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

19 May 2020

1) The managing director Kristalina Georgieva of the IMF (International Monetary Fund) says the Fund is likely to revise downward its forecast of a 3% contraction of the GDP (Gross Domestic Product) for 2020. In turn, this will most likely cause a revision of the IMF’s forecast for a partial recovery of 5.8% in 2021. This means a longer time for a full economic recovery from the virus crisis. The IMF had forecasted that the business closures to slow the virus would throw the world into the deepest recession since the 1930’s Great Depression.

2) Gold markets have risen to their highest in more than seven years, a result of the Federal Reserve saying stocks and asset prices could suffer a significant decline as a result of the coronavirus crisis. The economic recovery could go to the end of 2021, depending on the arrival of an effective vaccine. Owning gold is considered to be a safe haven in times of economic turmoil, able to retain its value when other assets are sinking in value. Other precious metals such as silver, platinum and palladium are also experiencing a swing upward in price, but since these are commodities, their value may drop in a slower economy and reduced industrial demand.

3) The price of oil is above $30 a barrel for the first time in two months as U.S. and other country producers continue to cut production in order to restore the balance of the oil market. The world wide shut downs from the virus has drastically reduced the demand for oil world wide, with the world’s storage capacity quickly filling to maximum capacity, and for a time, producers having to pay to have their oil production removed. While the price of oil is still too low to salvage the shale oil (fracking) business in America, it still bodes well for the U.S. and world economies. Nevertheless, expectations are it will be well into the next year for the oil markets to be fully restored. Oil futures contracts that are due in June, show few signs of a resulting plunge in oil prices as when the May contracts came due and investors had to pay others to take their oil away.

4) Stock market closings for – 18 MAY 20:

Dow 24,597.37 up 911.95
Nasdaq 9,234.83 up 220.27
S&P 500 2,953.91 up 90.21

10 Year Yield: up at 0.74%

Oil: up at $32.21

15 May 2020

1) There are growing fears of another economic bomb about to go off. A popping of the housing bubble, much like the 2008 bubble collapse of the housing market, may happen as early as July. Last time, the collapse of the housing market played out over four years, but for the pandemic, the rate could be much faster, as is being seen with the stock market. Home sales have been languishing, especially with the treat of the virus and people reluctant to let strangers tour their homes with possible infections. It is estimated that 15% of homeowners will fall behind on their mortgages and this would mean more delinquencies than during the Great Depression. This in turn is causing a tightening of lending standards which could continue even after the crisis subsides. All this makes for a bubble waiting to burst.

2) Delta Air Lines Inc. has announced they plan to retire their fleet of eighteen Boeing 777 jumbo jets, and will replace them with Airbus SE aircraft. This constitutes another major financial blow to the beleaguered aircraft manufacture struggling with their 737 MAX troubles from over a year ago. Delta attributes the early retirement of their 777 fleet to the pandemic impact and the need to economize with newer fuel efficient aircraft.

3) Growing fears of a slow recovery is beginning to show cracks in the markets as investor’s anticipation of a quick recovery of the economy fades. For weeks, the hopes that the massive stimulus of $3 trillion dollars would spur a relatively quick recovery later in the year, coupled with a hot rebound of the stock market despite the massive numbers of layoffs, but now hope is fading. The growing economic uncertainty of just how many people can restart their lives amid the uncertainty of controlling the virus, plus the dangers of opening up too early, is causing investors to rethink their view of how the economy will fair in the next few months, even the next few years.

4) Stock market closings for – 14 MAY 20:

Dow 23,625.34 up 377.37
Nasdaq 8,943.72 up 80.55
S&P 500 2,852.50 up 32.50

10 Year Yield: down at 0.62%

Oil: up at $27.98

14 May 2020

1) Jerome Powell, the Federal reserve Chairman, has warned of a possible prolonged recession caused by the economic damaged from the coronavirus crisis. Widespread bankruptcies among small businesses and extended unemployment for many people remain a serious problem for the economy. Furthermore, he considers the proposed $3 trillion dollar aid package to be worthwhile if it averts long term economic damage thereby giving a strong recovery. Almost $3 trillion dollars has already been spent on economic assistance, with the interest rate cut down to near zero. Cutting the interest rate has been the traditional tool used to counter recessions and economic slow downs, but with interest rates almost zero, the feds no longer have this tool. Nothing is being said about the massive increase to the already very large federal debt, nor the impact on the long term economy if it fails to return to healthy growth to pay off that debt. Otherwise, it could become a boat anchor around America’s neck making swimming in the ‘economic lake’ very difficult, or maybe impossible later on. The markets responded to Powell’s remarks with a down turn.

2) Unemployment continues to subside with initial reports of another 2.5 million lost jobs compared to 3.2 million for the previous week. This brings the total unemployed for the past eight weeks to a staggering 36 million people without work. Percent wise, the unemployed numbers are worst than the Great Depression of the 1930’s. Economist anticipate a further, although smaller increase in unemployed people for the next few weeks before the curve bottoms out and employment starts increasing as businesses opens up to resume operations.

3) Automakers are preparing to restart manufacturing with plants in Mexico, which are due to open as soon as Monday. U.S. assembly plants rely heavily on Mexican auto plants for parts and subassemblies used in building cars, and there were fears of U.S. manufacturing being hindered by part shortages. Approximately 39% of auto parts for car manufacturing comes from Mexico.

4) Stock market closings for – 13 MAY 20:

Dow 23,247.97 down 516.81
Nasdaq 8,863.17 down 139.38
S&P 500 2,820.00 down 50.12

10 Year Yield: down at 0.65%

Oil: up at $26.23

13 April 2020

1) As the administration considers efforts to restart the economy, economist are considering what a recovery will look like. Although there are widely differing opinions, most consider it will be a long slow process. While it was a great shock with the sudden stopping of businesses followed by the sudden massive unemployment, few consider that there will be a quick ‘snap back’ like with a light switch being snapped back on. The shutdown is causing fundamental shifts in the social-economic system. People’s shopping and ‘going-out’ habits such as restaurants, movies and sporting events is changing, which is also a change in spending habits. People are more reluctant to travel in high density such as airliners or cruise ships. Many small businesses will not survive this recession, and with half the businesses in America classed as small, there will be a significant change in the business environment, plus it will be a long time to reabsorb the massive unemployed, since automation will move in to fill the void. Finally, America’s economy is subject to being pulled down by the world economies, which few are expecting a strong comeback from, since so many were already weak before the coronavirus.

2) Consumer prices fell 0.4% in March, the largest monthly decline in five years. This is from the cost of things like traveling, gasoline, airfares and hotel rooms plunging. Energy cost is down 5.8% with gasoline prices down 10.5%. Food prices did continue rising. There are fears that the GDP will drop 30% or more adding to the economic bad news.

3) The wild gyrations of the stock market is leaving investors confused over what is happening. Stocks are going up when the future is filled with doubts and uncertainty, not a time when investors buy equities. The unemployment is quickly approaching, and may surpass 15% amidst fears of a huge economic contraction with a long term recession- a time when normally only fools would buy into the markets.

4) Stock market closings for – 10 APR 20:

Markets closed for Good Friday

6 April 2020

1) Across the world, truckers are having a difficult time in their role of delivering food stocks to the people. In America, truck drivers are finding it more difficult to operate, unable to find places to eat, with restaurants shut down and their rigs too big to go to the drive-thru lanes. They are unable to find places to sleep, shower or even clean toilet facilities. Nevertheless, the food supply chain continues to struggle to get the necessary food to the people.

2) With the government announcement that we are now in a recession, questions abound how long will it last? For the ‘08 recession, it took more than a decade to recover. One major obstacle facing a recovery, from a near total shutdown of the economy, is the small businesses. Half the businesses in the American economy are classed as small businesses, and half of those have less than fifteen days cash reserves, which means a significant number of American businesses will not survive the virus shutdown. This will leave millions of workers scrambling to find work and therefore will greatly hinder a recovery.

3) Oil prices have rallied from news that the Saudi Arabia – Russia price war may be coming to an end with agreements to cut back oil production by ten million barrels a day. Oil is the keystone to economic vitality with oil prices needing to be above about $40 a barrel for shale oil to be profitable so America can remain oil independent.

4) Stock market closings for – 3 APR 20:

Dow 21,052.53 down 360.91
Nasdaq 7,373.08 down 114.23
S&P 500 2,488.65 down 38.25

10 Year Yield: down at 0.59%

Oil: up at $29.00

NIGERIA BIGGEST ECONOMY IN AFRICA AGAIN: TWICE IS A CHARM!!!!!!!!

nigeria

By: Economic & Finance Report

Nigeria reclaimed its numero uno status as the biggest economy in Africa again, last week. The IMF indicated that Nigeria’s GDP contracted to $415 billion, while #2 runner up South Africa had $280 billion and rounding off #3 was Egypt, (which data has not come out yet when writing this piece).

The International Monetary Fund (IMF) also indicated Nigeria should be out of their recession by early 2017. Nigeria has seen recession before; during 1982-1984 when current Nigerian President Muhammadu Buhari was military head of state then, and in 1991 when Ibrahim Babangida was also head of state at the time. -SB