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 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