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

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