even worst. As the oil companies file for bankruptcy, large oil service providers such as Schlumberger, Halliburton and Baker Hughes are left being owed millions of dollars with little hope of recovering those debts.

2) The method of calculating the percentage of unemployment rate may not be an accurate indicator of the present calamity which has struck the American job market because only those looking for work are counted in the calculation. Many of the recent 20 million unemployed are not looking for work, rather they are waiting for their former jobs to return, and so they are not being counted as unemployed in the often quoted percent unemployed number. A better indicator is the ‘employment to population’ ratio, which is the number of people working to the total population. This ratio had been at about 60% in January, but has dropped to 52% in April. But by any measure, the unemployment is a serious problem, that promises to get worst as the recession continues and automation makes inroads in replacing jobs with machines.

3) The large retailers, who were already in trouble before the coronavirus, are now being ravaged by the shutdown with many looking at bankruptcy. Big names such as J.C. Penny, Neiman Marcus and Macy’s have little to no revenues, yet still have their fix cost of operations such as loan debt, rents, utilities and taxes which still must be paid yet sales for department stores have dropped 24% with the sales for clothes down 51%. Their survival is dependent on how much cash reserve they have and when their largest loans mature and must be paid in full. This may herald a major change to the retailing business of America.

4) Stock market closings for – 16 APR 20:

Dow 23,537.68 up 33.33
Nasdaq 8,532.36 up 139.19
S&P 500 2,799.55 up 16.19

10 Year Yield: down at 0.61%

Oil: down at $19.75

17 February 2020

1) Surging demand for sugar is causing global supply shortages. With changing diets and lifestyles the demand for sugar has drastically increased in third world nations. For instance, Southeast Asia has had an eleven fold increase in demand. Global sugar prices have increased 12% this last year with the commodities trader ED&F Man Holdings Ltd. forecasting a world sugar deficit this year of about 10%.

2) Financial analyst forecast a number of traditional brick-and-mortar retailing chains will go bankrupt this year. Renowned names such as J.C. Penny, Pier 1 Imports, Rite Aid, Neiman Marcus, Stein Mart and the nutrition chain GNC are expected to continue their downward slide with many not surviving until the next Christmas. For the past several years or more, these name brand chains have be contracting with store closings and layoffs as they struggle to adapt to a new consumer environment.

3) While e-commerce is largely blamed for the demise of shopping malls and traditional brick-and-mortar stores, with online shopping growing tremendously over the last twenty years, expanding from $5 billion dollars per quarter to $155 billion dollars. Presently, e-commerce represents only 11% of the total retail sales. More than 70% of retail spending is in categories that has been slow or impossible for internet sales to captures such as automobiles, gasoline, home improvement and garden supplies. Inroads in drugs and pharmacy sales are being made, as well as food and drink from food delivery services.

4) Stock market closings for – 14 FEB 20:

Dow 29,398.08 down 25.23
Nasdaq 9,731.18 up 19.21
S&P 500 3,380.16 up 6.22

10 Year Yield: down at 1.59%

Oil: up at $52.25

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