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Category - Global Middle Class

    Boeing Plans Full Drawdown of $13.825 Billion Loan

    This article by Paula Seligson for Bloomberg may be of interest to subscribers. Here is a section:

    Boeing obtained the loan from a group of banks last month to help it deal with its cash burn while it prepares to return its 737 Max plane to the skies. It initially tapped about $7.5 billion of the debt, and is now expected to draw the rest, said the people, asking not to be named discussing private information. Boeing plans to draw the remainder of the loan as a precaution due to market turmoil, one of the people said.

    Companies affected by the virus are increasingly turning to banks for short-term financing to provide a safety net. United Airlines Holdings Inc. raised $2 billion in new liquidity with a secured term loan, while Norwegian Cruise Line Holdings Ltd. recently signed a new $675 million revolver. Should credit conditions worsen, more firms may start to draw down their credit lines, market watchers say. Boeing’s loan came about before Covid-19 spiraled into a global crisis and was expected to be fully drawn eventually.

    “They want to have cash on the balance sheet,” said Bloomberg Intelligence’s Matthew Geudtner. The Max grounding, the company’s joint venture with Embraer SA and looming debt maturities will also weigh on Boeing’s cash hoard, he said.

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    Market Makers "Didn't Show Up for Work," Macro Risk CEO Says

    This article by Sonali Basak for Bloomberg may be of interest to subscribers. Here is a section:
     

    “It’s literally as if the market makers didn’t show up for work,” Curnutt said in a Bloomberg Television interview, referring to options and junk-bond exchange-traded funds such as the iShares iBoxx High-Yield Corporate Bond ETF, known by its ticker, HYG. “The posted bid-offers on the screens illustrated that there was no one in the market posting for something that is one of the more liquid -- usually -- hedges to use.”

    Banks have been constrained by rules created after the 2008 financial crisis. That has pushed some market-making activity to other types of financial institutions including Citadel Securities and Virtu Financial Inc., which was one of a handful of firms that rose in trading Monday as the S&P 500 slipped
    7.6%.

    “The traditional liquidity provider in times of stress -- the bank -- really isn’t there,” John McClain, portfolio manager at Diamond Hill Capital Management, said in an interview. “Banks themselves have a lot more regulation around what they can be doing.”

    Still, for all that, trading was relatively orderly in HYG and other debt ETFs, especially compared with the underlying bonds. The liquidity concerns still didn’t mean there was a “full-blown breakdown in markets,” Curnutt said.

    Philipp Hildebrand, vice chairman of BlackRock Inc., agreed. “I was there in 2008, and the difference is the financial system essentially seized up, which is not what happened, at least not so far,” he said. “It’s an important signal that the ETF market functions.”
     

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    Recession Looms in Europe as French Demand 'Call to Arms'

    This article by William Horobin and Fergal O'Brien for Bloomberg may be of interest to subscribers. Here is a section:

    The downbeat assessments come amid a meltdown in financial markets not seen since the height of the global financial crisis in 2008. It marks a grim start to the week for European Central Bank policy makers, who meet in Frankfurt and may be forced to lower interest rates and step up bond purchases. The U.S. Federal Reserve has already acted, with an unexpected easing last week.

    “I want a strong, massive, coordinated response,” Le Maire said on France Inter Radio as the central bank slashed the outlook for the country’s economic expansion this quarter to 0.1% from 0.3%.

    “We should work on a stimulus plan with fiscal and budgetary measures, and tax cuts, so that when the epidemic crisis is over we can relaunch the economic machine,” he said. The virus is another blow to the euro area’s second-largest economy, after disruption from strikes caused output to shrink at the end of 2019.

    “This slowdown is potentially severe but temporary,” Bank of France Governor Francois Villeroy de Galhau said in a rare statement accompanying the report.

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    South Korea's Virus Outbreak May Be Slowing, Officials Say

    This article by Shinhye Kang for Bloomberg may be of interest to subscribers. Here is a section:

    This article highlights widespread testing as one of the primary reasons South Korea has been able to make headway against the outbreak. Here is a section:

    South Korea has borne its virus outbreak relatively well despite the scale of the spread. The country has been testing people for the virus at the fastest pace in the world, which appears to have allowed early detection of cases and keep its mortality rate lower than average. Infections have also been largely contained to Daegu and surrounding areas, although the government has not imposed restrictions over people’s movements like in China and Italy.

    “New cases of coronavirus have been continuously slowing down, to 248 yesterday, after reaching a peak of 916 on Feb. 28. We should continue this trend,” President Moon Jae-in said in a meeting with his senior secretaries Monday. “Still, we need to stay vigilant as sporadic small group infections in Daegu, North Gyeongsang and other areas continue.”
     

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    Covid-19 and Global Dollar Funding

    Thanks to a subscriber for this edition of Zoltan Pozsar and James Sweeney’s report for Credit Suisse on the plumbing of the global financial sector. Here is a section:

    Coronavirus: The Black Swan of 2020

    This note from Sequoia may be of interest to subscribers. Here is a section:

    Unfortunately, because of Sequoia’s presence in many regions around the world, we are gaining first-hand knowledge of coronavirus’ effects on global business. As with all crises, there are some businesses that stand to benefit. However, many companies in frontline countries are facing challenges as a result of the virus outbreak, including:

    Drop in business activity. Some companies have seen their growth rates drop sharply between December and February. Several companies that were on track are now at risk of missing their Q1–2020 plans as the effects of the virus ripple wider.

    Supply chain disruptions. The unprecedented lockdown in China is directly impacting global supply chains. Hardware, direct-to-consumer, and retailing companies may need to find alternative suppliers. Pure software companies are less exposed to supply chain disruptions, but remain at risk due to cascading economic effects.

    Curtailment of travel and canceled meetings. Many companies have banned all “non-essential” travel and some have banned all international travel. While travel companies are directly impacted, all companies that depend on in-person meetings to conduct sales, business development, or partnership discussions are being affected.

    It will take considerable time — perhaps several quarters — before we can be confident that the virus has been contained. It will take even longer for the global economy to recover its footing. Some of you may experience softening demand; some of you may face supply challenges. While the Fed and other central banks can cut interest rates, monetary policy may prove a blunt tool in alleviating the economic ramifications of a global health crisis.

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    Email of the day - on volume data

    I hope you and the family are enjoying a normal coronavirus free lifestyle?

    I was looking at some 2 year charts recently, and I know you are not always   fan, but I noticed quite large volumes spikes on some individual co charts, but especially on the DJ and the NASDAQ. Near the end of 2018 and again last week major volume spikes. My experience over the last 50 years has taught me though it's not 100 0/0 accurate, volume spikes can be a very useful tool for gauging tops and bottoms, more so for lows. I just thought subscribers might find this food for thought!!

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    The Coronavirus Hunter Is Racing for Answers in a Locked Lab

    This article by Robert Langreth for Bloomberg may be of interest to subscribers. Here is a section:

    Over the last five years, Baric, working closely with Vanderbilt University infectious-disease specialist Mark Denison, tested almost 200,000 drugs against SARS, MERS and other bat coronavirus strains.  He found at least two dozen that appeared to hinder the virus.

    Among the most promising was Gilead’s remdesivir, a drug that fared poorly when used against a recent Ebola outbreak in Africa. In the lab, it worked against numerous coronavirus strains, including SARS and other bat coronaviruses that are similar to the new strain. Every coronavirus it was tested on, “it had high potency and efficacy,” Denison says.

    That work was fortuitous. In early January, Baric got an urgent call from an infectious-disease colleague to send his unpublished data on remdesivir to colleagues in China who were dealing with a then-mysterious outbreak. Baric says he “was shocked” to see how fast the coronavirus was spreading.

    Since then, work at his lab has been virtually nonstop. Each scientist puts in from one to six hours inside two different clean rooms equipped to handle the virus. The lab’s workday begins at 6 a.m. and often goes until 11 p.m. Individual sessions are short for safety and practical reasons — researchers aren’t permitted to eat, drink or visit the bathroom once inside the lab. Everyone has to pass an FBI background check and undergo months of safety training.

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    Coronavirus Spread in China Slows Sharply But Doubt Remains

    This article from Bloomberg may be of interest to subscribers. Here is a section:

    Eighty-four percent of Chinese cases, 97% of critical cases and more than 96% of deaths are within the province, which was placed under mass quarantine by the government on Jan. 23 to slow the virus’ spread to the rest of the country. The ongoing lockdown of the region of 60 million people has led to widespread suffering and scores of preventable deaths as the local medical system collapsed under the strain.

    The lockdown also meant that China’s fatalities from the pathogen have been confined almost entirely to the province. As of Wednesday, 4.3% of people who were confirmed to have the virus in Hubei have died, while that rate is 0.8% in China outside Hubei.

    Over the past three weeks, China’s number of recovered patients has surged both in Hubei and the rest of the country, with the government sending in thousands of health-care workers to help in Hubei. Almost 65% of those who’ve been officially diagnosed with the disease are now better and out of hospital, according to the data from the National Health Commission on Thursday.

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    Nobody Knows II

    Thanks to a subscriber for this memo from Howard Marks which may be of interest. Here is a section: