13 October 2020

1) More bad news for the airline business with another expected huge round of losses coming. The second quarter was the worst financial hit in the history of the airline business, and the third quarter won’t be much better. The airlines reported a second quarter combined losses of $12 billion dollars with revenues down 86% for the previous year. Analysts are forecasting a $10 billion dollar lost for the third quarter. The airlines did reduce cost by trimming expenditures, reducing labor as employees took buyouts and early retirement packages. Also, a modest pickup in travel during the summer has help with increased revenues, but forecast are for sales to be down 75% in the third quarter.

2) Oil prices fell the most in a week because the Gulf of Mexico production is set to resume and Libya is reopening its largest oil field. The hurricane had shut down about 92% of oil production in the Gulf, while at the same time Libya’s largest field will reach its daily capacity of almost 300,000 barrels in ten days. World demand for oil crude has dropped with refineries operating near minimum capacity.

3) The third major opioid makers Mallinckrodt Pic has become the third major manufacture of opioid to go bankrupt after being swamped by claims with respect to profiting from the U.S. opioid epidemic. The drug company filed for Chapter 11 after getting creditors and claimants to agree on a restructuring plan. This plan hands over ownership to bondholders, wipes out shareholders and sets aside $1.6 billion dollars to resolve all its opioid litigation. Current shareholders will most likely get nothing, with stock prices in the penny range for most of the year. The Chapter 11 filing estimates liabilities of $1 billion to $10 billion dollars and assets in the same range.

4) Stock market closings for – 12 OCT 20:

Dow 28,837.52 up 250.62
Nasdaq 11,876.26 up 296.32
S&P 500 3,534.22 up 57.09

10 Year Yield: unchanged at 0.78%

Oil: down at $39.44

16 April 2020

1) With many of the big box stores under siege from store closings and bankruptcies, the U.S. retail sales has suffered a record drop in March. In turn, factory outputs have declined by the most since 1946, as part of the coronavirus economic contraction in the first quarter. The drop is the sharpest rate in decades despite the measures taken to prop up the economy. People are now making comparisons to the Great Depression of 1930’s, considering this recession will be as deep if not deeper than that depression. People are losing jobs by the millions, and one question is how many of those jobs will return and how many will be taken by technology displacement. Last month, retail sales plunged 8.7%, the biggest decline since 1992 when government began taking numbers. Restaurants and bars are included in the retail decline with a drop of 26.6% last month, although grocery and health care rose. Consumer spending has dropped sharply with forecast of a 41% decline for second quarter. Consumer spending accounts for more than two thirds of the U.S. economic activity.

2) The price of oil has fallen below $20 per barrel because of predictions of a record slump in world demand. In April, global oil demand is expected to fall by 29 million barrels a day from last year. This is oil demand levels that was last seen in 1995. The U.S. had been oil independent for several years now, because of its domestic shale oil production, but for this oil to be profitable to extract, oil prices must be above $40 a barrel. With oil prices forecast to be low for the foreseeable future, the shale oil industry is in dire straights.

3) Time when companies are under stress, such as during a recession, provides impudence for them to reorganize and streamline their operations. By adapting to a new environment through restructuring of a company, they are able to reduce operating cost, thereby being better able to survive. Recession brings layoffs and furloughs, so companies seek to get work done with fewer people, usually by using new technologies. Consequently, those jobs are gone, never to return, when the economy returns to health.

4) Stock market closings for – 15 APR 20:

Dow 23,504.35 down 445.41
Nasdaq 8,393.18 down 122.56
S&P 500 2,783.36 down 62.70

10 Year Yield: down at 0.64%

Oil: down at $20.15

26 November 2019

1) America’s largest manufacturer of truck engines plans to lay off 2,000 workers. Orders for heavy duty trucks is down last year by 51%. This market dip is forcing Cummins Diesel to cut back on its production, reducing its 62,610 workforce by the 2,000. The company is forced to do a more aggressively cost cutting program because the down turn is happening faster than anticipated. Other manufactures of parts and assemblies, such as drivetrains, braking and axles used in large trucks are also forced into layoffs and bankruptcies.

2) The national debt has just passed $23 trillion dollars the first of November. This is a record high for the amount of money owed by the Federal government brought on by the growing budget deficits and is roughly equal to the Chinese, Japanese and German economies combined. Both parties have abandoned fiscal conservative spending and are intent on spending more on the domestic and military fronts, a contest over promises of who will spend more while cutting taxes.

3) The Ford Motor Company has $37 billion dollars in cash and short term assets on its balance sheet , but is strapped for cash. This makes Ford one of the top ten U. S. companies flush with cash. But Ford faces so many future challenges, it must hold onto every penny it can. First is a major multi-year restructuring, principally in Europe and South America. Also, Ford is overdue to refresh its key vehicles, including the company’s best selling F series pickup trucks, which will cost several billion dollars. Finally, Ford’s efforts to join the rush into electric vehicles, with seven new electric models due by the end of 2020.

4) Stock market closings for – 25 NOV 19:

Dow               28,066.47    up    190.85
Nasdaq           8,632.49     up    112.60
S&P 500          3,133.64     up       23.35

10 Year Yield:    down   at    1.76%

Oil:    down   at   $57.91

9 July 2019

1) America now has such a surplus of natural gas, that it’s being burned off instead of sold and used. The problem isn’t a lack of a market to sell to, rather it is insufficient distribution infrastructure. There isn’t enough pipeline capacity to get the gas from the oil fields to customers. In West Texas, enough gas is burned off each day to fuel every house in Texas. Natural gas prices are negative in some areas as producers pay people to take the gas off their hands.

2) The international banking giant Deutsche Bank is getting out of the investment banking by closing its equities business. This restructuring will result in posting a $3.1 billion dollar loss for the second quarter and an overall loss of $8.3 billion dollar into 2022. Additionally, there will be a loss of 18,000 jobs or one fifth of their labor force.

3) The summer labor force of teenagers is shrinking as American youth opt for summer school and extracurricular activities. Only about 40% of highschool age kids are working during their summer vacations, compared to more than 60% in the twentieth century. This leaves businesses with a dilemma of find enough workers, especially those business which are more active in the summer months and need that extra short term labor boost. Much of this shift is because of increased emphasis on education for the young, who opt for summer school and summer college prep programs instead of earning some pocket money.

4) Stock market closings for- 8 JUL 19:

Dow         26,806.14    down    115.98
Nasdaq      8,098.38    down      63.41
S&P 500     2,975.95    down      14.46

10 Year Yield:    down   at    2.03%

Oil:    down   at    $57.54

PUERTO RICO BONDHOLDERS GET HUGE WIN IN COURT!!!!!!!

Puerto Rico Debt

By: Economic & Finance Report

Puerto Rico bondholders attained a huge legal win in Puerto Rico Supreme Court. The case  involved bondholders to follow an unconstitutional Puerto Rico restructuring law. The law would have required the bondholders  to accept restructuring law guidelines, as Puerto Rico figures ways to reduce their financial debt.

The bondholders in the case, Investment funds from OppenheimerFunds Inc, and Franklin Resources Inc, hold 1.5 billion dollars worth in Puerto Rico municipal bonds. A federal judge in San Juan, sided with the plaintiffs (bondholders) indicating that US Constitution and the federal bankruptcy law takes precedence over Puerto Rico’s restructuring law.

As of press time and of the current ruling of the case, the Puerto Rico government has stated that they were looking into the decision of the case and that they would be deciding what action to take on the ruling.

-SB