GS - The Goldman Sachs Group, Inc.
158.00 -0.23 (-0.15%)
After hours: 5:39PM EDT
| Previous close | 146.93 |
| Open | 155.47 |
| Bid | 157.99 x 1800 |
| Ask | 158.16 x 800 |
| Day's range | 153.77 - 158.93 |
| 52-week range | 130.85 - 250.46 |
| Volume | 4,590,377 |
| Avg. volume | 4,322,071 |
| Market cap | 54.411B |
| Beta (5Y monthly) | 1.44 |
| PE ratio (TTM) | 7.52 |
| EPS (TTM) | 21.03 |
| Earnings date | 14 Apr 2020 |
| Forward dividend & yield | 5.00 (3.40%) |
| Ex-dividend date | 27 Feb 2020 |
| 1y target est | 211.45 |
- Bloomberg
Negative Rates No More Taboo in Israel as Virus Hits Economy
(Bloomberg) -- The Bank of Israel shifted course by cutting interest rates to just above zero, and hinted it may not stop there if the coronavirus continues to ravage the economy.In a sign it could be rethinking a long-held reluctance to push borrowing costs into negative territory, the monetary committee said it would expand the use of existing tools, including rates, and introduce new ones depending on the length of the crisis. On Monday, it brought the key rate back to its all-time low of 0.1% from 0.25%, in line with the forecasts of most economists surveyed by Bloomberg. Local equities and corporate bonds rose after the announcement, while the shekel pared some of its gains against the dollar.Israeli policy makers also announced what they called “unprecedented” new measures that include low-interest loans to banks and repurchase transactions with corporate bonds accepted as collateral. Only weeks ago, officials played down the potential for cheaper borrowing costs and concentrated on markets in designing their emergency response to the pandemic.“Stating that interest-rate instruments are still a viable tool is a very strong forward guidance,” said Guy Beit-Or, head of macro research at Psagot Investment House, in a note after the decision. “The Bank of Israel just signaled that, in their view, moving to a negative interest rate, if required, is no longer taboo.”The last time Israel started to cut rates under then-Governor Stanley Fischer, it ended up stopping just short of zero. But the old rules no longer apply as it looks to blunt the economic damage from the outbreak at a time of a near-total lockdown of domestic business and a liquidity squeeze in the financial system. Among major central banks, the European Central Bank and Bank of Japan already have negative rates.In an accompanying research staff forecast, the Israeli central bank’s economists said they see output contracting 5.3% this year with a policy interest rate between 0% and 0.1% at the end of 2020. Economic growth is forecast to snap back to a gain of 8.7% in 2021.‘Rate Tool’“We hope the outlook won’t be worse than we’ve forecast here, but if it is, we don’t see a further need to specifically use the interest rate tool,” Governor Amir Yaron told reporters after the decision. “But still, at a certain level, if we see more serious developments then we can certainly consider if it will be relevant to use this tool again.”The central bank’s previous guidance, last repeated in February after Israel reported its first case of the virus, said that “it will be necessary to leave the interest rate at its current level for a prolonged period or to reduce it.” Monday’s rate cut was likely needed to help launch the cheap-loan program, Beit-Or said. The challenge now is to offer immediate relief to an economy fast sinking into a recession while crippled by a dramatic upsurge in unemployment to 25%. Israel has shut down almost all business and movement outside the home. The country has 8,611 confirmed cases of the virus and more than 50 deaths.The central bank has already re-started a government bond-buying program for the first time since 2009, committing to purchase nearly triple the amount of sovereign debt it did amid the financial crisis.It’s additionally offering swaps transactions with banks to ease demand for dollars and has relaxed regulations on local banks.That 50 billion-shekel ($14 billion) government bond-purchasing program is expected to “be enough to aid this market, also if there will be further fiscal expansion,” Yaron said. “We, of course, will consider growing the program to the extent that there is a need to stabilize the market going forward.”The Bank of Israel has also sharply reduced its offerings of short-term debt, a way of loosening policy by absorbing less money. Buying corporate debt could be on the table if the government’s fiscal aid doesn’t help overcome the economic ordeal caused by the coronavirus outbreak.Yaron has meanwhile been asking for a primarily fiscal response, saying Monday that “most of the burden in dealing with the crisis falls on the government’s budget policy.”The government last week announced a substantial expansion in aid to a total of 80 billion shekels, equivalent to some 6% of Israel’s output. Much of it will be in the form of low-cost loans, while some is earmarked for health care and a social safety net.The program has come under criticism for its reliance on loans rather than grants, and for what some analysts say is a lack of clarity on the package’s targets. Many are also urging wider assistance to preserve the economy, with the Manufacturers Association calling for around 140 billion shekels in aid.“Going forward, we expect the Bank of Israel to keep the policy rate at the current rate for a prolonged period and to deliver any additional easing through increased liquidity and credit measures,” Goldman Sachs Group Inc. economists Murat Unur and Kevin Daly said in a report.“Given the new forward guidance, another rate cut is a possibility, but we think that the central bank is more likely to implement measures to ensure that the current low interest rate is transmitted to the rest of the economy, similar to the provision of monetary loans to banks released today,” they said.(Updates with economist comments in final two paragraphs)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
- Bloomberg
Virus Peril May Make April Cruelest Month for Emerging Markets
(Bloomberg) -- Emerging markets are about to find out just how much rougher April will be for them than developed economies.The signals are in the price swings anticipated by traders.The gap between a JPMorgan Chase & Co. gauge of expected swings in developing-nation currencies and a similar Group-of-Seven measure is the widest since June, after evaporating in March. Likewise, the spread between the Cboe Emerging Markets Volatility Index and the VIX gauge for U.S. stocks grew to 1.4 percentage points as of Friday’s close.While the Mexican peso edged up after a record intraday low in early Monday trading, some were skeptical on an economic plan unveiled on Sunday by President Andres Manuel Lopez Obrador. The plan to counter the coronavirus fallout was “underwhelming,” said Alberto Ramos, chief Latin America economist at Goldman Sachs Group Inc. Mexican authorities “seem to be underestimating the economic impact of the viral pandemic and the need for a deeper re-orientation of fiscal policy,” Ramos said.Oil’s newfound vigor also hangs in the balance as a row between Saudi Arabia and Russia threatens to scupper a possible deal among global producers to curb supply. The lack of such an accord would hit the world’s two largest crude exporters and other energy-dependent economies including Mexico, Colombia, Nigeria and Angola. Brent crude fell 2.6% to $33.23 a barrel at 12:00 p.m. in New York.Developing-nation central banks, meanwhile, have already used up much of the monetary arsenal needed to support their currencies and economies in the face of the virus. With interest rates in emerging economies at multi-year lows -- and near zero in the case of nations such as South Korea and Israel -- the carry returns that attract foreign funds are diminishing.“Uncertainty around both the supply-side and demand-side for oil should continue to effect volatility,” said Marshall Stocker, a money manager at Eaton Vance Corp. in Boston, which oversees about $520 billion of assets. “Policy adventurism can be expected at the country level as there is no history from which to identify an orthodox policy response. Therefore there will be health, fiscal, and monetary-policy mistakes and achievements made this coming and in future weeks.”Government spending pledges in some emerging markets dwarf what’s ever come before. Even so, they pale in comparison with the trillions of dollars promised in Europe and America. That discrepancy threatens to set the asset class back and is partly to blame for the record $83 billion sucked out of developing-nation stocks and bonds in March alone.South Korea, Israel, Poland DecideSouth Korea will decide on its benchmark interest rate on Thursday, with Bloomberg Economics forecasting it will remain on hold following an emergency cut of 50 basis points in March“The economy is set to contract and inflation is moving further away from the central bank’s 2% target,” Bloomberg Economics said in a note. “Even so, the Bank of Korea may conserve its policy ammunition at this meeting as it assesses the impact of emergency monetary and fiscal stimulus”Israel’s central bank cut rates to 0.1% from 0.25% on Monday. It was the authority’s firs rate reduction since 2015 and announced additional measures that include low-interest loans to banks and repurchase transactions with corporate bonds accepted as collateral.Poland will likely keep benchmark borrowing costs unchanged on Wednesday. Serbia will decide the following dayCzech lawmakers are expected to approve a new law on the central bank, which will give it an option to start asset purchasesCrude Wild CardThe Russian ruble and Peruvian sol outperformed other emerging-market peers last week as Brent crude rebounded 37% on hopes that global producers will decide to make historic output cuts. The OPEC+ meeting was initially expected for Monday, but got delayed to April 9 as Riyadh and Moscow trade barbs about who’s to blame for the collapse in oil prices. A failure to come to an agreement would likely cause prices to slide again.Read more: Oil Negotiators Race for Pact With U.S. Role in BalanceRead more: Aramco’s Bondholders Get Dragged Down by Saudi Oil-Price WarInflation, Foreign ReservesIHS Markit’s March services PMI index for India fell to 49.3 from 57.5 in February, data released on Monday showed. The composite PMI index dropped to 50.6 from 57.6The Philippines and Thailand will both publish inflation data Tuesday, with the former’s reading forecast to slow for a second month. Taiwan will report its inflation figures on Wednesday, while China’s headline rate is also expected to slow in Friday’s dataInflation in Russia probably accelerated to 2.7% in March from 2.3% as the ruble declined along with oil prices. But price pressure will abate as the pandemic weighs on demand, creating room for the central bank to look through temporary ruble weakness and resume easing once financial markets stabilize, according to Bloomberg EconomicsIndonesia, Taiwan, the Philippines, China and Malaysia are all due to report March foreign reserves on Tuesday. These will give an indication about the extent of local currency defenses across the region -- after Korea’s reserves fell by the most since 2008 in March.Still, Malaysia may be reluctant to show a number below $100 billion, making it likely that much of Bank Negara’s intervention to support the ringgit was undertaken through FX forwardsThe same will be true of China’s more distant but psychologically important $3 trillion figure. Its central bank is also likely to use other means to defend the currencyBrazil’s February retail sales figures, set for release on Tuesday, are expected to show growth from a year prior. An economic activity reading for the same month will also probably be positive, though both figures reflect a period largely before the coronavirus hit. March IPCA numbers should flag low inflation, according to Bloomberg EconomicsMexico’s inflation decelerated in March, data on Tuesday are expected to show. Traders will also eye industrial production numbers on Wednesday for clues to the economic toll of the virus(Updates MXN direction in fourth paragraph, Israel rate cut in 11th)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
- Bloomberg
Jamie Dimon Sees ‘Bad Recession’ and Echoes of 2008 Crisis Ahead
(Bloomberg) -- Jamie Dimon said the coronavirus pandemic will lead to a major economic downturn and stress mirroring the meltdown that nearly brought down the U.S. financial system in 2008.“At a minimum, we assume that it will include a bad recession combined with some kind of financial stress similar to the global financial crisis of 2008,” the chief executive officer of JPMorgan Chase & Co. said Monday in his annual letter to shareholders. “Our bank cannot be immune to the effects of this kind of stress.”The 23-page letter, his shortest since 2008, came less than a week after Dimon told staff he’d returned to work after undergoing emergency heart surgery. It was his first public commentary about the coronavirus since the bank’s investor day on Feb. 25. At the time, the outbreak still seemed a distant threat, with fewer than 60 cases in the U.S. and none in New York.Dimon, the only current CEO who steered a major U.S. bank through the financial crisis, said JPMorgan’s earnings will be “down meaningfully” this year, though the bank is “unlikely” to cut its dividend. Such a move would only result from “extreme prudence,” he said, adding that JPMorgan will give more details on the impact when it reports first-quarter earnings later this month.The 64-year-old CEO outlined initiatives his bank is taking to support employees, businesses and the community, but refrained from offering long opinions about public policy that marked previous missives.Read more: What to Know About Recessions as World Heads Into One: QuickTakeHe said 180,000, or about 70%, of the firm’s employees are working from home, and the bank is giving payments of $1,000 to those whose jobs don’t allow them to work remotely.JPMorgan has been waiving fees for some loans, allowing customers to defer payments on mortgages and auto loans, and removing minimum payment requirements on credit cards. It’s also extended $950 million in new loans to small businesses over the past 60 days, and is planning to lend an additional $150 billion to clients across the world.Regulatory ReviewAfter the crisis, “we should use the opportunity to closely review the economic response and determine whether any additional regulatory changes are warranted to improve our financial and economic system,” Dimon wrote. “There will be a time and place for that -- but not now.”Dimon has become a spokesman for Wall Street thanks to his frequent public appearances, outspoken nature and nearly 15-year tenure at the biggest and most profitable bank in America. His absence while he recovered from surgery was felt across the industry as policy makers grappled with dire warnings about the economic effects of the pandemic and governments stepped up efforts to keep millions of people at home to stem the spread of the highly contagious virus.Dimon was more pessimistic about prospects for the economy than some industry figures were when the scale of the crisis was first becoming clear. A month ago, as stock markets were sliding, former Goldman Sachs Group Inc. CEO Lloyd Blankfein said in a tweet to “expect quick recovery when health threat recedes.” He said the economy “will avoid systemic damage” that takes years to work through.‘Forever Lost’Dimon said JPMorgan has been working closely with the government during the crisis, but the bank “will not request any regulatory relief” for itself. Still, regulators could change capital and liquidity requirements to help more capital flow through the system, he said.“Some rules can improperly prevent healthy, well-capitalized banks from lending freely in times of stress,” Dimon said. “This can hurt customers as the crisis deepens. Leaving high-quality, available liquidity undeployed in times of need is an opportunity forever lost.”He applauded recent actions by U.S. Department of Treasury and the Federal Reserve, which he said helped mitigate the economic impact of the virus.Shares of JPMorgan rose 6.3% to $89.36 at 9:48 a.m. in New York, more than the 4.1% gain in the S&P 500 index, which rallied after virus hot spots New York, Italy and Spain posted improvements in death rates over the weekend. JPMorgan’s stock has tumbled 36% this year, less than the 43% slump in the KBW index of bank stocks.Until last year, Dimon’s annual missives had gradually gotten longer, more than tripling in length since he took over as CEO at the end of 2005. He writes the letters himself, but drafts are reviewed and edited by the bank’s legal, accounting, compliance, public-relations and government-affairs teams before they’re published.Other HighlightsJPMorgan has been stress-testing the impact that adverse scenarios, such as a jump in unemployment to 10% and a 50% drop in the stock market, would have on the bank. The firm’s $48 billion in pretax earnings last year would enable it to remain profitable even if revenue fell 20% and credit costs rise $20 billion from 2019, he said.Companies have drawn more than $50 billion of their revolvers -- more than they did during the global financial crisis -- to shore up liquidity, Dimon said. In March, the firm provided more than $25 billion of new credit extensions to companies that requested it.Dimon said people could return to work more quickly if governments made tests widely available to determine who has recovered from the disease. “The country was not adequately prepared for this pandemic,” he said. “Done right, a disciplined transition would maximize the health of Americans and minimize the time, extent and suffering caused by the economic downturn.”(Updates with share price in 14th paragraph, bullet points at end.)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
- Zacks
3 Goldman Sachs Mutual Funds You Must Buy
Below we share with you three top-ranked Goldman Sachs mutual funds. Each has a Zacks Mutual Fund Rank 1 (Strong Buy) or 2 (Buy).
- Bloomberg
Oil Leaps on Potential Global Output Cuts, Though Doubts Persist
(Bloomberg) -- Oil posted a record weekly jump on hopes that global producers will decide to make historic output cuts next week, though optimism was tempered by concern that the curbs won’t avert a glut.The OPEC+ coalition including Saudi Arabia will hold a meeting of its members by video conference on Monday, with the gathering open to even producers outside the group. While it’s unclear who will attend, market watchers are predicting that stockpiles are likely to swell even if global supplies are cut by 10 million barrels a day.Investors will be closing watching the guest list of the meeting -- especially names outside the Organization of Petroleum Exporting Countries and its allies -- after Saudi Arabia made clear it will only cut production if others, including the U.S., shoulder some of the burden.U.S. West Texas Intermediate futures ended the week up 32%, while Brent crude jumped 37%. Still, prices are less than half the levels at the start of the year, with the coronavirus crisis crushing demand.See also: Trump’s Push for Huge Deal to Cut Oil Supply Draws Disbelief“I think Russia, Saudi Arabia and OPEC are coming to the conclusion that if they don’t agree to something, it will be forced on them by the market,” said Brian Kessens, a portfolio manager at Tortoise Capital Advisors. “Any cuts will extend the run way to June instead of May, which is helpful as countries try to work through the coronavirus lockdown. But it only softens the blow.”One delegate from the producer group said a global cut of 10 million barrels a day is a realistic goal. Russian President Vladimir Putin told the country’s top oil executives that producing countries should join together to slash output to reverse the collapse in prices, adding that worldwide curbs of a little above or below 10 million barrels a day are possible.Meanwhile, U.S. President Donald Trump is convening an extraordinary gathering of the nation’s biggest refiners and producers at the White House on Friday. They are expected to discuss possible relief efforts from the administration, including potential American output cuts.Getting countries from all over the world to agree would be a tough task. Even if that’s successful, an output reduction of the size that’s being discussed will be just a fraction of the 35 million barrels of daily demand destruction some traders now see.Citigroup Inc. and Goldman Sachs Group Inc. have argued any supply-reduction deal would anyway be too little, too late as consumption craters due to efforts to stem the spread of the coronavirus.“A near-term return to production cuts still seems unlikely, and we are skeptical that such a large coalition could be put together,” Morgan Stanley analysts wrote in a note. Some of the necessary production shut-ins are likely to occur in the U.S. due purely to market forces.The announcement of a potential supply cut first came from Trump, who tweeted on Thursday that he had spoken to Saudi Crown Prince Mohammed bin Salman, who had in turn spoken with Russia’s Putin.However, the U.S. leader’s goal is purely aspirational and will ultimately hinge on whether Riyadh and Moscow can reach a deal, a person familiar with the situation said.Apart from benchmark futures, hopes for the curbs have boosted every corner of the market over the last 24 hours, from time spreads used to gauge market health, to key North Sea swaps. Those gains are now easing as traders worry that the undertaking may be too fraught with hurdles.The physical oil market of actual barrels of crude continued to remain under pressure, giving producers more urgency to act. Belarus said Russian companies are offering Urals oil for $4 a barrel.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
- Bloomberg
French Game Developer Voodoo’s Backers Consider Stake Sale
(Bloomberg) -- Voodoo SAS’s backers are exploring the sale of a stake in the French mobile game developer, people with knowledge of the matter said.Shareholders of Voodoo are working with an adviser as they consider selling part or all of their holdings in the company, according to the people, who asked not to be identified because the information is private. A deal could value the Paris-based firm at more than 1.5 billion euros ($1.6 billion), the people said.They are gauging interest from potential investors including rival game developers such as Ubisoft Entertainment SA and Zynga Inc., the people said. Deliberations are at an early stage, and there’s no certainty they will lead to a transaction, the people said.The plan to sell is a rare example of a Europe deal process launching in the middle of the coronavirus-led market rout that’s hampered M&A activity globally. The game industry is one of the few that’s benefited from the crisis, which has confined millions of people across the continent in their homes.Mobile game downloads globally jumped 23% in March from February, hitting the highest-ever level for a single month, according to data from analytics firm Sensor Tower Inc. Gross revenue from mobile games rose 7% from the previous month, the data show.Voodoo sold a stake in 2018 to a Goldman Sachs Group Inc. private equity fund called West Street Capital Partners VII. It said at the time that cofounders Alexandre Yazdi and Laurent Ritter retained a majority holding.The company, which was started in 2013, makes easy-to-play casual games including “Helix Jump,” “Roller Splat” and “Snake VS Block.” Many are free to download with optional in-game purchases. The company’s games have over 300 million monthly active users and have generated more than 2 billion downloads, according to its website.Representatives for Voodoo, Goldman, Ubisoft and Zygna declined to comment.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
- Bloomberg
Now Private Equity Wants In on the Bailout? Spare Me
(Bloomberg Opinion) -- Private equity firms are crying foul, fearful that companies they own are largely cut off from the $377 billion of small business loans and grants baked into the U.S.'s $2 trillion coronavirus relief bill. But do they really deserve any part in a bailout?Statistics from corporate loan borrowers that make $50 million a year or less in Ebitda don’t paint a pretty picture. An average middle-market business has a debt-to-Ebitda ratio of 4.8 times and is paying an interest rate of 7.7%, data from S&P Global Market Intelligence show. Put another way, this company is using about 37% of its operating earnings to pay interest alone(1) — and that was before the outbreak. So if this business were running at, say, one-third of its full capacity because of regional lockdowns, it wouldn’t even be able to cover its interest payments. A cheap loan from the Small Business Administration would certainly help. But before asking Uncle Sam for money, private equity firms should consider their role in this mess. Should they be liable if this virus morphs into a full-blown credit crisis?In the past decade, the sector started urging portfolio companies to tap the loan market rather than issue high-yield bonds, which were largely closed off to businesses their size. Today, roughly half of leveraged loans, or about $1.5 trillion, are issued by sponsors for their holdings.There’s certainly a good case for private equity firms to back leveraged loans. Unlike bonds, these loans can be called immediately — that is, borrowers can redeem them at any time — which allows portfolio companies to refinance more easily. What’s more, these businesses tend to be closely held; the loan market’s opaque reporting standards spare firms from quarterly financial disclosures to the Securities and Exchange Commission.But private equity’s large presence in the market has caused a fast deterioration of loan quality. Roughly half of borrowers are rated B or worse, up from 30% in 2012, data compiled by Citigroup Inc. show. After all, levering up to juice returns is the sector’s forte. Last year, more than 75% of deals included debt multiples greater than six times Ebitda, compared with 25% after the collapse of Lehman Brothers Holdings Inc., as I’ve noted.Everyone suffers in times of distress, private equity firms and corporate issuers alike. In March, the average yield of the S&P/LSTA U.S. Leveraged Loan 100 Index shot as high as 13% from 5.6% just a month earlier, as the Big Three ratings agencies were busy downgrading high-yield issuers at the fastest pace in at least a decade. If the Federal Reserve hadn’t stepped in with new financing facilities, how would Middle America roll over its loans?According to the parameters of the rescue bill, companies with more than 500 employees aren’t eligible for small-business relief. That number includes affiliates, meaning staff at portfolio companies are being added together. To get around this, the industry wants the Trump administration to view their investments as independent entities. In reality, these holdings don’t operate separately, at least not in terms of financing decisions. Private equity firms have teams of lawyers and advisers dedicated to crafting credit agreements that give them as much financial flexibility as possible, such as removing caps on leverage ratios. As a result, the leveraged loan market is now filled with covenant-lite loans, as my colleague Brian Chappatta has written. The wheel of fortune is turning. Banks that agreed to help private equity firms may be too busy with other obligations right now. With blue-chip companies drawing at least $124 billion from their credit lines in the first three weeks of March alone, and dollar funding tight, do lenders have the bandwidth? There are $66 billion leveraged loans mandated, or in the works, and about $10 billion under syndication — that is, marketed but not priced, data compiled by Bloomberg show.There’s good reason to believe the current jitters go beyond a few canceled deals, and could threaten to trigger system-wide margin calls. Leveraged loans aren’t mark-to-market, but the financing facilities that banks provide to asset managers (which allow the latter to buy such loans before packaging and selling them as bonds) tell a lot about the quality of these assets. Goldman Sachs Group Inc. and JPMorgan Chase & Co. already demanded their clients to put up extra collateral, or face the risk of liquidation, Bloomberg News reported last month.It’s unclear if industry titans can convince President Donald Trump to bail out their investments. For its part, the Federal Reserve is loath to make loans to distressed companies. Since the passage of the Dodd-Frank Act in 2010, the Fed isn’t allowed to take big credit risks and can only lend with a high degree of protection.Private equity may be in the eye of the storm, but it certainly doesn’t need a bailout. Last year, capital committed to this sector grew 20% to a record $1.3 trillion, according to data provided by PitchBook, a Morningstar company. So instead of trying to pass off their portfolio companies as small businesses, firms can use that dry powder to shore up the balance sheets of their investments.These firms came out of the collapse of Lehman Brothers fairly unscathed. Perhaps the coronavirus could finally teach them a lesson: Using cheap debt to pay themselves dividends isn’t such a savvy investment model after all. (1) 4.8 times 7.7% comes to 37%.This column does not necessarily reflect the opinion of Bloomberg LP and its owners.Shuli Ren is a Bloomberg Opinion columnist covering Asian markets. She previously wrote on markets for Barron's, following a career as an investment banker, and is a CFA charterholder.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
- Bloomberg
Oil Soars on Trump’s Contentious Saudi-Russia Output Cuts Claim
(Bloomberg) -- Oil soared after U.S. President Donald Trump said Saudi Arabia and Russia would make major output cuts, though uncertainty swirled over the volume of curbs and whether reductions would be made at all.While Trump tweeted that cuts of 10 million to 15 million barrels were possible, he didn’t specify if that reduction would be per day. He also said he spoke to Saudi Crown Prince Mohammed Bin Salman about the market.His comments immediately triggered skepticism, even within the U.S. government. One person familiar with the administration’s discussions with the Saudis said there was widespread internal confusion about what the president was referring to and the numbers he mentioned may not be reliable.The prospect of the U.S. joining in on any output cuts was raised after Ryan Sitton of the Texas Railroad Commission, in a rare move for the state’s oil regulator, spoke with Russian Energy Minister Alexander Novak on reducing global supplies by 10 million barrels a day. He said he would also talk to the Saudi oil minister soon.Meanwhile, Kremlin spokesman Dmitry Peskov said Russian President Vladimir Putin hasn’t spoken to the Saudi crown prince and hasn’t agreed to cut oil production to boost prices.The Middle East kingdom also didn’t confirm the cuts, but called for an urgent meeting of the OPEC+ producer alliance to reach a “fair deal” that would restore balance in oil markets, state-run Saudi Press Agency reported. Any curbs by the group would be conditional on other countries joining, according to a delegate.U.S. West Texas Intermediate futures jumped as much as 35%, before closing up almost 25% -- their biggest single-day advance ever. Brent crude increased as much as 47%, the global benchmark’s largest surge in intraday trading.“The 10, 15 million barrel a day cut is just not going to happen. On top of that, Russia has older oil wells, so they can’t restart in the same way that Saudi Arabia can,” said Tariq Zahir, a fund manager at Tyche Capital Advisors.If Trump meant 10 million barrels per day, that would equal both Moscow and Riyadh curbing nearly 45% of their production in what would prove an unprecedented move. If collective action does remove that much from the market, that would be the equivalent of about 10% of world demand prior to the impact of coronavirus crisis.Still, that may not be enough to stop the pain that’s rippled across the energy industry as demand craters with the coronavirus outbreak shutting down economies around the world.Oil’s move comes after prices were already climbing following China’s instruction to government agencies to start buying cheap crude for its strategic reserves.The Trump administration will also rent space in the U.S. emergency oil reserve to domestic producers that are scrambling to find places to store excess barrels. After years of saying OPEC should work to reduce oil prices, Trump has recently changed tack as American shale producers struggle in the wake of crude’s collapse.The person familiar with the administration’s discussions with Saudi Arabia said U.S. leverage had been undermined by the president’s conflicting messages.The sudden jerk in prices Thursday also reverberated across the oil futures curve, with the prompt WTI timespread narrowing by almost 58% to trade at negative $1.45 a barrel in the 15-minute period following Trump’s tweets. The six-month spread, or gap between the May and November contracts, also narrowed by as much as $3.78 a barrel.Meanwhile, Brent’s premium over WTI, which had been hovering at around $1 barrel, widened to as much as $3.09 a barrel.Before the news on Thursday, Saudi Arabia hadn’t appeared to relent on its bid to flood the market, saying a day prior it was pumping at a record and had this week loaded almost 19 million barrels of oil in a single day.Goldman Sachs Group Inc. also doesn’t see a bright outlook. In a note earlier this week, it said any conceivable oil production cut by the U.S., OPEC+ and Canada would still “fall well short” of its estimated 26 million barrels a day of demand loss and only provide “fleeting support to inland crude prices.”Meanwhile, the physical crude market continues to show deepening signs of strain.Dated Brent, the benchmark for two-thirds of the world’s physical supply, was assessed at $15.135 on Wednesday, the lowest since at least 1999. Crude has slipped below $10 in some areas including Canada and shale regions in the U.S., Belarus wants to buy Russian oil for $4, while some grades have posted negative prices.As supply balloons, there are growing signs that the world is running out of places to store the glut.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
- Bloomberg
Goldman Sachs Has a Point on Credit Recovery, But Be Very Careful
(Bloomberg Opinion) -- With $250 billion of new U.S. bond issues at investment grade since the middle of March, and 150 billion euros ($164 billion) in Europe, the high-end credit market is an undoubted beneficiary of the central banks’ coronavirus stimulus plans. The debt capital market is definitely back open.Indeed, analysts at Goldman Sachs Group Inc. have bravely ventured that the worst of the widening of credit spreads — where the yield on corporate debt starts to increase faster than that of benchmark bonds — may be over for high-grade issuers.As I’ve written before, it’s important not to see this as a sign that all is well in the entirety of the credit markets: Companies with non-investment grade paper are crucial to the real economy too, but junk bonds are a long way from being in a good place. Defaults are looming.Setting aside the broader economic concerns of this state of affairs, there will be opportunities for investors in finding companies that will emerge from the crisis stronger — or the ones that will get most state support, if you’d prefer to be cynical. Credit selection, akin to stock-picking, will be the answer for those hunting yield. Tread carefully among the rubble and you might find some sparklers.As the Goldman analysts say, the high-grade part of the market is functioning well. There are 16 new issues slated in the euro debt capital markets on Thursday, including bonds from corporate giants such as BP Plc, British American Tobacco Plc and Royal Dutch Shell Plc. There’s even a rare deal coming in sterling, a market that’s been largely shut, from carmaker Volkswagen AG. That will be a significant test for a sector that’s been effectively shutdown by Covid-19.Credit spreads blew out spectacularly in March, and while things have improved, the environment has changed profoundly — even for the higher quality stuff. The premium offered on yields for new issues and overall credit spreads are significantly wider than during the first two months of this year, before the coronavirus struck the West in earnest. For corporate issuers, the heady days of rock-bottom interest rates are over, but this is better news for investors. The potential for positive performance is phenomenal, explaining why so many are diving back in to try to outperform the index. The European Central Bank has 1 trillion euros of bond purchases to complete this year, with as much as 20% of that to steer into eligible investment grade companies. That will be a major tailwind for a spike in the value of corporate debt.The ECB excludes financial firms and junk bonds from its Quantitative Easing program, but the crowded demand for high-quality paper will no doubt steer people toward non-investment grade sales, helping issuers. Also, whisper it, but the eligibility criteria for QE might well be softened.High-yield is still suffering badly from blown-out credit spreads. But it can offer the biggest opportunities to investors, especially if the particular company is critical to any economic recovery. Government credit and bailout plans might add to the appeal of certain sectors such as infrastructure, health and utilities. Less vital industries in the junk bond space will have to pay up to attract buyers. The beleaguered cruise liner company Carnival Corp had to pay a whopping 11.5% coupon to raise $4 billion this week. To get a sense of how far things have gone south for Carnival, at the beginning of March the yield on its existing three-year dollar bond had slipped below 2%. Bank debt might be popular too. Lenders’ senior investment-grade paper is already practically backstopped by national central banks. Subordinated bank debt remains for the brave, albeit the riskiest additional tier-1 perpetuals (known as CoCos, where investors lose out if a company goes bust) will always have their fans among those clamoring for proper yield. Selecting which companies can weather a crisis versus the dead ducks has probably been the most overlooked financial skill-set since the Lehman Brothers crisis, especially in corporate bonds. Blanket QE and the remorseless rise of passive investing has masked what active managers should be best at. It will pay in future to invest in a more selective fashion rather than simply buying the index.This column does not necessarily reflect the opinion of Bloomberg LP and its owners.Marcus Ashworth is a Bloomberg Opinion columnist covering European markets. He spent three decades in the banking industry, most recently as chief markets strategist at Haitong Securities in London.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
- Bloomberg
I Manage Money for a Living. Here’s What I’m Telling My Clients.
(Bloomberg Opinion) -- I spent the better part of the last three weeks on the phone with clients of my asset-management firm and friends who wanted a sounding board about markets. That’s not a complaint. For me, one bright spot of this crisis has been a return to indulgently long phone conversations, a throwback to a simpler time before smartphones and social media. Three questions came up routinely in those conversations, which makes me think they’re on a lot of investors’ minds. My thoughts are certainly not novel. They borrow liberally from investing giants such as Warren Buffett, Jack Bogle, Seth Klarman and others too numerous to name, and financial writers who have covered similar ground over the years and in recent days. But given the opportunity for costly mistakes during market upheavals, it never hurts to revisit some common pitfalls. The question that came up most is whether investors should sell their stocks now and buy them back later when they decline further. The spread of coronavirus and the resulting economic damage is expected to worsen. As it does, the thinking goes, stocks will continue to decline.It’s a natural impulse, but it misses a crucial aspect of the way markets work, which is that prices instantly reflect investors’ expectations about the future. That’s probably why, to many investors’ surprise, the U.S. stock market held its ground after dreadful news last Thursday that 3.28 million workers filed for unemployment the previous week, nearly quintupling the previous record. While exact numbers are never known in advance, a surge in initial jobless claims was widely expected well before the Labor Department released its official tally.More bad news is expected. Goldman Sachs Group Inc. said on Tuesday that it expects the U.S. economy to shrink by an annualized 34% in the second quarter and unemployment to rise to 15% by mid-year before a recovery takes hold in the third quarter. That, too, is reflected in stock prices. The prospect of future declines depends on whether expectations become even more dire. But unless investors can predict if the outlook will darken further, there’s no reason to think they can anticipate the market’s next move. And that’s only half the battle. Those who manage to get out before another market drop must decide when to get back in, which is never clear. Market turns tend to be sudden. By the time it feels safe, the market is often sharply higher, leaving investors with regret about missing the bottom. Then comes the temptation to wait for the market to revisit its lows, an opportunity that may never come.I know investors who sold their stocks when Lehman Brothers collapsed in September 2008, months before the market bottomed around the financial crisis. What seemed like a stroke of genius at the time became a harrowing trial. The market unexpectedly turned higher in March 2009 and never looked back. More than a decade later, some of those investors are still waiting for that elusive re-entry despite the likelihood that the market will never revert to that September 2008 level. There’s plenty of evidence showing that binary market timing, or all-in-all-out moves around markets, is a good way to lose money. I’ve never even seen it work in back tests, which have the formidable advantages of perfect hindsight, zero emotion and no cost. Every time someone tells me binary market timing is possible, I ask for a successful back test, and I have yet to see one. A second question is whether retirees have time to wait for stocks to recover. If history is any guide, the answer is most likely yes. There have been 10 bear markets in the U.S. since 1948, excluding the current one, as measured by a 20% or greater decline in the S&P 500 Index. The average number of years from peak to recovery — that is, the time it took for the S&P 500 to climb back to its previous high — was 3.9 years, and the median was 2.7 years. On five of those occasions, the market recovered in two years or less. In other words, market downturns tend to feel a lot longer than they are.The third question cuts entirely in the opposite direction: With markets down and interest rates at historic lows, should investors borrow money to buy stocks? The answer is no. While it’s safe to assume that markets will recover eventually, the path is unknowable. That’s a problem for investors playing with other people’s money. If markets fall further before recovering — a distinct possibility given all the uncertainty, particularly in the U.S., where stocks aren’t cheap — those investors may be forced to sell at even lower prices to meet margin calls. Borrowed money robs investors of time, which is arguably their only edge. Market downturns tend to provoke extreme reactions, and this one is no different. Yes, savvy investors can pick up some bargains by rebalancing their portfolios or even tilting toward their most beaten-down investments. U.S. investors might also lighten up on home bias, as there are better bargains in overseas stocks. But when markets are roiling, don’t discount the value of doing nothing. I had a seventh-grade shop teacher who used to say, “Sometimes I sit and think, and sometimes I just sit.” For many investors, this is probably a good time to just sit. This column does not necessarily reflect the opinion of Bloomberg LP and its owners.Nir Kaissar is a Bloomberg Opinion columnist covering the markets. He is the founder of Unison Advisors, an asset management firm. He has worked as a lawyer at Sullivan & Cromwell and a consultant at Ernst & Young. For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
- Bloomberg
Negative Oil Prices? They’re Already Here
(Bloomberg Opinion) -- Oil markets are in pain. Demand has plummeted, with about three billion people under lockdown just as the world faces a historic supply glut. The world’s crude storage, meanwhile, is filling fast, from underground caverns to rail cars and tankers. For landlocked producers, that hardly matters: Some are already paying customers to take their oil away.The consequences will be long-lasting. Drillers in the U.S. and elsewhere are scaling back or shutting down production. Against a background of steep spending cuts, not all of that will be swiftly reversible. Price relief will hinge on the world’s convalescence.The collapse in appetite for gasoline, jet fuel and diesel has been unprecedented in speed and scale. Goldman Sachs Group Inc. estimated Monday that with economies representing 92% of global gross domestic product now under some form of social distancing, the loss of demand this week stands at 26 million barrels per day, roughly a quarter below last year’s levels. Over a month, that’s almost 800 million barrels lost. Numbers since published from the shuttered economies of Italy and Spain suggest levels of destruction could be even worse. Spanish diesel demand is down 61%. The collapse is translating into a surplus that’s straining refineries, pipelines and the world’s limited ability to squirrel away oil.There is no precise estimate for how much capacity the world has to store oil products. Analysts at S&P Global Platts estimate 1.4 billion barrels, including 400 million of floating storage. So far, 50% of that has been used: The figure will rise to 90% by the end of April. It’s a squeeze visible in freight rates, with fleets of very large carriers filling up, making it harder to use them to store oil or even move it to a buyer. Costs for the benchmark journey from the Middle East to China have risen sevenfold; Reliance Industries Ltd. paid $400,000 a day for a supertanker to haul oil from the Middle East to India’s west coast in early April.For landlocked drillers, though, there are greater worries. They are facing a lack of local storage, and pipeline companies asking them to cut back or prove they have a buyer for their crude before loading. They simply can’t get oil to the right place, at the current price. Meanwhile, refineries are cutting back as they reach storage limits.This all means that negative oil prices — when producers are effectively paying customers to take the oil — aren’t only possible, but already a reality. The global benchmarks for oil, West Texas Intermediate and Brent, have dropped about two-thirds this year. They aren’t about to dip below zero. You won’t get paid for filling up at the pump. In the neighborhood of $20 a barrel, though, where your oil is now matters almost more than how much it costs you to produce it.Check out grades that demand expensive refining or in locations requiring costly transport. Wyoming Asphalt Sour, used in paving, was among the first to slide into the red at a negative $0.19 per barrel in mid-March, as my colleagues Javier Blas and Sheela Tobben reported last month. Other producers may be selling at a loss, effectively subsidizing buyers to take their output. Western Canadian Select, the benchmark price for the giant oil-sands industry in Canada, is at around $5, with Bakken crude in Guernsey, Wyoming, in single digits too. The gap with WTI has become wider.Many of these producers are already cutting back, or shutting down. Whiting Petroleum Corp., a shale champion, filed for bankruptcy Wednesday. Oil explorers, servicing companies and others are in severe pain too, and the squeeze won’t be felt only in the U.S. Russia says it won’t boost supply at current prices. Ecuador has failed to find buyers.What does this mean for an eventual recovery? First, the extent of demand loss means that even a resolution to the Saudi-Russian spat would help only a little, perhaps easing pressure on the world’s fleet of very large oil carriers, known as VLCCs.A real pick-up in prices will require demand to come back. At that point, it may not require much to prompt a temporary spike, depending on how much is stored, locked up by traders through financial contracts, or taken out for good. Geopolitics, with oil-producing nations strained, may also help a little. For the time being, though, negative prices are here to stay.This column does not necessarily reflect the opinion of Bloomberg LP and its owners.Clara Ferreira Marques is a Bloomberg Opinion columnist covering commodities and environmental, social and governance issues. Previously, she was an associate editor for Reuters Breakingviews, and editor and correspondent for Reuters in Singapore, India, the U.K., Italy and Russia.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
- Bloomberg
Fed’s New Repo Measures Followed a $100 Billion Treasury Exodus
(Bloomberg) -- The Federal Reserve is trying to call time on a fire sale of Treasuries by foreign governments and central banks.Foreign official holders of Treasuries dumped more than $100 billion in the three weeks to March 25, on course for the biggest monthly drop on record, according to weekly Fed custody data that captures much of the pandemic-fueled turmoil.Countries reliant on oil exports and smaller Asian economies have been selling U.S. debt, and central banks have been primarily offloading older, less-liquid Treasuries, according to traders and market makers familiar with the transactions.The Fed on Tuesday rolled out its latest effort to restore functioning in markets, on top of moves to ramp up debt purchases and backstop several sectors. It introduced a temporary repurchase agreement facility that let other central banks swap Treasuries for dollars.“The fall in custody holdings is a clear signal that foreign central banks -- which have a lot of Treasury holdings -- have been selling them to source dollars,” said Subadra Rajappa, head of U.S. rates strategy at Societe Generale. “They need access to dollars as a lot of their payments are in dollars and that has driven them to sell Treasuries.”The Fed stopped short of saying it wanted to prevent a snowball effect from the selling, but said the new program will provide “an alternative temporary source of U.S. dollars other than sales of securities in the open market.”As fear swept through markets last month and fueled unprecedented volatility, liquidity -- the ability to trade without causing significant price moves -- deteriorated in Treasuries to its worst since the 2008 financial crisis. At the same time, the greenback surged as investors sought refuge in the world’s primary reserve currency.The Bloomberg Dollar Spot Index rose 3.1% in March, the most since 2016.Liquidity BufferSome of the foreign official Treasury selling may simply be building up of a liquidity buffer, wrote William Marshall of Goldman Sachs in a client note. Though, “we suspect the rest may have been to either support a currency peg (in the case of oil-exporting countries like Saudi Arabia) or their respective domestic dollar liquidity needs,” he added.The Fed has acted to calm debt markets to avert knock-on economic effects, by announcing trillions of dollars of purchases of assets including Treasuries and mortgage-backed securities. It also unveiled measures that would let other central banks tap expanded dollar swap lines.Tuesday’s Fed statement regarding the new repo facility didn’t specify if all central banks would be involved.The new repo program “is a sensible second-best solution for major countries that are outside the enlarged Fed FX swaps network but have substantial corporate dollar funding needs,” Krishna Guha, head of central-bank strategy at Evercore ISI and a former New York Fed official, said in a report. “This group includes China, which ought to be eligible for the new program, though the Fed release is not clear on this point.”Line of FireThis isn’t the first time Treasuries have been in the line of fire as the dollar gained. In 2016, a surge in the greenback saw central banks across Asia intervening to stabilize currency markets.Another indicator of central banks’ positioning in Treasuries is primary dealer holdings, which tend to rise when official accounts are selling. Fed data on these holdings are available with a lag, but their stock of the securities had surged to $272 billion as of March 18, from $193 billion at the start of February.The new repo facility “effectively backstops foreign central banks from forced liquidation of their Treasury holdings into dysfunctional markets,” Jonathan Cohn, a rates strategist at Credit Suisse, said in a note.Emerging-market “reserve managers sometimes need to sell U.S. Treasuries to defend their currency when the dollar is appreciating,” he wrote. “These types of forced flows can contribute to dislocations along the curve and weigh on dealer balance sheets.”(Updates with Goldman quote in ninth paragraph)For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
- Bloomberg
Trillions in Rescue Aren’t Coming From China
(Bloomberg Opinion) -- Don’t hold your breath. Massive Chinese stimulus isn’t coming to shore up the world.As China tries to get back on its feet from Covid-19, policy makers are announcing more fiscal help to deal with the worst economic hit in decades. This has included plans to spend trillions of yuan on standard measures from the Beijing playbook, such as issuing infrastructure bonds to boost activity, lower lending rates to help struggling companies, and cheap credit for small banks to support them.One measure from recent days stands out: Special central government bonds, a tool authorities have pulled out only twice before, in moments of dire financial pressure. This signals both seriousness and, ominously as the rest of the world looks for China to join in the rescue, that the country is being pushed into a corner. China’s economic engine, long a driver of global demand, may not rev up. Though China has been first-in and somewhat first-out on the virus, the measures laid out so far still amount to only 1.6% of gross domestic product on-budget and 1.7% off-budget. Compare that to Australia and South Korea, where off-budget measures already amount to 5.2% of GDP in addition to budgetary help, according to Credit Suisse Group AG analysts. Beijing is relying more on monetary policy to flush the system with liquidity and boost credit, unlike some countries where fiscal measures are playing a larger role. This reflects the reality that China is running out of effective tools. The special treasury bonds are therefore notable. They have only been deployed previously when things just had to get done. In 1998, Beijing used them out to recapitalize banks as the financial crisis pummeled Asia. In 2007, they were marshaled to set up sovereign wealth fund China Investment Corp. and strengthen foreign-exchange reserve management. They don’t end up on the government’s balance sheet and are earmarked for specific, targeted policy goals. This time, the bonds could directly fund China Inc. or recapitalize banks so they’ll have more room to lend. Nomura Holdings Inc. analysts estimate that almost 2 trillion yuan to 4 trillion yuan ($282 billion to $563 billion) of these long-maturity obligations could be issued to fill the gap between the official and actual fiscal deficit targets. Unlike regular central government bonds, these need to be put to spending that has returns, which could force some discipline.China doesn’t have the fiscal space of a decade ago, when it unleashed a 4 trillion yuan package to shore up what was then a much smaller economy and the rest of the world with it. Revenues plunged almost 10% in January and February from last year; those from land sales fell 16.4%. That’s only an early blow. At the local government level, revenue last year grew at the slowest pace in a decade. Property prices are dropping across several cities. With the need for expenditure and leverage rising, the ability to service borrowings has become difficult.There aren’t many places left to add more debt. China’s overall burden as a portion of its GDP is among the world’s highest. Local government debt has dominated in recent years as almost all of the 2.15 trillion yuan quota of municipal off-books bonds for specific projects was issued. Meanwhile, years of using state-backed enterprises’ balance sheets to boost economic growth has leveraged them to the hilt. Households are also strained.The special treasury bonds represent something of a last stand. They’re going to indirectly lean on China’s banks, which have other problems. Herein lies the risk. Banks are currently staring into a credit down-cycle made worse by the virus shock, which will amount to billions in yuan of non-performing assets, rising credit costs and slower profit growth. Jitters in the sector last year have hit confidence. Rounds of monetary-policy easing have pushed them to lend to the weakest borrowers. As Goldman Sachs Group Inc. analysts put it, issuing these bonds signals “a new round of loosening, monetizing fiscal stimulus via the central banking system, leveraging on banks to ramp credit growth.”Much of this will mean that prudent policies to unwind the leverage buried in China’s labyrinthine financial system will be thrown aside. More debt, on or off the books or contingent liabilities, will pile up. The type of stimulus China really needs — for consumers — won’t arrive.This time, China has limits that it has rarely faced in the past. As Beijing is constrained to turn inward, it’s no wonder that other countries are coming out with far more aggressive measures. This column does not necessarily reflect the opinion of Bloomberg LP and its owners.Anjani Trivedi is a Bloomberg Opinion columnist covering industrial companies in Asia. She previously worked for the Wall Street Journal. For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
- Bloomberg
Apple, Goldman to Let Apple Card Holders Defer April Payments
(Bloomberg) -- Apple Inc. and Goldman Sachs Group Inc. are letting Apple Card users defer April payments without incurring interest to ease financial pressure from economic disruption caused by the Covid-19 pandemic.The card, backed by Goldman, offered the same program for March payments. Apple Card users need to opt in to the program by messaging a support representative via the Wallet app on an Apple device.“We understand that the Covid-19 situation poses unique challenges for everyone and some customers may have difficulty making their monthly payments,” Apple wrote in an email to card customers. “If you previously enrolled in the Customer Assistance Program in March, you will need to enroll again.”For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
- Bloomberg
N.Y., N.J. Virus Deaths Double in 3 Days, With 500 New Victims
(Bloomberg) -- Coronavirus deaths continued to climb sharply in New York and New Jersey, the nation’s epicenter of the coronavirus outbreak, with governors of both states releasing data showing a doubling of fatalities in the past three days.New York reported a 25% one-day increase in fatalities on Wednesday and New Jersey reported a 33% increase, with nearly 500 people in the two states dying in a single day.New York’s death toll reached almost 2,000 victims, while New Jersey -- where infections spread more slowly and in smaller numbers at first but are now rapidly increasing -- has recorded more than 350 deaths. As of Sunday, the two states had a combined death toll of about 1,000.The rise in deaths has coincided with an uptick in the mortality rates of the disease in both states. After trailing the national mortality rate of 2.2%, both have risen as of Wednesday, with 2.3% of New York cases ending in death and 1.5% of New Jersey cases.New Jersey’s governor, Phil Murphy, warned that the state would soon need more space to store deceased victims, and that it may resort to using refrigerated trucks.The stark statistics came as evidence mounted that the region’s health care system was reaching its limits. New York moved patients from overtaxed hospitals in the New York City area to upstate facilities in Albany for the first time, and New Jersey temporarily approached the ceiling of its hospital capacity and began using converted anesthesia machines as ventilators.Even after New York gets past the apex of the crisis in late April, Cuomo said, the state is likely to have an elevated death rate into July. He also said that patients whose conditions became so severe that they require ventilator support don’t face strong chances of survival. By one model provided by a unit of the Gates Foundation, there could be 16,000 deaths in New York -- and 93,000 nationwide.“That means you’re going to have tens of thousands of deaths outside of New York. So to the extent people watch their nightly news in Kansas and say, ‘Well, this is a New York problem,’ no, that means right now it’s a New York problem. Tomorrow it’s a Kansas problem,” Cuomo said. “Look at our numbers today and see yourself tomorrow.New Jersey has the second-highest number of virus cases after New York. Both states have issued stay-at-home orders, closing schools and nonessential businesses.Murphy’s top priority this week has been securing ventilators ahead of an expected surge in Covid-19 hospitalizations. On Wednesday, he said the federal government had committed to sending another 350 ventilators, for 850 total. He said that he was grateful for the equipment but that it was far fewer than the 2,300 ventilators the state had requested. He also said the state had spent “tens and tens of millions of dollars” for millions of masks, gloves and other disposable medical goods.In an interview with Bloomberg Television, Murphy said he was also looking to recruit more health-care workers. On Wednesday, he signed an executive order for license waivers and other exceptions to admit out-of-state medical professionals.“We need to bolster their ranks,” Murphy said.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
- Bloomberg
How to Make Sure the Small-Business Bailout Works
(Bloomberg Opinion) -- Small businesses are in trouble. As the coronavirus spreads and more states close up restaurants, cafes, theaters, clothing stores, beauty salons and similar shops, small businesses are desperate for funds to avoid laying off their workers. Fortunately, the relief package signed by President Donald Trump last Friday is set to provide businesses some of the help they need.But the law’s passage isn’t the end of the story. Now, it needs to be put into effect in a way that encourages its use.Only half of U.S. small businesses have enough cash reserves to cover 15 days of operating expenses. Four in 10 small businesses have a three-week cash buffer. In Miami, the median firm has 11.8 cash-buffer days. In San Francisco, the median firm has 17.9 days. These statistics come from a 2019 report by the JPMorgan Chase Institute, which analyzes data on businesses that have deposit accounts with the bank.As of Monday evening, roughly three in four Americans are being told to stay home. Thirty-one states, 18 cities and the District of Columbia have issued shelter-in-place orders. This has already added millions of workers to the unemployment insurance rolls; 3.3 million new filers were added in the week ending March 21 alone. The previous weekly record, set in 1982, was 695,000. Economists at Goldman Sachs are currently forecasting that the unemployment rate will hit 15% — a 50% increase over the peak following the 2008 financial crisis.To do what it can to prevent soaring unemployment and mass business closures, Congress passed the Paycheck Protection Program as part of its $2 trillion dollar economic recovery package.The program lets a small-business owner go to a local bank and take out a loan that is guaranteed by the government. The business can borrow up to 2.5 times its monthly payroll costs, not to exceed $10 million. The amount of the loan spent on payroll, rent, utilities and similar operating expenses during the eight-week period after taking out the loan will be forgiven provided that the business does not lay off workers or cut wages by more than 25%. Businesses that lay off workers after receiving a loan would have a smaller amount of their loan forgiven. For businesses that have already had layoffs, provisions are made to extend grants to them if they rehire workers.To qualify for a forgivable loan, a business or nonprofit organization must typically have fewer than 500 employees, or be a sole proprietor or independent contractor. To get money out the door quickly, lenders don’t need proof of actual economic harm, but can rely instead on good-faith certifications that the business needs the money to avoid layoffs or continue operating, and that the business intends to use the money for payroll and other operating expenses.The program has several additional provisions designed to swiftly put cash in the hands of business owners. It delegates authority to lenders to make determinations on borrower eligibility and creditworthiness so that businesses don’t have to go through the usual government process. Lenders do not need to assess the ability of borrowers to repay the loan or conduct a credit-elsewhere test, and no collateral or personal guarantee is required.This is a good deal for banks, which can charge generous fees and interest for these loans, despite the fact that they are guaranteed by the government, have a zero weight in the bank’s capital requirements and come with a ready customer base.To protect lenders, the law has a “hold harmless” provision shielding them from any penalties imposed by the government as long as they receive documentation certifying that borrowers used the loan proceeds to prevent layoffs.The Treasury Department hopes to have the program operational this week. To make it as effective as possible, four things should happen.First, some banks are concerned that they may be on the hook if borrowers misrepresent their situations or go bankrupt a week or two after taking out the loan. Regulators must assure banks that this will not happen. The legislation envisions banks as a conduit to pass along what are essentially government grants. The regulations currently being written need to treat banks as such by offering ironclad guarantees that the hold-harmless provisions will be strictly enforced by government agencies.In addition, the government should send the message that more money will be provided to the program if needed. Congress allocated $349 billion, but Columbia University economist Glenn Hubbard and I estimate that the demand could easily rise above $1 trillion. Lenders want to know how those limited funds will be allocated if more are needed.Third, the government needs to work with banks to understand their technology and processing needs. A large number of loans will need to be made, and it will be hard for government systems to keep up with the demand. The government needs to make processing as easy as possible for banks, engaging with private firms for help and advice.Finally, all levels of government need to engage in an active program of public messaging to encourage both lenders and small businesses to participate, making sure businesses know that the program offers grants for payroll and operating expenses, not just loans.In my home state of Virginia, the big news on Monday was Governor Ralph Northam’s decision to extend the coronavirus lockdown to June 10. He said, “It is clear more people need to hear this basic message: Stay home.” Northam should have used this opportunity to send a second basic message: Don’t lay off your workers, payroll grants will be available very soon.At the federal level, Senator Marco Rubio of Florida, the chief author of the program, did exactly this on Twitter on Monday, the day after Trump extended social distancing guidelines to April 30. But where is Trump himself? He should be urging businesses every day to hold on to their workers until the grant program comes online later this week.Congress has taken an important step toward propping up the U.S. small-business ecosystem that will be crucial to the post-pandemic recovery. But this vital task is far from complete.This column does not necessarily reflect the opinion of Bloomberg LP and its owners.Michael R. Strain is a Bloomberg Opinion columnist. He is director of economic policy studies and Arthur F. Burns Scholar in Political Economy at the American Enterprise Institute. He is the author of “The American Dream Is Not Dead: (But Populism Could Kill It).”For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
- Bloomberg
Saudis Boost Oil Output, Defying Trump’s Plea To End Price War
(Bloomberg) -- Saudi Arabia showed no sign of bowing to pressure from U.S. President Donald Trump to dial back its oil-price war with Russia. Instead, the kingdom pushed crude supply to record levels.Trump said Tuesday night that he’d spoken to both President Vladimir Putin and Crown Prince Mohammed bin Salman in an effort to broker a truce between the world’s two largest oil exporters. While Russia made some conciliatory noises, Saudi Arabia showed nothing but defiance.The kingdom started the month by boosting supply to more than 12 million barrels a day, the most ever, according to an industry official familiar with the kingdom’s operations. In an apparent show of force, Aramco was loading a record 15 tankers with 18.8 million barrels of oil on a single day earlier this week, according to another official and a tweet from the company.That social media post, boasting how the kingdom will “rise to supply energy,” appeared to be a riposte to U.S. Secretary State Michael Pompeo, who last week urged the Saudis to “rise to the occasion” by dialing back their plan to flood the market.So far, Riyadh has insisted that it will only back away from a decision to flood the global market if all the world’s leading producers -- including the U.S. -- agree to cut output. Russia has struck a more conciliatory tone, saying it would hold back from a major production increase, but hasn’t offered any concrete proposals to end hostilities with its former OPEC+ ally.Trump’s decision to wade into oil diplomacy is driven by the catastrophic impact of the price crash on the American shale industry, largely based in Texas and other Republican-leaning states. But his mission to rein in global supply is overshadowed by the unprecedented loss of demand -- possibly as much as 30% -- caused by the fight against the coronavirus.“Signs of policy discussions are multiplying and we believe such an outcome should no longer be dismissed,” analysts at Goldman Sachs Group Inc. said in a note. Even so, after such a huge drop in consumption it’s questionable “whether policy coordination by OPEC+, the U.S., and oil producers more broadly can save this market.”Read: Trump and Putin Are All Talk on Oil Price Plunge: Julian LeeA senior Russian official said that while they hadn’t spoken to Saudi Arabia yet, Moscow had no plans to increase production given the current market situation. He gave no indication that Russia was willing to consider output cuts, however. It was Russia’s refusal to join Saudi Arabia and other members of the Organization of Petroleum Exporting Countries in deeper reductions that kicked off the price war in early March.“The Russian side traditionally welcomes mutual dialog and cooperation in order to stabilize energy markets,” Kremlin spokesman Dmitry Peskov told reporters on conference call on Tuesday. Putin has no immediate plans to speak with the Saudi king or crown prince, but such contacts can be easily arranged, he said.Demand HitWorld oil demand, normally around 100 million barrels a day, will likely be down by 30 millions barrels a day in April and has yet to bottom out as lockdowns due to the virus continue, Chris Bake, an executive committee member at trader Vitol said on Tuesday.The Russian official said it made no sense for producers to boost output in the current situation. Energy Minister Alexander Novak said last month that the country can raise production by 200,000 to 300,000 barrels a day in the short term, and by as much as 500,000 barrels a day in the near future. That’s a fraction of the additional 2 million barrels a day that Saudi Arabia has pledged to pump.“The sharp drop of oil prices has made the bulk of new Russian oil drilling uneconomic, the industry will need to look for ways to optimize” output, said Darya Kozlova, head of oil and gas regulation services at Moscow-based Vygon Consulting.However, even if production is flat, Russia may hike its oil exports to offset falling domestic demand for crude as its own economy goes into shutdown to slow the spread of the coronavirus, Kozlova said.Trump MediationOn Tuesday evening in Washington, Trump said the U.S. would meet with Saudi Arabia and Russia with the goal of staunching the historic plunge in oil prices, and has raised the issue directly with the countries’ rulers.“They’re going to get together and we’re all going to get together and we’re going to see what we can do,” he said. “The two countries are discussing it. And I am joining at the appropriate time, if need be.”U.S. Energy Secretary Dan Brouillette had a “productive discussion” with Novak on Tuesday and agreed to “continue dialog among major energy producers and consumers, including through the G20,” the Department of Energy said in a statement. The two men agreed that an oil oversupply hurts the global economy, the Russian Energy Ministry said separately.Neither side detailed any steps they are considering to stem the downturn.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
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Critics of Stock Buybacks Will Outlast Coronavirus
(Bloomberg Opinion) -- Corporations that receive aid from the federal government as part of the coronavirus legislation passed by Congress and signed into law by President Donald Trump last week are banned from purchasing their own shares until a year after they’ve paid taxpayers back. This isn’t quite the end to buybacks that some have called for in recent years, but it is a notable development for a practice that has since the early 1980s become a pretty major use of corporate cash.How major? Since 2010, buybacks have consumed about half the free cash flow of the companies in the Standard & Poor’s 500 Index. For all U.S. nonfinancial corporations, they’ve averaged a little over 2% of gross domestic product during that period.Corporations did not always spend this kind of money buying back their own shares. The next chart shows net share purchases by nonfinancial corporations, so it includes mergers and acquisitions as well as buybacks, but it gives a good indication that something major changed starting in 1984 — which happens to have been not long after the Securities and Exchange Commission altered its rules in November 1982 to make buybacks a lot easier to do.The reason buybacks weren’t easy to do before 1982 was because of concerns that companies would use them to manipulate their share prices to nefarious end — something that has definitely happened from time to time. Most of the great market corners and other such manipulations of the 1800s and early 1900s seem to have involved buying and selling by financiers who were the controlling shareholders of corporations, not the corporations themselves. But there was at least one notable case, recounted in John Kenneth Galbraith’s “The Great Crash 1929” and a 1939 SEC report, of a corporation that bought huge quantities of its own shares in 1929, both driving up the price at the time and making those shares worth less than they would have otherwise been after the market crashed.This was the Goldman Sachs Trading Corp., an investment company — what today would be called a closed-end mutual fund — set up by the partners of the eponymous brokerage firm and traded on the New York Curb Exchange (what later became the American Stock Exchange, now NYSE American). Its managers channeled the bulk of its cash in February and March 1929 into buying back shares, helping drive the price from $136.50 to $222.50 over the course of a few weeks. As the market began to slide in September, they engaged in another buying frenzy, accounting for 64% of trading volume in the stock that month, but could not halt its decline. Three years later, the shares were selling for $1.75 apiece.The SEC was created in 1934 to police such behavior, which it did in subsequent decades. One key case involved lumber products maker Georgia-Pacific. As finance scholars Douglas O. Cook, Laurie Krigman and J. Chris Leach described in a 2003 paper: Between 1961 and 1966, Georgia-Pacific acquired other companies using its common stock as payment. The number of shares to be exchanged in these transactions was contingent on the price level reached during a specified trading period. The SEC charged that Georgia-Pacific had used open market repurchases to manipulate (increase) the reference sale price, thereby reducing the number of shares needed to effect the acquisitions.The SEC won in court, and in 1968 Congress updated the Securities and Exchange Act to make it explicit that buybacks were illegal if “fraudulent, deceptive, or manipulative,” leaving it up to the SEC to define what that meant. The commission came up with its first set of proposed rules for buybacks in 1967, before the legislation was passed, and revised them several times over the next decade. In an Oct, 27, 1980, rule-making proposal that was meant to clear up uncertainties, the SEC described four main reasons buybacks might be deemed out-of-bounds:If they were “designed to support or raise the market price of the issuer’s securities for the purpose of making exchange ratios appear more favorable to target company security holders” before a merger or acquisition. If they supported the share price after a merger or acquisition “for the purpose of reducing the number of shares required to be issued pursuant to contingent obligations owed to former shareholders of the target company.” If they supported the price to “assist insiders in disposing of their holdings.” If they supported the price to “maintain the value of securities pledged by insiders as collateral for bank loans.”Eight days later, Ronald Reagan was elected president, and two years later the new majority he appointed to the SEC, led by Chairman John Shad, a former head of investment banking at E.F. Hutton, swept all this aside. The commission instead granted “safe harbor” from liability for most repurchases, arguing that “issuer repurchase programs are seldom undertaken with improper intent” and “may frequently be of substantial economic benefit to investors.” The new rule still contained limitations on buybacks — the safe harbor disappeared during mergers, for example, and you couldn’t do any buybacks during the last half-hour of a trading day — but the disclosure requirements were so lax that it would be hard to tell if a company were violating them (these were beefed up somewhat in 2003). Buybacks had been unleashed.They were also starting to become fashionable, thanks to an electrical-engineer-turned-corporate-executive named Henry Singleton. During the stock market go-go years of the 1960s, Singleton had built a small electronics company into a sprawling but well-managed conglomerate. Stock in his Teledyne Corp. seemed to him to be priced quite richly relative to his preferred metric of profit, free cash flow, so he kept issuing more and more of it to buy other companies — 130 of them from 1961 to 1969.(1) When the stock market slumped after that, and the conglomerate Singleton had assembled kept churning out cash, he decided to stop issuing stock and start retiring it. “I think we can earn a better return buying our shares at these levels than by doing almost anything else,” he told one of Teledyne’s board members, the venture capitalist Arthur Rock, in 1972. “I’d like to announce a tender — what do you think?”A tender is a public offer to buy a certain amount of shares at a set price, a transaction transparent enough to avoid any SEC suspicions of market manipulation. Rock and the rest of the board agreed to Singleton’s plan, and “between 1972 and 1984, in eight separate tender offers, he bought back an astonishing 90 percent of Teledyne’s outstanding shares,” wrote private equity investor Will Thorndike in “The Outsiders,” the 2012 book from which my account of Singleton here is taken. “Singleton bought extremely well, generating an incredible 42 percent compound annual return for Teledyne’s shareholders across the tenders.”Those who sold in the tender offers didn’t share in those returns, of course, but they did get cash, on which they paid tax at capital-gains rates rather than the higher tax rates to which dividends — traditionally the chief means of conveying excess corporate cash to shareholders — were subjected. Other financially savvy corporate managers began to follow Teledyne’s example, with Warren Buffett endorsing buybacks in his 1978 Berkshire Hathaway shareholder letter as “often by far the most attractive option for capital utilization.” By 1985, Buffett’s friend and bridge partner Carol Loomis was reporting in Fortune that corporations that voluntarily bought significant amounts of their own common stock from 1974 through 1983 had as a group outperformed the Standard & Poor’s 500 Index by 8.5 percentage points a year. And buying back shares had, thanks to the SEC, just become a lot easier to do.In the 1980s, a lot of the net share purchases apparent in the above chart were due to leveraged buyouts and mergers that removed shares from circulation. Others were opportunistic buybacks of the sort pioneered by Singleton, with repurchases spiking in the months after the 1987 stock market crash as executives bet correctly that markets would recover. In the 1990s, though, buybacks began to be something that companies just did, year in, year out. Their apparent success as a means of delivering higher shareholder returns — several studies in the 1990s backed up Loomis’s early findings — was one reason, but in her 1995 Massachusetts Institute of Technology doctoral dissertation, economist Christine Jolls proposed another. As she wrote in a subsequent paper:The increased use of repurchases coincided with an increasing reliance on stock options to compensate top managers, and stock options encourage managers to choose repurchases over conventional dividend payments because repurchases, unlike dividends, do not dilute the per-share value of the stock. Consistent with the stock option hypothesis, I find that firms which rely heavily on stock-option-based compensation are significantly more likely to repurchase their stock than firms which rely less heavily on stock options to compensate their top executives.Companies were giving out more and more stock options to their executives as compensation, and using buybacks to keep those grants from inflating shares outstanding, which would dilute earnings per share and thus presumably put downward pressure on stock prices. It wasn’t exactly what the SEC had in mind back in 1980 when it said buybacks were fraudulent if used to “assist insiders in disposing of their holdings,” but it was kinda-sorta in the ballpark. In recent years, corporate insiders have been twice as likely to sell stock in the eight days after their company announces a buyback as at other times, SEC Commissioner Robert Jackson reported in 2018. That sure seems like a hint that companies are often buying back shares for reasons other than that management truly believes it is “the most attractive option for capital utilization.”In keeping with this impression, some recent studies show the shareholder-return advantage once enjoyed by buyback companies to have largely evaporated. This is partly just because buybacks are so widespread that it would be really hard for buyback companies to beat the average, given that they now more or less are the average. There is some evidence, though, that a predilection for buybacks may now foreshadow trouble ahead. Buybacks go hand in hand with decreased capital investment (although there are questions about the direction of causation), while the banks that spent the most on buybacks in the run-up to the 2008 financial crisis were the most likely to need bailouts during it. Plus, the simple fact that buybacks hit their all-time high as a share of GDP in mid-2007, right as things began to unravel, is pretty damning on its own. I’m still not quite ready to buy into University of Massachusetts at Lowell economist William Lazonick’s increasingly influential argument that buybacks, and the SEC’s 1982 rule change in particular, are responsible for pretty much everything bad that’s happened to the U.S. economy since.(2) But I can’t entirely dismiss it either.The role of buybacks in the coronavirus-induced crisis does seem somewhat secondary. Yes, it looks terrible that the five biggest U.S. airlines spent 96% of their free cash flow on buybacks from 2010 through 2019, as Bloomberg’s Brandon Kochkodin reported in March. Buybacks didn’t cause the pandemic, though, and I’m not sure we really ought to expect corporations to have balance sheets that can withstand the consequences of having their industry virtually shut down worldwide for months. Banning buybacks until government aid is repaid does make sense, as does banning common-stock dividends for that period — which the legislation also does. That doesn’t mean either should be banned forever, although I guess it does indicate that one or the other conceivably could be.A simple three-page bill introduced by Wisconsin U.S. Senator Tammy Baldwin and several other Democratic lawmakers in 2018 and 2019 would ban open-market repurchases, while still allowing the tender offers that made Teledyne great. There are legitimate reasons to do open-market buybacks, though, so I wonder whether a better if messier approach might be something like what Congress did in 1968, charging the SEC with redefining what constitutes a “fraudulent, deceptive, or manipulative” buyback in the context of stock-based executive-compensation programs. The reasoning offered by Shad’s SEC for mostly abandoning this effort in 1982 — that buybacks are “seldom undertaken with improper intent” — seems in retrospect either spectacularly naive or spectacularly cynical.(1) Of the 130 acquisitions, 128 were done using only stock.(2) Disclosures (or maybe it's just name-dropping): I was tangentially involved in the editing of the Harvard Business Review article by Lazonick that is linked to here, as well as that of Thorndike's book, which was published by the Harvard Business Review Press. Carol Loomis was a colleague of mine at Fortune, and I know Christine Jolls because our kids were middle-school classmates. Also, in the late 1990s, I pocketed a modest Time Warner employee-stock-options windfall that may have been enabled in part by buybacks.This column does not necessarily reflect the opinion of Bloomberg LP and its owners.Justin Fox is a Bloomberg Opinion columnist covering business. He was the editorial director of Harvard Business Review and wrote for Time, Fortune and American Banker. He is the author of “The Myth of the Rational Market.”For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
- Bloomberg
Foxconn Assures Investors 5G iPhone Can Still Launch This Fall
(Bloomberg) -- Apple Inc.’s most important manufacturing partner has reassured investors it can still get the latest 5G-enabled iPhones ready for an autumn launch despite global Covid-19 upheaval.Hon Hai Precision Industry Co., which makes most of the world’s iPhones, told investors it’s lost time to travel restrictions and other disruptions caused by the coronavirus pandemic. But with months to go before the first trial assembly lines start up in June, Hon Hai can still make the deadline, investor relations chief Alex Yang said on a private conference call hosted by Goldman Sachs.Hon Hai, known also as Foxconn, struggled through much of February after the Covid-19 outbreak delayed the return of the hundreds of thousands of workers it needed to assemble iPhones and other electronics. While it’s since resumed normal operations, the month-long hiatus cast Apple’s carefully calibrated product launch schedule in doubt. Much now depends on the course of the pandemic and a postponement remained very much on the cards though the new iPhones should emerge in time to catch the crucial holiday season, Yang said.“We and the customer’s engineers are trying to catch up the missing gap, after we lost some days due to travel ban. There’s opportunity and possibility that we might catch up,” Yang said. “But if there’s a further delay in the next few weeks, months, then you probably have to reconsider launching time. It’s still possible.”Foxconn said in a statement Wednesday’s conference call was intended to communicate its thoughts on the latest developments affecting the consumer electronics industry and not focused on any specific products or customer.Read more: Apple’s Supply Chain Woes Linger Even as China RecoversThe next iteration of Apple’s signature device may well be one of its most important in years -- an iPhone that can make full use of the fifth-generation wireless networks that promise much faster video and gaming. The U.S. company is already a step behind Samsung Electronics Co. and Huawei Technologies Co., which began selling 5G devices last year.Covid-19 is now jeopardizing Apple’s plans. Mass assembly is only one part of the iPhone maker’s supply chain, which encompasses hundreds of suppliers. Apple and its many partners spend months or even years sourcing individual components that are assembled into final products. Any disruptions to that complex network could slow the introduction of future devices. Trial assembly typically begins in early June and -- once finalized -- mass production commences in August, Yang outlined.As China’s largest employer and manufacturer of a plethora of electronics brands, Hon Hai encapsulates how the outbreak disrupted the global supply of made-in-China electronics. Apple scrapped its revenue guidance for the March quarter after the contagion disrupted its production chain: Hon Hai was forced to postpone the reopening of its “iPhone City” mega-complex in the central city of Zhengzhou while it imposed strict quarantine measures on thousands of laborers. But Foxconn has since sharply raised signing bonuses to attract new workers and said it reached full seasonal staffing level earlier than an original target of late March.For more articles like this, please visit us at bloomberg.comSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
- Yahoo Finance UK
Goldman Sachs gives staff special COVID-19 leave
Staff will be given an additional 10 days of paid leave to care for friends and family during the coronavirus pandemic.
- Reuters
Oil bound for sharper declines, industry experts tell Goldman Sachs
Oil expert and Pulitzer Prize-winning author Daniel Yergin told Goldman Sachs that demand could fall by 20 million barrels per day in April, or even more, referring to the "biggest demand drop in modern times" while Saudi Arabia and Russia engage in a price war. Oil prices are now in the $20s, having slumped in March after a deal on supply curbs between the Organization of the Petroleum Exporting Countries, Russia and other producers, known as OPEC+, fell apart. "If efforts to control the pandemic are successful within the next three-four months, and we start to rebound in the summer, then we could see a surge in demand growth in 2021," Ross said.
- Bloomberg
Trump and Putin Are All Talk on Oil Price Plunge
(Bloomberg Opinion) -- Well there’s a surprise. During a telephone conversation on Monday, Presidents Donald Trump and Vladimir Putin “agreed on the importance of stability in global energy markets.” However, it’s very unlikely either will go beyond extolling stability and waiting for (or pressuring) somebody else to do something about it.Trump, speaking at the White House Tuesday, talked of many meetings that are going to put this all right. He said Putin and Saudi Crown Prince Mohammed bin Salman are “going to get together and we’re all going to get together and we’re going to see what we can do.” Then he added that “the two countries are discussing it. And I am joining at the appropriate time, if need be.” But there’s no evidence that Russia and Saudi Arabia are talking and, even if the three leaders do get together, don’t expect a meeting to lead anywhere. Neither president, nor the crown prince, is renowned for his statesmanship or flexibility.Putin’s most recent diplomatic “successes” include the annexation of Crimea and sending troops to support Bashar al-Assad’s regime in Syria. Trump has become the master of the empty photo-op, most notably with North Korea’s Kim Jong Un. MBS, as the de facto Saudi leader is known, led his country into a protracted conflict in Yemen and a blockade of Qatar, neither of which shows signs of bringing results.In the energy sector, points of contention between Trump and Putin include Russia’s role in Venezuela’s oil export trade; U.S. sanctions on Russia’s oil and gas industries, including those targeting the second Nord Stream gas pipeline from Russia to Germany and others that have prevented foreign investment in Arctic oil and gas projects; and Russia’s own nascent shale sector. U.S. Energy Secretary Dan Brouillette and Russian Energy Minister Alexander Novak had a “ productive discussion” by phone on Tuesday and agreed to “continue dialogue among major energy producers and consumers, including through the G20,” the Department of Energy said in a statement.Putin has no interest in throwing another lifeline to the U.S. shale sector. Trump still seems to see the problem as being caused by Russia and Saudi Arabia both going “crazy” and launching a price war.Let’s get one thing straight. The collapse in oil demand as a result of the worldwide response to the Covid-19 virus is a much, much bigger problem than the additional barrels threatened by Saudi Arabia and Russia — none of which has arrived yet. As airplanes stop flying and drivers stop driving, they are going to struggle to find buyers for their oil, just like everyone else. Saudi Arabia is already threatening to boost its exports by a further 600,000 barrels a day in May because its own refineries don’t want the crude. This is simply more stranded oil trying to find a buyer.Goldman Sachs estimates that global oil demand this week is down by 26 million barrels a day, or 25%. That’s more than the combined consumption of the U.S., Canada, Mexico, Central America and the entire Caribbean.Sadly, the loudest voices in America still seem to be those calling for the use of bully-boy tactics against the world’s other heavyweights. A letter sent to Secretary of State Mike Pompeo last week from six Republican senators, including Lisa Murkowski from Alaska and John Hoeven from North Dakota, characterizes the Saudi and Russian decisions to end output restriction as “economic warfare against the United States.” The lawmakers argue that “Saudi Arabia must change course,” when what they really mean is that the kingdom led by Crown Prince Mohammed bin Salman must return to its previous course, and they name-check the whole gamut of pressure tactics the U.S. has at its disposal to get it to do so, from the threat of “tariffs and other trade restrictions to investigations, safeguard actions, sanctions, and much else.”I get that senators from oil-producing states want someone else to cut back to keep the oil price high enough so that their local fossil-fuel industries can keep functioning. But the Saudis might well argue that the current situation would be easier to deal with had the U.S. not doubled its oil production in less than a decade.Targeting Saudi Arabia and Russia for behaving as American leaders have always urged them to behave — by removing “artificial” restrictions on their oil production — will not solve the crisis faced by oil producers everywhere. As I wrote Sunday, we are now getting the free-market in oil. The demand destruction caused by the collapse in oil demand as a result of responses to the Covid-19 virus will not be solved by sanctions or tariffs.The world’s Big 3 oil producers might have had a chance to get together to organize a global response to the temporary loss of oil buyers, but they squandered it. As things stand, the companies (and countries) that bear the brunt will be those who can’t find buyers or storage tanks for their oil. No amount of bullying, or half-hearted diplomacy, can change that now.(Adds comments by Trump and the energy department in second and fifth paragraphs.)This column does not necessarily reflect the opinion of Bloomberg LP and its owners.Julian Lee is an oil strategist for Bloomberg. Previously he worked as a senior analyst at the Centre for Global Energy Studies.For more articles like this, please visit us at bloomberg.com/opinionSubscribe now to stay ahead with the most trusted business news source.©2020 Bloomberg L.P.
