Category: Barrons

Trump said in the tweet that he had spoken to the Saudi Crown Prince, who had spoken with Putin. “I expect & hope that they will be cutting back approximately 10 million barrels, and maybe substantially more.”

The jump in jobless claims for the week ended March 28 doubles the 3.3 million claims in the previous week, the Labor Department said Thursday. Economists expect the ranks of the unemployed to keep rising in the weeks ahead. Goldman Sachs, for example, predicted an increase of 6 million for the latest week and sees 18 million in claims by the end of April.

The supplementary leverage ratio, or SLR, requires banks to hold an extra buffer of high-quality capital against a bank’s total assets (including derivatives exposure and off-balance sheet transactions). Under the Fed’s new rule, banks’ Treasury securities and deposits with Federal Reserve Banks won’t count toward those assets.

There are several databases available for investors and others to track. Some, including the Centers for Disease Control and Prevention as well as the World Health Organization, lag behind others—including the Johns Hopkins Coronavirus Research Center—which are updated more frequently. The trends and totals, however, closely approximate one another.

“It will take time for the aerospace industry to recover from the crisis,” CEO Dave Calhoun said in a letter to employees on Thursday. “When the world emerges from the pandemic, the size of the commercial market and the types of products and services our customers want and need will likely be different.” He said the recovery process would take years.

It is a downbeat message. To address the “new reality,” Boeing is offering a voluntary layoff plan. It is essentially a buyout for employees who want to, or can afford to, leave the company.

In a statement released on Thursday, the board said an internal investigation found that Luckin’s chief operating officer, Jian Liu, along with several employees reporting to him, fabricated transactions worth as much as 2.2 billion Chinese yuan ($310 million) from the second quarter to the fourth quarter of 2019. The number hasn’t been independently verified by the special committee, said the company, and is subject to change as the investigation proceeds.

And in a March 26 letter to investors reviewed by Barron’s, WeWork said that $1.1 billion of debt financing committed by SoftBank had been conditioned on the now-scrubbed tender offer. Multiple sources connected with that $1.1 billion loan note that SoftBank hasn’t yet committed to go forward with the funding but that it still could.

On Wednesday, the Federal Trade Commission sued Marlboro maker Altria Group to demand the unwinding of its $12.8 billion investment in the e-cigarette seller Juul Labs. Before the FTC’s move, the tobacco giant had already written down its Juul investment by two-thirds because of disappointing e-vaping sales volumes and profits and private lawsuits.

The company said Thursday morning that it has priced private offerings of $4 billion of senior secured notes with a coupon of 11.5%. It also is raising $1.75 billion in convertible notes at 5.75%. The debt matures in 2023.

Cannabis operations in every state that allows them to operate are reporting a rush on dispensaries, which have been deemed “essential services” as states close other retail activities. Recreational sales are up, too. “Like alcohol, people cope with stress by using cannabis,” says Matt Hawkins, who runs $165 million in cannabis private-equity investments at Entourage Effect Capital.

Oil prices bounced back slightly around 9 a.m., with Brent crude futures down 8.1% to $22.92 and WTI crude down 5.4% to $20.35.

The basic dynamics in energy trading markets haven’t changed. Investors are concerned that Saudi Arabia and other nations have boosted production just as Covid-19 causes economies around the world to stall and stop using as much oil.

Macy’s has been hit hard by the coronavirus pandemic, with all of its stores closed since mid-March. Plummeting consumer discretionary spending has taken a huge toll on the company’s sales.

“While the digital business remains open, we have lost the majority of our sales due to the store closures,” Macy’s said. As a result, the company is “moving to the absolute minimum workforce needed to maintain basic operations,” the statement said. “There will be fewer furloughs in our digital business, supporting distribution centers and call centers so we can continue to serve our customers online.”

The Abbott test is the second rapid point-of-care test from a major medical-device firm approved in recent days. Last week, a Danaher subsidiary received an FDA emergency-use authorization for a Covid-19 test that can return results in 45 minutes.

Though not a major vaccine maker, Johnson & Johnson was among the first companies to announce a Covid-19 vaccine development program back in January. Now, the company said its program has developed a candidate vaccine and two backup candidates. It plans to begin testing the vaccine in humans in September.

While President Trump hasn’t shut the door on these companies receiving financial assistance, they currently don’t qualify as outlined in the $2 trillion stimulus package signed into law Friday. They are effectively precluded from aid in the Cares Act because they’re incorporated overseas in countries like Liberia and Panama, meaning they pay little in U.S. taxes.

Earlier this month, Microsoft disclosed a sharp increase in users of its Teams collaborative communications software to more than 44 million daily users. In the latest disclosure, Microsoft added that Windows Virtual Desktop usage is up more than three times and noted that government use of the company’s business intelligence software to share “dashboards” on the virus has surged 42% in a week.

Declared dividends among S&P 500 companies increased by 9% in the first quarter, but “we expect a wave of dividend suspensions, cuts and eliminations will result in dividends declining by 38% during the next nine months,” the note observes. As a result, the dividends paid out this year will end up being 25% below last year’s level, Goldman adds.

Nearly 50 companies tapped markets to raise $109 billion last week, the highest ever. About $63 billion of that came in the first half of the week, just as investors were withdrawing record amounts of cash from bond funds: There were $38 billion of outflows from investment-grade corporate bond funds in the week ended March 25, according to Refinitiv Lipper data.

The government wants to ensure mail and packages keep flowing during this unprecedented period of economic pause. It’s a necessary step given that logistics providers are the lifeblood of any economy.

The health-care provisions under the package, which requires approval from President Trump before going into effect, will be particularly welcome to families with high-deductible health insurance plans and either health savings accounts (HSAs) or flexible spending account (FSAs), which are pretax savings accounts specifically for health-care expenses.

The Senate approved the bill just before midnight Wednesday, sending the measure to the House for a planned vote on Friday. It was passed in that chamber by a voice vote.

The text of the bill includes measures that Democrats fought for in negotiations, including additional oversight of the $500 billion corporate aid fund and a significant expansion in the duration and generosity of unemployment benefits. Also included is a measure that will send many individuals $1,200 checks along with $500 per child.

“As usual with ‘this’ General Motors, things just never seem to work out,” Trump tweeted Friday. “They said they were going to give us 40,000 much needed Ventilators, “very quickly.” Now they are saying it will only be 6000, in late April, and they want top dollar. Always a mess with Mary B.,” he said in reference to the company’s CEO Mary Barra.

One big concern: The companies don’t qualify for financial assistance as outlined by the U.S. Senate’s $2 trillion stimulus bill. Recipients of aid, including loans or loan guarantees, must be “organized in the United States” under U.S. laws, have significant operations there, and have a majority of its employees based there as well, according to the Senate bill.

A key sticking point for the cruise companies is that while they are based in the U.S., they are incorporated abroad. That means they don’t pay a lot of U.S. taxes. They do pay state income taxes and port fees, according to The Wall Street Journal.

The University of Michigan’s index of consumer sentiment dropped to 89.1 in March from 101.0 in February. That’s the lowest level in more than three years, and the monthly decline is among the worst on record. Economists polled by The Wall Street Journal expected a slightly less severe drop to 90.0.

Dell said in an SEC filing that it is seeing “heightened interest in work from home solutions and continuing execution in its global supply chain, and remains confident in its liquidity position,” but that it is “unable to predict the extent to which the global Covid-19 pandemic may adversely impact its business operations, financial performance and results of operations for the current fiscal year.”

In statements Thursday, Mylan and Pfizer said that the deal, which was expected to close in the middle of this year, will now close in the second half of this year. They also said that a Mylan shareholder meeting at which shareholders were to vote to approve the deal has been postponed from April 27 to June 30.

Now, after a slow start, there are nearly 60 programs under way to develop a Covid-19 treatment and more than 40 to develop a vaccine, by both commercial and noncommercial labs, according to an accounting by the Milken Institute. Brian Abrahams, an analyst at RBC Capital Markets, thinks the biotech industry should be doing much more.

In a note out on Friday, SVB Leerink analyst Geoffrey Porges argued that share buybacks would face far more scrutiny after the current crisis, which could force biopharma executives to spend their cash in other ways.

One could say it was for Ackman—though perhaps not in the way he would have intended. The win was overshadowed by an emotional interview Ackman gave to CNBC on March 18, just several days before he finished unwinding the hedges. Questions subsequently arose about his motives for the CNBC appearance, in which the billionaire investor warned that “hell is coming.”

The certain rise in unemployment, plus the fall in global commodities, especially those related to energy, will hold down prices for some time. But once the crisis caused by this pandemic has passed, the aftereffects of the efforts to counter it could be bad news for bond investors, in the form of higher inflation and higher interest rates.

The bill passed the Senate unanimously and was headed to the House, where it is expected to pass in a voice vote Friday morning, setting up President Donald Trump to quickly sign it into law.

The aid package allows for one-time checks of $1,200 to Americans with adjusted gross income up to $75,000 for individuals and $150,000 for married couples. Individuals and couples are eligible for an additional $500 per child. The payments decline by $5 for each $100 of income over those thresholds, and phase out for individuals whose incomes exceed $99,000, $146,500 for head of households with one child, and $198,000 for joint filers without kids.

In addition to the one-time checks, the Senate aid package includes a broad expansion of unemployment benefits. The bill allows for such benefits to extend to nontraditional employees, including gig workers and contractors who lack benefits in some states. Current unemployment assistance would rise by $600 a week for four months (through July 31).

In the week ended March 21, seasonally adjusted initial jobless claims were 3.28 million, up more than 1,000% from a revised 282,000 in the prior week, the Labor Department said Thursday. The result was far worse than the average Wall Street estimate: Economists polled by Bloomberg expected 1.64 million in new jobless claims.

Air travel isn’t likely to recover soon. But the stocks could continue to climb as the risk of bankruptcies and a liquidity crunch fades.

Boeing—one of the two dominant aircraft makers—is supportive of the bill, but it isn’t clear the company will take bailout dollars. CEO Dave Calhoun said earlier this week Boeing won’t take special support if it comes with too many strings attached. Still, federal loan guarantees and payments to the aviation industry are good news for Boeing. It wants its customers to be healthy. And Covid-19 is the worst episode in the airline industry’s history.

According to the Senate text, the bill creates a $100 billion fund for grants to health-care providers to help with expenses or lost revenues attributable to Covid-19. The bill gives Secretary of Health and Human Services Alex Azar substantial leeway in how the funds will be allocated, according to an analysis from Raymond James analyst Chris Meekins.

In a letter dated March 18, Cheesecake Factory Chairman, founder, and CEO David Overton wrote that the chain’s locations will resume paying rent as soon as possible.

That’s because enticing consumers carries a risk of triggering fiscal pressure, analysts Miao Ouyang, Helen Qiao and Xiaojia Zhi at Bank of America Merrill Lynch, told clients in a note Thursday.

That gloomy assessment, however, doesn’t mean dividends are dead everywhere. “There are plenty of opportunities to find equity income right now,” says David Kelly, chief global strategist at JPMorgan Asset Management, though he cautions that it depends on the individual company and sector. “There are plenty of sectors that will get through in a tough scenario,” he says, pointing to financials and health care as examples.

To qualify for the provisions, individuals need to fall into one of two main categories. You, your spouse or a dependent is diagnosed with Covid-19, the disease caused by the new coronavirus. Alternatively, you qualify if you have experienced adverse financial consequences as a result of being quarantined, furloughed, laid off, having work hours reduced, being unable to work due to lack of child care or closures related to the coronavirus pandemic.

The precise language was still being written on Wednesday morning, but a few key points were emerging. Companies that get aid will be required to stop buying back their stock, an oversight panel will keep tabs on $500 billion in aid for troubled companies, and the medical system will get a major chunk of aid that Sen. Minority Leader Charles Schumer described as a Marshall Plan for facilities battling the coronavirus.

The company, which has vast holdings in the Permian Basin in the U.S. and other areas, also said it had made a deal with activist investor Carl Icahn to add his nominees to the company’s board of directors. Icahn had criticized Occidental for buying oil-and-gas producer Anadarko last year, saying the deal was too expensive. Buying Anadarko left Occidental with more than $30 billion in net debt at the end of the year.

It is rare for short-term Treasury yields to fall into negative territory, though not unprecedented. And it probably is a sign that the coronavirus cash grab hasn’t fully abated, despite U.S. authorities’ efforts to ease the impact of the virus on the country.

The company said Wednesday that it is pulling its full-year profit, sales, and earnings-per-share guidance because of an “unusually wide range of potential outcomes” during the first quarter of the year.

The move shows just how hard it is for any business—and retailers in particular—to fully understand the financial impact that the coronavirus outbreak will have. Target, for instance, has seen a boom in sales, but it has also spent $300 million over and above usual costs to keep its stores stocked, as supply chain disruptions and massive customer demand for specific items hit the company simultaneously.

While China is reportedly the world’s largest producer of the active pharmaceutical ingredients used to make drugs, India is a major manufacturer of generic drugs. But analysts suggest that the Indian order, meant to diminish the spread of Covid-19, may not be an issue for Mylan.

That’s the conclusion of the J.P. Morgan Global Quantitative and Derivatives Strategy team headed by Nikolaos Panigirtzoglou. It sees net purchases of $3.25 trillion in equities in major investment sectors over the rest of the year, a dramatic reversal of the net selling of $1.88 trillion the team estimates took place during the first quarter.

Late Tuesday, Facebook disclosed in a blog post that it has “seen a weakening in our ads business in countries taking aggressive actions to reduce the spread of Covid-19.” On Monday, Twitter sharply reduced its own March quarter revenue outlook, citing the impact of a slowing global ad market. While both Facebook and Twitter are seeing an increase in usage, there has not been an accompanying boost in revenue.

According to the association’s latest Weekly Mortgage Applications Survey, the volume of home-purchase applications for the week ended Friday was 15% lower than it was a week earlier. It was down 11% from the same week one year ago.

Many of these workers are in customer-facing roles in retail, travel, and food service. But their customers have disappeared. Lacking personal resources, these millions of Americans could be reduced to desperate straits without quick government help. “This is a real issue, from a survival standpoint,” Alpert says, “and from ensuring law and order.”

Most insurers have already said they would cover the costs of Covid-19 tests. Aetna appears to be the first major insurer to take this further step.

The company is “aggressively pursuing austerity measures” to preserve cash, CEO Mary Barra said in written comments. GM also said it would suspend its 2020 guidance. GM said that the combination of tapping its credit lines and its cash on hand would leave it with between $31 billion and $32 billion in cash at the end of the month.

Chevron had expected to spend $5 billion on share repurchases this year, and will end the first quarter having spent $1.75 billion, the company said. But the buybacks will end there.

The dramatic step is the first time the Olympics has been postponed in peacetime and comes as a devastating blow to the city of Tokyo and the Olympic movement.

That means shareholders don’t have to worry about dilution, and shares were up about 20% shortly before the close on Tuesday. During the financial crisis, car companies, banks and insurance firms gave the government equity in exchange for bailout funds.

In a statement on Tuesday morning, the auto maker announced plans to manufacture a number of devices and tools used by health-care workers treating Covid-19 patients, including plastic face shields, powered air-purifying respirators, and a simplified respirator.

In a filing with the SEC, the chip maker said that, to date, “Intel has kept its factories operational while safeguarding the health and safety of employees and continues to have a strong balance sheet.” But the company said the suspension of the buyback plan “is prudent given uncertainty regarding the length and severity of the pandemic.” Intel said it isn’t changing its dividend rate—the stock yields about 2.9%—and still has capacity to reinstate purchasers “as circumstances warrant.”

Howard Silverblatt, senior index analyst at S&P Dow Jones Indices, says an overall decline in dividend payments in 2020 “is very feasible” due to the coronavirus pandemic. That warning marks a drastic turnabout from the start of the year, when Silverblatt was expecting dividend increases of about 9% for S&P 500 companies.

Under a program it introduced on Monday, called the Secondary Market Corporate Credit Facility, the Fed can buy up to 20% of the assets of any exchange-traded fund that provides broad exposure to the investment-grade bond market.

This time around, moreover, there is no debate about the need for government intervention. In 2008—and well beyond—dissenters questioned the wisdom and fairness of bailing out the corporate sector, and especially the nation’s banks.

Fadia wrote that 10.2 million hydroxychloroquine pills were sold in the week ending March 13, according to data-science company Iqvia, well above the average weekly volume of 8.5 million pills.

“The coronavirus pandemic is causing tremendous hardship across the United States and around the world. Our nation’s first priority is to care for those afflicted and to limit the further spread of the virus. While great uncertainty remains, it has become clear that our economy will face severe disruptions,” the Fed said in a statement. “Aggressive efforts must be taken across the public and private sectors to limit the losses to jobs and incomes and to promote a swift recovery once the disruptions abate.”

The investment-grade corporate-bond market gained, even though strategists such as Daniel Sorid, high-grade bond strategist at Citigroup, characterized the size of the new corporate debt programs as modest.

“This necessary step protects our employees and the communities where they work and live,” said CEO Dave Calhoun in the company’s news release. “We will keep our employees, customers and supply chain top of mind as we continue to assess the evolving situation.”

Boeing added in an email to Barron’s that employees who cannot work remotely will receive paid leave for 10 working days, double the company policy.

The company said Monday that plummeting air travel has reduced demand from airlines and that its aviation subsidiary, GE Aviation, would lay off about 10% of its workers and furlough approximately 50% of its maintenance, repair, and overhaul employees for three months.

The indictment in Butte County, where 85 people died during the 2018 Camp Fire, charges the company with 84 counts of manslaughter and one count of unlawfully causing a fire.

The San Francisco-based company expects a slight decline in first-quarter revenue from the same quarter a year ago, and anticipates an operating loss. Twitter shares are down 24% in the last year.

The poster-child for the trend is Zoom Video Communications, an application spreading like wildfire. A case study is taking place in my own house. My college-freshman daughter is taking her spring semester classes over Zoom. My wife is preparing to teach a law school class by Zoom. A few days ago, I “attended” a class via Zoom. The tool is popping up everywhere, and the stock is taking off in response.

Shares of Teladoc Health, a telemedicine company, and Slack Technologies, the collaborative-communications software company, also soared on Monday.

The buyback plan is in addition to the $4.8 billion repurchase program announced on March 13. Combined, the repurchase programs would retire 45% of the company’s stock, SoftBank said. The company previously announced a $5.5 billion repurchase program in February 2019. SoftBank said it has about $245 billion of assets and $15 billion of cash on its balance sheet.

Already, the nation’s eight major banks have said they will suspend their stock-repurchase programs through the second quarter in an effort to support “customers, clients, and the nation’’ amid the pandemic. The move could be followed by other industries, especially those with deeply disrupted businesses such as energy and travel companies.

Royal Caribbean, which is the second largest U.S. cruise operator, said it now has more than $3.6 billion of liquidity. That includes cash deposits and existing undrawn revolving credit lines. Royal Caribbean added that it has financing committed for the ships that are on order.

Prices for U.S. benchmark West Texas Intermediate crude just a day earlier had posted their largest one-day percentage rise on record, partly due to comments from the Trump administration, which indicated that it was considering intervention in the oil-price war between Saudi Arabia and Russia.

The Fed’s original money-market lending program, introduced late Wednesday, was created to finance banks’ purchases of short-term corporate securities known as commercial paper (specifically from money-market funds). After this latest expansion, the Fed will also finance similar bank purchases of municipal debt maturing in less than one year.

Jim Paulsen, the Leuthold Group’s chief investment officer, sees the upturn in longer-term Treasury yields as a glass-half-full story. The history of market crashes since 1987 shows that the 10-year note’s yield turns upward as a bear market is close to running its course, he writes in a client note.

The number of cases in the U.S. more than doubled to 7,087 on Thursday, jumping by 3,551. It’s a huge jump, but the roughly 7,000 cases recorded by the WHO are only about half the number tallied by the Johns Hopkins Center for Science and Engineering database.

First, the good news: The number of new confirmed cases of the coronavirus in China has slowed considerably, and that suggests the risk from the virus isn’t indefinite. “It’s the uncertainty for what the virus is engendering that’s creating market chaos, but the important thing is that it’s a fading virus,” Alan Greenspan, former Federal Reserve Chairman and advisory board member at RockCreek, a $14 billion investment firm, said in a video to the company’s clients. “The book will close on this, but not right away.”

Manufacturers Honeywell International and 3M are stepping up production of N95 industrial face masks—which Vice President Mike Pence says can now be sold directly to hospitals in need. General Electric said its GE Healthcare subsidiary is committing more production lines to ventilators and adding shifts so lines can be active 24 hours a day.

“Today’s update represents a critical milestone on our journey to transform GE,” said General Electric CEO Larry Culp in a news release. “The value from this transaction will fortify our considerable sources to de-risk our balance sheet and continue to solidify our financial position.”

Even before the current coronavirus pandemic added new stresses to the financial markets, AT&T faced a pair of competing financial challenges: reducing its $163 billion debt position, while also maintaining its dividend, which currently provides investors with a 6.7% yield.

In a securities filing after the market closed Thursday, Carnival preannounced adjusted earnings of 22 cents a share, compared with 49 cents a share a year earlier. It added that the cornonavirus outbreak cost 23 cents a share, including canceled voyages, but the results exclude ship impairment and goodwill charges.

“The first thing you should know is that we continue to pay benefits,” said Andrew Saul, commissioner of the Social Security Administration, in a statement on Thursday.

This is true whether Americans are receiving their Social Security benefits or Supplemental Security Income payments via direct deposit or mail, though they should check in with the U.S. Postal Service for any updates as well. Right now, the USPS is “closely monitoring” the coronavirus, also known as Covid-19. The Surgeon General, World Health Organization and Centers for Disease Control and Prevention have all said there’s currently no evidence the disease can spread through mail.