Thursday, March 19, 2020
America Needed Coronavirus Tests. The Government Failed.
When cases of the new coronavirus began emerging several weeks ago in California, Washington state and other pockets of the country, U.S. public-health officials worried this might be The Big One, emails and interviews show.
The testing program they rolled out to combat it, though, was a small one.
Limited testing has blinded Americans to the scale of the outbreak so far, impeding the nation’s ability to fight the virus through isolating the sick and their contacts, public-health officials say. As of early Wednesday, about 6,500 people in the U.S. had tested positive, data compiled by Johns Hopkins University show, but the Centers for Disease Control and Prevention had reported only about 32,000 tests conducted at its facilities and other public-health labs.
Limited testing is also keeping patients like Justin LaBor in the dark, despite recent improvements. Mr. LaBor, 36 years old, said he went to the emergency room at AtlantiCare Regional Medical Center in Pomona, N.J., Monday with a fever and dry cough, symptoms typical in a coronavirus infection. Doctors admitted him, but he hasn’t been tested for the virus, he said Tuesday, gasping for breath over the phone.
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“Everyone just told me there were no tests and I didn’t check all the boxes for the state,” said Mr. LaBor, a social-media marketer from Elwood, N.J., referring to the criteria that state labs require patients to meet before running tests. A New Jersey health-department spokeswoman said the state “has sufficient lab capacity to test those who meet the testing criteria.” An AtlantiCare spokeswoman said the hospital system “is not testing patients in a widespread manner for coronavirus.”
While the virus was quietly spreading within the U.S., the CDC had told state and local officials its “testing capacity is more than adequate to meet current testing demands,” according to a Feb. 26 agency email viewed by The Wall Street Journal, part of a cache of agency communications reviewed by the Journal that sheds light on the early response. The agency’s data show it tested fewer than 100 patients that day.
When the CDC first dispersed test kits in early February, it shipped them to a network of state and local government labs and restricted testing to people with virus symptoms who had recently traveled to China, where the virus first emerged, or had been exposed to a known case. Federal officials hoped the virus could be contained—even as they disputed alarms from those on the front lines that the CDC’s guidelines weren’t keeping up with the outbreak’s spread, emails between the U.S. agency and local officials show. The government left other laboratories on the sidelines for crucial weeks.
The narrow effort is “a failing,” said Anthony Fauci , a government doctor who has become the de facto face of the Trump administration’s coronavirus response, in congressional testimony last week that for many in Washington was a wake-up call.
While problems still clearly persist, more labs are beginning to do tests and manufacturers are ramping up production. “We can expect to see a marked acceleration of the availability and implementation of testing,” Dr. Fauci said in an interview Friday.
CDC officials botched an initial test kit developed in an agency lab, retracting many tests. They resisted calls from state officials and medical providers to broaden testing, and health officials failed to coordinate with outside companies to ensure needed test-kit supplies, such as nasal swabs and chemical reagents, would be available, according to suppliers and health officials.
When the U.S. Food and Drug Administration, also involved in the response, finally opened testing to more outside labs, a run on limited stocks of some supplies needed for the CDC-developed test quickly depleted stores, lab operators and suppliers said. Hospital and commercial lab operators said the government didn’t reach out to enlist their help until it was too late.
“This was kind of a perfect storm of three separate failures,” said Tom Frieden, who directed the CDC from 2009 to 2017, citing the botched test, overstrict FDA rules and sidelined private labs. He cautioned he didn’t have direct knowledge of details.
Now, the U.S. is testing far fewer patients than public-health and infectious-disease experts say is necessary and just a fraction as many as other countries that rolled out wide-reaching diagnostic programs. South Korea as of Tuesday was testing up to 20,000 patients a day, more than half the total of U.S. patients who have been tested since the outbreak began.
The test shortage hurt U.S. efforts to contain the virus, said Neil Fishman, chief medical officer at the Hospital of the University of Pennsylvania and an infectious-disease specialist.
“If we would have had a true understanding of the extent of disease several weeks ago, implementation of social-distancing measures could have prevented the escalation of the disease,” Dr. Fishman said, and demand for the test is now huge.
Health-care officials say the current state of testing reflects both technical and planning failures, as well as a broader failure of imagination. Leaders including President Trump and Health and Human Services Secretary Alex Azar early in the outbreak appeared unable or unwilling to envision a crisis of the scale that has now emerged, and no one stepped up to effectively coordinate among federal agencies or the private-sector labs, medical providers and manufacturers needed for a large-scale testing push, they say.
An HHS spokeswoman said Brett Giroir, a deputy Mr. Azar put in charge of testing last week, would assume that role. She said the FDA began working with private test developers in January by sharing information about the process for approving tests.
The CDC said in an email to the Journal on Monday that its work with public-health labs is meant to fill “the short-term gap until experienced commercial diagnostic manufacturers come to market.”
Mr. Trump repeatedly dismissed the threat of a broad U.S. outbreak, saying in late February, “One day it’s like a miracle, it will disappear.” The next day, the first reported American death tied to Covid-19, the disease caused by the coronavirus, occurred in Washington state.
Some White House aides learned of complaints about the availability of testing from the media, not the public-health officials in their own government, an administration official familiar with the matter said. Only in the first week of March did discussions in a White House coronavirus task force about the testing shortfall take on a sense of urgency, the person said.
Even then, Mr. Azar, defended the testing program in television interviews including twice on ABC News that week, citing the low number of confirmed cases—at a time when almost no tests were available to detect them.
The White House didn’t respond to requests for comment. The HHS spokeswoman said health officials are focused on efforts to increase test accessibility and pointed to a series of recent statements on the topic.
At the CDC, the tone was more dire. “While leaning forward aggressively with the hope that we will be able to prevent community spread, we also are preparing for the worst,” the agency told state public-health officials in a Feb. 20 email.
The Government Accountability Office had warned federal officials in early January that its readiness for something like a pandemic fell short, a GAO official said. GAO investigators found crisis plans didn’t fully account for the huge role the private sector would have to play, documents show.
The HHS spokeswoman said the agency’s coronavirus response was guided by other “well-practiced” operational plans, and not the strategic one the GAO reviewed. An HHS official told the GAO, in a letter dated Jan. 31, that the agency had addressed their concerns and put in place policies that would “prevent early implementation challenges from becoming institutionalized.”
In the weeks ahead, however, those very challenges did become institutionalized. The FDA first announced labs seeking to perform testing would have to submit a special application to get permission to start on Feb. 4. That initially deterred some hospitals and other lab operators—which normally aren’t required to submit any application—from developing tests, experts say.
“We had considered developing a test but had been in communication with the CDC and FDA and had been told that the federal and state authorities would be able to handle everything,” Alan Wells, the medical director for the University of Pittsburgh Medical Center’s clinical laboratories, told reporters over the weekend. He said in an interview on Monday that it later became clear the CDC and states were overwhelmed.
Once the CDC launched its initial test in the first week of February, the response was quickly stymied by setbacks, including flaws that forced the CDC to claw back many of the kits it had already sent out to state public-health laboratories, according to the agency and public-health officials.
An email to state public-health-lab officials later in February gives the fullest account from the CDC to emerge yet of what happened: The agency said some labs had encountered “sporadic reactivity in the negative control of one of the three assay components.” That means the test in some cases wrongly indicated it had detected coronavirus in samples of laboratory-grade water.
“It is unclear why quality control did not detect this issue before the kits were sent out to states,” said the email.
The CDC on Monday said it “has not yet determined if the problem involves the assay design or contamination. It could have been either.”
At one critical juncture, just before the CDC opened up testing to more state laboratories in February, its officials clashed with state epidemiologists on the front lines of the response to the epidemic over the scale of testing.
Despite news and official reports heralding the rapid spread of the virus in Japan and Hong Kong, on Feb. 22 CDC officials told state officials to refer for testing only patients showing symptoms who had travel histories in mainland China.
When a top Minnesota epidemiologist pointed out in an email to CDC officials that agency director Robert Redfield had recently tweeted that doctors treating patients who had visited Hong Kong and Japan should consider “#COVID19,” the CDC’s deputy incident commander responded: “This tweet is being taken down.” And, in fact, it was.
The CDC hasn’t responded to requests for comment on why the tweet was deleted.
Hawaii’s top epidemiologist, Sarah Park, chimed in on the thread, saying the bar for testing should be lowered. Dr. Park pointed out that the CDC’s own travel website said travelers from Japan with symptoms should be considered for coronavirus even though the guidelines precluded testing.
Rather than expand testing, the CDC replied that it was considering changes to its travel notices.
The epidemiologists, too, recognized the current testing program wouldn’t meet the widening need. As they debated expanding testing to more people, Marcelle Layton, a top official with the New York City Department of Health and Mental Hygiene, expressed the worry that too many returning travelers would expect to be screened as the list of affected countries expanded.
“We all know this is not sustainable,” Dr. Layton said in a Feb. 25 email to other public-health officials. She and Dr. Park didn’t respond to requests for comment.
As the CDC sought to get the network of state labs up and running, it finally turned to an outside manufacturer, Integrated DNA Technologies Inc., to order a run of custom reagents—substances used in a chemical reaction—needed to identify the genetic imprint of coronavirus in late February, according to the company and a timeline provided by the CDC. IDT said in a statement that it shipped the CDC’s first order on Feb. 26.
The CDC said it signed a contract with IDT to supply reagents on Feb. 20. Contracting records show one IDT order from that day, for only about $90,000 of testing supplies. The CDC said that contract was for coronavirus-test material. IDT denied that contract was related to the coronavirus tests.
With IDT creating special coronavirus test kits, the federal government abruptly began to make moves that would open the door to more and broader testing, including expanding its criteria for whom to test. On Feb. 26, Nancy Messonnier, a top CDC official, promised in a call with reporters that commercial labs would “be coming online soon,” and a couple of days later, the FDA allowed some labs seeking to use the CDC’s testing method or developing their own to jump through fewer hoops.
IDT would produce millions of tests worth of its coronavirus-detecting reagent over the next couple of weeks, according to the company’s statement.
Even still, the wave of private labs joining the fight against the virus didn’t arrive on schedule. One reason was that many of the off-the-shelf supplies used in the CDC’s testing method weren’t readily available on the scale needed, the Journal found. That included both the simple products like synthetic swabs—cotton interferes with readings—used to collect mucus samples, and complex ones. Because labs copying the CDC’s test method have to use its exact chemical recipe, there has been a run on manufacturer Qiagen NV’s reagent for separating viral RNA from human mucus, one of the products used by the agency.
“We have heard concerns from labs who have questions about the availability of certain supplies,” said the HHS spokeswoman. The agency was providing labs with “information on alternative sources of reagents, extraction kits, swabs and more,” she said.
“Everyone in the world is going to want to get swabbed at one point or another,” said Iyda Antony a lab director at UC Davis Health, a large California health system that is ramping up its own testing program and worries its stores of swabs might not be sufficient.
A small lab owned by lab-manager Clinical Lab Consulting, in Dayton, Ohio, paid $2 per unit—six times its usual rate—for swabs from a Pittsburgh-based vendor on Sunday, email records show. On Tuesday, the vendor told the lab’s owners it was actually out of stock.
The U.S. government “could have just got out in front of it,” said Greg Ingle, one of the Dayton lab’s owners and an industry consultant. Rather, “we watched it play out in the rest of the world before getting into the market.”
Through mid-March, Qiagen spokesman Thomas Theuringer said the Dutch biotech has shipped more than twice as many units of the product in question as in the whole of 2019 to U.S. clients.
“It’s like queuing up in line to buy toilet paper at the grocery store,” said Richard Scanlan, the medical director of the Oregon Health and Sciences University Hospital laboratory, comparing the lab’s predicament to the empty shelves consumers are facing around the country. “Everyone is trying to buy it at the same time,” he said.
Qiagen said it was rationing test kits to its “most critical customers” and acknowledged the company was struggling to meet demand. Dr. Theuringer said the factories producing the kits had ramped up to “three shifts working seven days a week.”
Virus researcher Scott Weaver, at the University of Texas Medical Branch at Galveston, said a group he directs has sent out coronavirus RNA samples needed to do the validation studies to around 50 labs. Nonetheless, he said, some of those labs, including one at his own institution, were delayed as they waited for Qiagen to fill orders in order to begin testing. The Galveston lab is now able to perform tests, he said, but supplies remain limited.
On Wednesday, Mr. Trump said in a briefing that, “in case we need it,” he would invoke a Korean War-era law called the Defense Production Act that allows the federal government to force U.S. companies to produce needed supplies.
In recent days, the FDA has tried to confront the testing shortage by approving new test designs by manufacturers such as Thermo Fisher Scientific Inc. and testing firms like Laboratory Corporation of America Holdings Inc., and relaxing requirements for labs to prove their tests actually work and stick strictly to the CDC recipe. Thermo said Tuesday it has 1.5 million tests ready to ship.
FDA Commissioner Stephen Hahn maintained the agency’s insistence on test accuracy has been vital. “If you don’t have that check on the test findings,” he said, “you run the risk of inaccurate test results which means you aren’t truly assessing the full scope of the outbreak.”
Now, in a concession to demand, the agency is letting labs run tests first and prove they are accurate later—within about two weeks.
After hearing news reports saying more tests had become available, Nathan Conder, a 30-year-old in Salt Lake City, called Utah’s coronavirus hotline Monday to ask about getting tested. He’d been sick with a fever, dry cough and fatigue for a week—all coronavirus symptoms, although also of other maladies.
“They told me all my symptoms match, but they don’t have enough tests so they’re only testing people who were in contact with someone who already tested positive,” said Mr. Conder, a regulatory specialist at a microbiology lab. Public-health officials said “that I should act like I had it, but they can’t test,” he recalled.
On Tuesday, a doctor prescribed a coronavirus test for Mr. Conder after extensive screening and sent him to a nearby hospital lab. From there, he said, he was diverted to a new drive-in testing facility, where workers requested an additional form that took hours to obtain. After an ordeal of nearly six hours in total, he said, he got the test and was told he would get results within three days.
Write to Christopher Weaver at christopher.weaver@wsj.com, Betsy McKay at betsy.mckay@wsj.com and Brianna Abbott at brianna.abbott@wsj.com
Biggest maker of medical face masks in U.S. is warning of an outbreak ... of fraud
Swindlers posing as Prestige Ameritech employees are targeting consumers with scam offers, Texas-based company says
Published: March 19, 2020 By Ciara Linnane
Swindlers posing as Prestige Ameritech employees are targeting consumers with scam offers, Texas-based company says
Published: March 19, 2020 By Ciara Linnane
Getty Images
The biggest maker of medical face masks in the U.S. is warning consumers that the surge in demand for masks during the COVID-19 pandemic has led to a flurry of criminal activity.
Prestige Ameritech, a privately held company based near Dallas, says its name is being used in scams that include fake websites and email addresses with swindlers posing as the company or its employees.
“One in particular has a salesperson named Greg Kelsey with prestige-ameritech.com — this is a scam,” the company says on its website.
The only URLs that can be trusted, according to Prestige Ameritech, are these: prestigeameritech.com, prestigeam.com, progearmasks.com and progearhealth.com.
“Any other website that contains the name ‘Prestige Ameritech’ or ‘ProGear Health’ is fake and needs to be reported to us,” reads a warning on the Prestige Ameritech site’s home page.
A further note of caution: Masks listed as made by Prestige Ameritech that are available on websites including eBay US:EBAY and Amazon US:AMZN “are most likely very old masks that have been discontinued.”
Prestige Ameritech has been deluged with orders for its products, which include N95 respirators, surgical masks, dental masks and medical face shields, according to a report by Wired magazine.
N95 masks are tighter-fitting than surgical masks and protect against small particles and large droplets, according to the Centers for Disease Control and Prevention. The company makes N95 masks under the ProGear brand that are approved by the Food and Drug Administration for protecting medical workers from the transfer of microorganisms and airborne particulate materials.
To keep up with demand, the company’s management team is working 80-hour weeks, it has brought idled equipment back on line, and is hiring and training dozens of new employees to expand its staff of around 100, Wired reported.
The company’s co-owner and executive vice president, Mike Bowen, reportedly told the magazine that the company is producing up to 1 million masks a day, up from about 250,00 a day before the ongoing coronavirus outbreak.
The requests are coming from hospitals, doctor’s office, and medical distributors, as well as from elderly people and the parents of children with compromised immune systems, anxious for protection from the illness.
“Since Feb. 1, we’ve had to turn down orders for 100 million masks or more a day, on average,” Bowen said, according to Wired. “Sometimes, we turn down 200 million or 300 million [masks] a day. It’s kind of surreal.”
Prestige Ameritech is not the only one boosting production of face masks. Dow Jones Industrial Average US:DJIA component 3M Co. US:MMM has been increasing its production in recent months, initially in response to high demand from China, which reported the first cases of COVID-19 late last year. On the company’s fourth-quarter earnings call in January, Chief Executive Mike Roman said demand in China had spiked as more cases emerged.
“Now, coronavirus, it’s kind of changing things as we go, and we’re seeing what you’re seeing,” Roman said in 3M’s post-earnings-report call, according to a transcript provided by FactSet. “We’re seeing increased demand for our respiratory protection products, and we’re ramping up our production worldwide ... to meet that demand.”
In March, Vice President Mike Pence said the U.S. government had contracted with 3M for the manufacture of 35 million more masks a month in response to the virus.
The government and agencies including the Centers for Disease Control and Prevention, the U.S. Department of Health and Human Services, and the U.S. surgeon general have told Americans not to buy face masks, which are not effective in containing the virus but are crucial for health-care providers coming in close contact with patients.
Read now: U.S. health officials say Americans shouldn’t wear face masks to prevent coronavirus — here are 3 other reasons not to wear them
On Wednesday, Pence said the government is stepping up its push for more masks for health-care workers. A day earlier, Pence had asked construction companies to donate their inventories of N95 face masks to local hospitals and to stop ordering new ones.
Coronavirus Boosts Some Medical-Supply Makers' Shares
This COVID-19 pandemic era is not the first time Prestige Ameritech has faced a sudden surge in demand for its products. The company faced a similar rush during the H1N1 outbreak in 2009 and hired hundreds of additional workers to cope. But as soon as that outbreak was over, its U.S. customers shifted back to Chinese suppliers, who can produce protective equipment at a fraction of the company’s costs, according to Wired.
3M shares have fallen 36% in the last 12 months, while the ProShares Ultra Industrials ETF US:UXI has fallen 51% and the S&P 500 US:SPX has fallen 16%.
For daily virus coverage: Coronavirus update: 204,255 cases, 8,243 deaths, Trump to share FDA news
The biggest maker of medical face masks in the U.S. is warning consumers that the surge in demand for masks during the COVID-19 pandemic has led to a flurry of criminal activity.
Prestige Ameritech, a privately held company based near Dallas, says its name is being used in scams that include fake websites and email addresses with swindlers posing as the company or its employees.
“One in particular has a salesperson named Greg Kelsey with prestige-ameritech.com — this is a scam,” the company says on its website.
The only URLs that can be trusted, according to Prestige Ameritech, are these: prestigeameritech.com, prestigeam.com, progearmasks.com and progearhealth.com.
“Any other website that contains the name ‘Prestige Ameritech’ or ‘ProGear Health’ is fake and needs to be reported to us,” reads a warning on the Prestige Ameritech site’s home page.
A further note of caution: Masks listed as made by Prestige Ameritech that are available on websites including eBay US:EBAY and Amazon US:AMZN “are most likely very old masks that have been discontinued.”
Prestige Ameritech has been deluged with orders for its products, which include N95 respirators, surgical masks, dental masks and medical face shields, according to a report by Wired magazine.
N95 masks are tighter-fitting than surgical masks and protect against small particles and large droplets, according to the Centers for Disease Control and Prevention. The company makes N95 masks under the ProGear brand that are approved by the Food and Drug Administration for protecting medical workers from the transfer of microorganisms and airborne particulate materials.
To keep up with demand, the company’s management team is working 80-hour weeks, it has brought idled equipment back on line, and is hiring and training dozens of new employees to expand its staff of around 100, Wired reported.
The company’s co-owner and executive vice president, Mike Bowen, reportedly told the magazine that the company is producing up to 1 million masks a day, up from about 250,00 a day before the ongoing coronavirus outbreak.
The requests are coming from hospitals, doctor’s office, and medical distributors, as well as from elderly people and the parents of children with compromised immune systems, anxious for protection from the illness.
“Since Feb. 1, we’ve had to turn down orders for 100 million masks or more a day, on average,” Bowen said, according to Wired. “Sometimes, we turn down 200 million or 300 million [masks] a day. It’s kind of surreal.”
Prestige Ameritech is not the only one boosting production of face masks. Dow Jones Industrial Average US:DJIA component 3M Co. US:MMM has been increasing its production in recent months, initially in response to high demand from China, which reported the first cases of COVID-19 late last year. On the company’s fourth-quarter earnings call in January, Chief Executive Mike Roman said demand in China had spiked as more cases emerged.
“Now, coronavirus, it’s kind of changing things as we go, and we’re seeing what you’re seeing,” Roman said in 3M’s post-earnings-report call, according to a transcript provided by FactSet. “We’re seeing increased demand for our respiratory protection products, and we’re ramping up our production worldwide ... to meet that demand.”
In March, Vice President Mike Pence said the U.S. government had contracted with 3M for the manufacture of 35 million more masks a month in response to the virus.
The government and agencies including the Centers for Disease Control and Prevention, the U.S. Department of Health and Human Services, and the U.S. surgeon general have told Americans not to buy face masks, which are not effective in containing the virus but are crucial for health-care providers coming in close contact with patients.
Read now: U.S. health officials say Americans shouldn’t wear face masks to prevent coronavirus — here are 3 other reasons not to wear them
On Wednesday, Pence said the government is stepping up its push for more masks for health-care workers. A day earlier, Pence had asked construction companies to donate their inventories of N95 face masks to local hospitals and to stop ordering new ones.
Coronavirus Boosts Some Medical-Supply Makers' Shares
This COVID-19 pandemic era is not the first time Prestige Ameritech has faced a sudden surge in demand for its products. The company faced a similar rush during the H1N1 outbreak in 2009 and hired hundreds of additional workers to cope. But as soon as that outbreak was over, its U.S. customers shifted back to Chinese suppliers, who can produce protective equipment at a fraction of the company’s costs, according to Wired.
3M shares have fallen 36% in the last 12 months, while the ProShares Ultra Industrials ETF US:UXI has fallen 51% and the S&P 500 US:SPX has fallen 16%.
For daily virus coverage: Coronavirus update: 204,255 cases, 8,243 deaths, Trump to share FDA news
Dismal oil demand outlook, Saudi-Russian price war lead to ‘atomic bomb’-like environment for oil
U.S. benchmark oil futures at 18-year low
Published: March 18, 2020 By Myra P. Saefong
Weak oil demand outlook, Saudi-Russian price war lead
Weak oil demand outlook, Saudi-Russian price war lead
to “atomic bomb equivalent in the oil markets,”
said Louise Dickson of Rystad Energy
MarketWatch photo illustration/iStockphoto
Oil futures trade near their lowest levels in 20 years with the plunge in prices expected to continue, fed by a weak oil demand outlook tied to the spread of COVID-19 and a price war between two of the biggest crude producers in the world.
“The most recent modern bottom low was about $18 a barrel for West Texas Intermediate crude, on an inflation adjusted basis, and “we could test that now, as long as neither Russia nor Saudi Arabia blinks,” said Michael Lynch, president of Strategic Energy & Economic Research. He referred to the oil market situation as “the worst I’ve ever seen.”
“The problem is that distressed companies might feel the need to dump at any price, which will create pain throughout the industry unlike anything seen before,” he told MarketWatch.
Long-term chart of inflation-adjusted front-month Nymex WTI
Oil futures trade near their lowest levels in 20 years with the plunge in prices expected to continue, fed by a weak oil demand outlook tied to the spread of COVID-19 and a price war between two of the biggest crude producers in the world.
“The most recent modern bottom low was about $18 a barrel for West Texas Intermediate crude, on an inflation adjusted basis, and “we could test that now, as long as neither Russia nor Saudi Arabia blinks,” said Michael Lynch, president of Strategic Energy & Economic Research. He referred to the oil market situation as “the worst I’ve ever seen.”
“The problem is that distressed companies might feel the need to dump at any price, which will create pain throughout the industry unlike anything seen before,” he told MarketWatch.
Long-term chart of inflation-adjusted front-month Nymex WTI
oil futures Dow Jones Market Data
On Wednesday, the front-month April West Texas Intermediate crude contract CLJ20, 7.609%, the U.S. benchmark, lost $6.58, or more than 24%, to settle at $20.37 a barrel on the New York Mercantile Exchange, for the lowest finish since Feb. 20, 2002. Adjusted for inflation, oil is trading around the lowest level since March 1999, according to Dow Jones Market Data.
Global benchmark May Brent crude BRNK20, 2.854% fell $3.85, or over 13%, to finish at $24.88 a barrel on ICE Futures Europe, for its lowest settlement since May 8, 2003.
Read:U.S. oil falls to 18-year low as rout continues on coronavirus fears, price war
Brent trading around $25 “confirms that the market is starting to appreciate the gross imbalance between supply and demand,” said Louise Dickson, analyst at Rystad Energy, in emailed commentary. “With each day, there seems to be yet another trapdoor lying beneath oil prices, and we expect to see prices continue to roil until a cost equilibrium is reached and production is shut in.”
In a recent report, analysts at IHS Markit said global oil demand in March and April could be down by as much as 10 million barrels a day, leading into an estimated world supply surplus ranging from 4 million barrels to 10 million barrels a day from February to May of this year.
“The last time that there was a global surplus of this magnitude was never,” said Jim Burkhard, vice president and head of oil markets at IHS Markit, in the report dated March 16.
Rystad Energy, meanwhile, sees a fall of 2.8%, or 2.8 million barrels per day year-on-year, in global oil demand to 97.1 million barrels per day this year. Oil demand in 2019 was at about 99.9 million barrels per day in 2019.
“The potential loss of demand in March-April may dwarf anything the world has ever seen”—a possible global oil demand decline of more than 10 million barrels per day from pre-coronavirus levels, Bjørnar Tonhaugen, head of oil markets at Rystad Energy, told MarketWatch earlier this week.
And as demand falls, production from major oil producers Saudi Arabia and Russia is set to increase after the Saudis, the de-facto leader of the Organization of the Petroleum Exporting Countries, and allies led by Russia failed to reach an agreement in early March to further curb oil production levels. The current output pact expires at the end of this month and the Saudis and Russians have vowed to boost production in what has become known as a price war.
Read: Why Russia wants to crush U.S. shale oil producers in price war
“Two million bpd is what OPEC+ countries are realistically able to add next month, based on their storage, spare capacity and ramp up capabilities,” said Tonhaugen, in a Wednesday report. “Another million bpd could come if a cease-fire is agreed upon in Libya and the country reaches pre shut-in levels.”
But the world has seen a “steep decline as flight cancellations, industrial shutdowns, quarantines and travel bans have further reduced the need for oil consumption by many more millions of bpd, widening the imbalance that already existed before the OPEC+ meeting,” he said.
Meanwhile, Dickson, also at Rystad, said she believes the “weak global economy was not ready for COVID-19, “which is why we are seeing escalated panic in the markets.”
‘What we are seeing here is essentially the atomic bomb equivalent in the oil markets.’— Louise Dickson, Rystad Energy
“This is the most dismal oil demand picture we have witnessed in a long time, with a simultaneous collapse in jet fuel, gasoline, shipping fuel, petrochemicals, and oil used for power generation,” she said. “And unlike structural economic collapses, we don’t know when the corona[virus] effect will ease up—markets could be wrestling with the virus well into 2021 in a worst case scenario.”
Read:Transportation fuels sink, with jet fuel ‘most susceptible’ to losses as COVID-19 tanks travel
Saudi Arabia and other OPEC member, and non-member Russia are not likely to step back from their promise to ramp up production,” said Dickson.
All told, “what we are seeing here is essentially the atomic bomb equivalent in the oil markets,” she said
On Wednesday, the front-month April West Texas Intermediate crude contract CLJ20, 7.609%, the U.S. benchmark, lost $6.58, or more than 24%, to settle at $20.37 a barrel on the New York Mercantile Exchange, for the lowest finish since Feb. 20, 2002. Adjusted for inflation, oil is trading around the lowest level since March 1999, according to Dow Jones Market Data.
Global benchmark May Brent crude BRNK20, 2.854% fell $3.85, or over 13%, to finish at $24.88 a barrel on ICE Futures Europe, for its lowest settlement since May 8, 2003.
Read:U.S. oil falls to 18-year low as rout continues on coronavirus fears, price war
Brent trading around $25 “confirms that the market is starting to appreciate the gross imbalance between supply and demand,” said Louise Dickson, analyst at Rystad Energy, in emailed commentary. “With each day, there seems to be yet another trapdoor lying beneath oil prices, and we expect to see prices continue to roil until a cost equilibrium is reached and production is shut in.”
In a recent report, analysts at IHS Markit said global oil demand in March and April could be down by as much as 10 million barrels a day, leading into an estimated world supply surplus ranging from 4 million barrels to 10 million barrels a day from February to May of this year.
“The last time that there was a global surplus of this magnitude was never,” said Jim Burkhard, vice president and head of oil markets at IHS Markit, in the report dated March 16.
Rystad Energy, meanwhile, sees a fall of 2.8%, or 2.8 million barrels per day year-on-year, in global oil demand to 97.1 million barrels per day this year. Oil demand in 2019 was at about 99.9 million barrels per day in 2019.
“The potential loss of demand in March-April may dwarf anything the world has ever seen”—a possible global oil demand decline of more than 10 million barrels per day from pre-coronavirus levels, Bjørnar Tonhaugen, head of oil markets at Rystad Energy, told MarketWatch earlier this week.
And as demand falls, production from major oil producers Saudi Arabia and Russia is set to increase after the Saudis, the de-facto leader of the Organization of the Petroleum Exporting Countries, and allies led by Russia failed to reach an agreement in early March to further curb oil production levels. The current output pact expires at the end of this month and the Saudis and Russians have vowed to boost production in what has become known as a price war.
Read: Why Russia wants to crush U.S. shale oil producers in price war
“Two million bpd is what OPEC+ countries are realistically able to add next month, based on their storage, spare capacity and ramp up capabilities,” said Tonhaugen, in a Wednesday report. “Another million bpd could come if a cease-fire is agreed upon in Libya and the country reaches pre shut-in levels.”
But the world has seen a “steep decline as flight cancellations, industrial shutdowns, quarantines and travel bans have further reduced the need for oil consumption by many more millions of bpd, widening the imbalance that already existed before the OPEC+ meeting,” he said.
Meanwhile, Dickson, also at Rystad, said she believes the “weak global economy was not ready for COVID-19, “which is why we are seeing escalated panic in the markets.”
‘What we are seeing here is essentially the atomic bomb equivalent in the oil markets.’— Louise Dickson, Rystad Energy
“This is the most dismal oil demand picture we have witnessed in a long time, with a simultaneous collapse in jet fuel, gasoline, shipping fuel, petrochemicals, and oil used for power generation,” she said. “And unlike structural economic collapses, we don’t know when the corona[virus] effect will ease up—markets could be wrestling with the virus well into 2021 in a worst case scenario.”
Read:Transportation fuels sink, with jet fuel ‘most susceptible’ to losses as COVID-19 tanks travel
Saudi Arabia and other OPEC member, and non-member Russia are not likely to step back from their promise to ramp up production,” said Dickson.
All told, “what we are seeing here is essentially the atomic bomb equivalent in the oil markets,” she said
ALBERTA OIL NOTE: WESTERN CANADIAN CRUDE PRICE IS $8-$12
Any airline bailout must have climate-change conditions attached, says group of Democrats
Taxpayer help for airlines and cruise ships should require these industries to cut greenhouse gas emissions over time, letter says
Published: March 18, 2020 By Rachel Koning Beals
The nation’s major airlines have asked for $50 billion in taxpayer aid as the COVID-19 pandemic hits flight demand. Getty Images
Airlines have their collective hand out for billions of dollars in emergency aid as the coronavirus crisis obliterates the travel sector, and now select Democrats see that as an opportunity to press the major carriers, as well as cruise ships, to be better champions of the environment in exchange for help.
The nation’s major airlines, no strangers to bankruptcies and consolidation over the decades, recently asked for $50 billion in government assistance as the COVID-19 pandemic hits flight demand. The carriers, along with aerospace giant Boeing BA, -17.92% , have warned that they could soon go bankrupt without a government lift.
Read:Global airlines urgently need up to $200 billion to survive as coronavirus pushes industry deeper into crisis
Talks on Capitol Hill are complicated and ongoing, but President Donald Trump said Tuesday that “we have to protect Boeing,” the largest U.S. exporter. Boeing has said $60 billion worth of access to public and private liquidity is needed for its industry. Critics of the aid have pointed to major stock buybacks rather than investment or savings by carriers, as well as other factors.
Related:Jim Cramer praises Mark Cuban’s bailout suggestions: ‘So tired of the rich profiting from every cataclysm’
On Wednesday, eight Senate Democrats signed a letter saying that any aid to airlines (and they included cruise ships) should come with conditions requiring them to reduce their greenhouse gas emissions over time.
Barron’s on MarketWatch: Airline stocks are in a nosedive. Government aid might not help
“If we give the airline and cruise industries assistance without requiring them to be better environmental stewards, we would miss a major opportunity to combat climate change and ocean dumping,” said co-signer Sen. Sheldon Whitehouse, a Democrat of Rhode Island.
Air travel has grown as a contributor to man-made accelerated global warming. While aviation still accounts for less than 3% of global carbon dioxide emissions, those emissions are expected to triple by 2050 as tourism and travel expand, the lawmakers noted in their letter.
As such, “flight shaming” celebrities and other frequent flyers for their aviation carbon footprint has increasingly populated social media.
Airline stocks, including Southwest LUV, -8.10%, Delta Air Lines DAL, -25.99% , United Airlines UAL, -30.29% and American Airlines AAL, -25.22% , were all sharply lower Wednesday.
The cruise industry, including Royal Caribbean RCL, -19.27% and Carnival CCL, -26.82% , was not exempt from the Democrats’ attentions.
“The foreign-flagged cruise industry has a checkered environmental record and most passenger liners burn heavy fuel oil, one of the dirtiest fuels,” the senators said in the letter.
Trade group Cruise Lines International Association said in an emailed response that the pandemic poses “unprecedented times for our entire community, including the tens of thousands of small- and medium-sized businesses, many of them travel agents, who rely on the cruise industry for their livelihoods.”
They noted that the cruise industry was the first maritime sector to publicly commit, in December 2018, to reduce the rate of carbon emissions by 40% by 2030 compared to 2008. The industry has also spent $22 billion in ship upgrades to user cleaner fuels, the group said.
The nation’s major airlines have asked for $50 billion in taxpayer aid as the COVID-19 pandemic hits flight demand. Getty Images
Airlines have their collective hand out for billions of dollars in emergency aid as the coronavirus crisis obliterates the travel sector, and now select Democrats see that as an opportunity to press the major carriers, as well as cruise ships, to be better champions of the environment in exchange for help.
The nation’s major airlines, no strangers to bankruptcies and consolidation over the decades, recently asked for $50 billion in government assistance as the COVID-19 pandemic hits flight demand. The carriers, along with aerospace giant Boeing BA, -17.92% , have warned that they could soon go bankrupt without a government lift.
Read:Global airlines urgently need up to $200 billion to survive as coronavirus pushes industry deeper into crisis
Talks on Capitol Hill are complicated and ongoing, but President Donald Trump said Tuesday that “we have to protect Boeing,” the largest U.S. exporter. Boeing has said $60 billion worth of access to public and private liquidity is needed for its industry. Critics of the aid have pointed to major stock buybacks rather than investment or savings by carriers, as well as other factors.
Related:Jim Cramer praises Mark Cuban’s bailout suggestions: ‘So tired of the rich profiting from every cataclysm’
On Wednesday, eight Senate Democrats signed a letter saying that any aid to airlines (and they included cruise ships) should come with conditions requiring them to reduce their greenhouse gas emissions over time.
Barron’s on MarketWatch: Airline stocks are in a nosedive. Government aid might not help
“If we give the airline and cruise industries assistance without requiring them to be better environmental stewards, we would miss a major opportunity to combat climate change and ocean dumping,” said co-signer Sen. Sheldon Whitehouse, a Democrat of Rhode Island.
Air travel has grown as a contributor to man-made accelerated global warming. While aviation still accounts for less than 3% of global carbon dioxide emissions, those emissions are expected to triple by 2050 as tourism and travel expand, the lawmakers noted in their letter.
As such, “flight shaming” celebrities and other frequent flyers for their aviation carbon footprint has increasingly populated social media.
Airline stocks, including Southwest LUV, -8.10%, Delta Air Lines DAL, -25.99% , United Airlines UAL, -30.29% and American Airlines AAL, -25.22% , were all sharply lower Wednesday.
The cruise industry, including Royal Caribbean RCL, -19.27% and Carnival CCL, -26.82% , was not exempt from the Democrats’ attentions.
“The foreign-flagged cruise industry has a checkered environmental record and most passenger liners burn heavy fuel oil, one of the dirtiest fuels,” the senators said in the letter.
Trade group Cruise Lines International Association said in an emailed response that the pandemic poses “unprecedented times for our entire community, including the tens of thousands of small- and medium-sized businesses, many of them travel agents, who rely on the cruise industry for their livelihoods.”
They noted that the cruise industry was the first maritime sector to publicly commit, in December 2018, to reduce the rate of carbon emissions by 40% by 2030 compared to 2008. The industry has also spent $22 billion in ship upgrades to user cleaner fuels, the group said.
Project Syndicate
Opinion: A better and fairer bailout during the financial crisis was possible, Soros says
Owners, bondholders and managers of failed banks should have borne more of the cost of the financial crisis
Published: Sept. 29, 2018 By Rob Johnson and George Soros
Executives of Wall Street financial institutions that received federal bailout funds testify at House committee in February 2009. Chip Somodevilla/Getty Images
NEW YORK (Project Syndicate) — The recent exchange between Joe Stiglitz and Larry Summers about “secular stagnation” and its relation to the tepid economic recovery after the 2008-2009 financial crisis is an important one.
History does not repeat itself, but it rhymes, Mark Twain reportedly once said. But, to paraphrase Bob Dylan, in light of our recent economic history, history doesn’t rhyme, it swears.
A shift in the burden of adjustment would have imposed losses on the people who were responsible for the calamity, stimulated aggregate demand, and diminished the rising inequality that was demoralizing the vast majority of people.
Stiglitz and Summers appear to agree that policy was inadequate to address the structural challenges that the crisis revealed and intensified. Their debate addresses the size of the fiscal stimulus, the role of financial regulation, and the importance of income distribution. But additional issues need to be explored in depth.
We believe a critical opportunity was missed when the costs and benefits of the adjustment were tilted heavily in favor of creditors relative to debtors in the response to the crisis and that this contributed to the prolonged stagnation that followed the crisis. The long-term social and political ramifications of this missed opportunity have been profound.
Back in September 2008, when then-Secretary of the Treasury Hank Paulson introduced the $700 billion Troubled Asset Relief Program (TARP), he proposed using the funds to bail out the banks, but without acquiring any equity ownership in them.
See MarketWatch’s full coverage of the 10th anniversary of the Financial Crisis
At that time, we and our colleague Robert Dugger argued that a much more effective and fair use of taxpayers’ money would be to reduce the value of mortgages held by ordinary Americans to reflect the decline in home prices and to inject capital into the financial institutions that would become undercapitalized.
Because equity could support a balance sheet that would have been 20 times larger, $700 billion could have gone a long way toward restoring a healthy financial system.
The ability to use funds to inject equity into the banks was not part of the bill presented to the House of Representatives. So we organized for Rep. Jim Moran to ask House Financial Services Chairman Barney Frank in a pre-arranged question whether it was in the spirit of the TARP legislation to allow the Treasury to use taxpayers’ money in the form of equity injections. Frank replied in the affirmative on the House floor.
This was in fact a tool that Paulson used in the closing days of George W. Bush’s administration. But Paulson did it the wrong way: he summoned the heads of major banks and forced them to take the money he allocated to them. But by doing so he stigmatized the banks.
A few months later, when President Barack Obama’s administration arrived, one of us (Soros) repeatedly appealed to Summers to adopt a policy of equity injection into fragile financial institutions and to write down mortgages to a realistic market value in order to help the economy recover.
Summers objected that this would be politically unacceptable because it would mean nationalizing banks. Such a policy reeked of socialism and America is not a socialist country, he asserted.
We found his argument unconvincing — both then and now. By relieving financial institutions of their overvalued assets, the Bush and Obama administrations had already chosen to socialize the downside. Only the upside of sharing in the possible stock gains in the event of a recovery was still at issue!
Had our policy recommendation been adopted, stockholders and debt holders (who have a higher propensity to save) would have experienced greater losses than they did, whereas lower- and middle-income households (which have a higher propensity to consume) would have experienced relief from their mortgage debt.
This shift in the burden of adjustment would have imposed losses on the people who were responsible for the calamity, stimulated aggregate demand, and diminished the rising inequality that was demoralizing the vast majority of people.
We did recognize a problem with our proposal: providing relief to over-indebted mortgage holders would have encountered resistance from the many homeowners who had not taken out a mortgage. We were exploring ways to overcome this problem until it became moot: the Obama administration refused to accept our advice.
The approach of the Bush and Obama administrations stands in stark contrast both to the policy followed by the British government, and to earlier examples of successful financial bailouts in the United States.
In Great Britain, led by then-Prime Minister Gordon Brown, undercapitalized banks were told to raise additional capital. They were given the opportunity to go to the market themselves, but they were warned that the U.K. Treasury would inject funds into them if they failed to do so.
The Royal Bank of Scotland and Lloyds TSB did require government support. The equity injections were accompanied by restrictions on executive pay and dividends. In contrast to Paulson’s method of injecting funds, banks were not stigmatized if they could borrow from the markets.
Similarly, during the Great Depression of the 1930s, the U.S. took ownership and recapitalized banks via the Reconstruction Finance Corp. (RFC) and managed mortgage restructuring through the Home Owners’ Loan Corp. (HOLC).
No doubt the Obama administration helped to alleviate the crisis by reassuring the public and downplaying the depth of the problems, but there was a heavy political price to pay. The administration’s policies failed to deal with the underlying problems, and by protecting the banks rather than mortgage holders, they exacerbated the gap between America’s haves and have-nots.
The electorate blamed the Obama administration and the Democratic Congress for the results.
The Tea Party was formed in early 2009 with large-scale financial support from the billionaire Koch brothers, Charles and David. In January 2010, Massachusetts held a special election for the late Ted Kennedy’s Senate seat, just after Wall Street paid extravagant bonuses, and elected the Republican Scott Brown. The Republicans subsequently took control of the House of Representatives in the 2010 midterm elections, gained control of the Senate in 2014, and nominated Donald Trump, who was elected in 2016.
It is essential that the Democratic Party recognize and correct its past mistakes. The 2018 midterm elections, which will set the stage for the 2020 presidential election, is an excellent opportunity to do so. The political and economic problems that confront the country are much deeper today than they were 10 years ago, and the public knows it.
The Democrats must recognize these problems, not downplay them. This year’s midterm elections will be a plebiscite on Trump, but the Democratic presidential candidate in 2020 must have a program that many Americans find inspiring. The electorate has seen where the Republicans’ demagogic populism leads, and a majority should reject it in 2018.
This article was published with permission of Project Syndicate — A Better Bailout Was Possible.
Rob Johnson is president of the Institute for New Economic Thinking and a senior fellow and director of the Global Finance Project at the Franklin and Eleanor Roosevelt Institute. George Soros is chairman of Soros Fund Management and of the Open Society Foundations.
Opinion: Any corporate bailouts should wipe out shareholders first
Companies taking taxpayer money should have to limit CEO pay
Companies taking taxpayer money should have to limit CEO pay
Published: March 18, 2020 By Dean Baker
Demand for airline travel has collapsed. Getty Images
It looks like we are seeing an effort to do a replay of 2008 where we were told that we had to give all the money to the banks or the world would end. Today the story is that we have to bail out the airline, cruise, hotel, and restaurant industries or tens of millions of workers will lose their jobs. Well, the disaster threats were not true in 2008 and they deserve even less credence today.
The story in 2008 was that all our major banks had effectively made themselves insolvent through their own greed and bad judgment. They had made hundreds of billions of dollars worth of mortgage and mortgage-related loans that suddenly went bad when the housing bubble burst.
If we let the market work its magic, they would have all gone bankrupt.
The banks got the government to lend the money they needed to stay in business, at way below market interest rates, by telling everyone that if they went under, we would be looking at a second Great Depression. There was literally no one who could explain why we would be prevented from doing the same thing that got us out of the first Great Depression (spend lots of money) if the banks went under.
Our payment system would have surely been disrupted in the immediate wake of a wave of bankruptcies, but unlike in the 1930s, we have the FDIC to insure most of our deposits and keep the wheels turning.
The initial downturn surely would have been somewhat worse had we gone the no bailout route, but there is no economic reason we could not have quickly lifted the economy out of a downturn with a massive stimulus following a collapse of the major banks. We held the cards and could have dictated the terms of any bailout for the banks.
Unfortunately, this argument was not heard at the time. I remember I wrote a column for the Guardian with the headline “the banks have a gun pointed to their heads and are threatening to pull the trigger.” The paper flipped the headline so that the guns were pointed to our heads.
Anyhow, we can’t let the same mistake happen twice. Congress can dictate terms of any bailout. I would suggest following the auto-industry model — wipe out shareholders first. And, bailout recipients have to commit to keeping workers on the payroll with current pay and benefits.
There also should be strict caps on executive compensation. Let’s make it $2 million in total compensation. (That includes insurance policies, health care, pensions, etc.) And to ensure that there are no silly mistakes, jail time for board members who sign contracts exceeding this figure.
If the airlines, cruise ships etc. don’t like it, let them go elsewhere for money.
Also read: Here are the industries that could get coronavirus aid from the U.S. government
This sort of restriction on CEO compensation is important because it can help to counteract the crazy upward trend in CEO pay we have seen in the last four decades. There really is no countervailing downward pressure. CEOs ask their friends on corporate boards for big pay increases year after year, and the board has no reason not to give them more of the company’s money. If major corporations can be effectively run by CEOs getting one tenth the going rate, it would set a valuable precedent.
This is not just a question of envy. More money for those at the top means less for everyone else. And to be clear, it is not just the CEO who is vastly overpaid. If the CEO is getting $20 million, the chief financial officer and other top execs might be getting $10 million, and the third tier could be getting $2 or $3 million. The world would look very different if the CEO were getting $2 million, which would be the case if we had the same ratios of CEO to worker pay as 50 years ago.
One more item; we should also require a full financial disclosure from President Donald Trump and family as a condition of any bailout so we know how much money we are giving him.
Anyhow, we have major corporations desperately in need of government support to stay afloat. Nancy Pelosi is in a position to dictate terms and tell these companies, as well as Trump and the Republican Senate, to take it or leave it.
This article was originally published at the Beat the Press blog.
Dean Baker is senior economist and co-founder of the Center for Economic Policy and Research.
Demand for airline travel has collapsed. Getty Images
It looks like we are seeing an effort to do a replay of 2008 where we were told that we had to give all the money to the banks or the world would end. Today the story is that we have to bail out the airline, cruise, hotel, and restaurant industries or tens of millions of workers will lose their jobs. Well, the disaster threats were not true in 2008 and they deserve even less credence today.
The story in 2008 was that all our major banks had effectively made themselves insolvent through their own greed and bad judgment. They had made hundreds of billions of dollars worth of mortgage and mortgage-related loans that suddenly went bad when the housing bubble burst.
If we let the market work its magic, they would have all gone bankrupt.
The banks got the government to lend the money they needed to stay in business, at way below market interest rates, by telling everyone that if they went under, we would be looking at a second Great Depression. There was literally no one who could explain why we would be prevented from doing the same thing that got us out of the first Great Depression (spend lots of money) if the banks went under.
Our payment system would have surely been disrupted in the immediate wake of a wave of bankruptcies, but unlike in the 1930s, we have the FDIC to insure most of our deposits and keep the wheels turning.
The initial downturn surely would have been somewhat worse had we gone the no bailout route, but there is no economic reason we could not have quickly lifted the economy out of a downturn with a massive stimulus following a collapse of the major banks. We held the cards and could have dictated the terms of any bailout for the banks.
Unfortunately, this argument was not heard at the time. I remember I wrote a column for the Guardian with the headline “the banks have a gun pointed to their heads and are threatening to pull the trigger.” The paper flipped the headline so that the guns were pointed to our heads.
Anyhow, we can’t let the same mistake happen twice. Congress can dictate terms of any bailout. I would suggest following the auto-industry model — wipe out shareholders first. And, bailout recipients have to commit to keeping workers on the payroll with current pay and benefits.
There also should be strict caps on executive compensation. Let’s make it $2 million in total compensation. (That includes insurance policies, health care, pensions, etc.) And to ensure that there are no silly mistakes, jail time for board members who sign contracts exceeding this figure.
If the airlines, cruise ships etc. don’t like it, let them go elsewhere for money.
Also read: Here are the industries that could get coronavirus aid from the U.S. government
This sort of restriction on CEO compensation is important because it can help to counteract the crazy upward trend in CEO pay we have seen in the last four decades. There really is no countervailing downward pressure. CEOs ask their friends on corporate boards for big pay increases year after year, and the board has no reason not to give them more of the company’s money. If major corporations can be effectively run by CEOs getting one tenth the going rate, it would set a valuable precedent.
This is not just a question of envy. More money for those at the top means less for everyone else. And to be clear, it is not just the CEO who is vastly overpaid. If the CEO is getting $20 million, the chief financial officer and other top execs might be getting $10 million, and the third tier could be getting $2 or $3 million. The world would look very different if the CEO were getting $2 million, which would be the case if we had the same ratios of CEO to worker pay as 50 years ago.
One more item; we should also require a full financial disclosure from President Donald Trump and family as a condition of any bailout so we know how much money we are giving him.
Anyhow, we have major corporations desperately in need of government support to stay afloat. Nancy Pelosi is in a position to dictate terms and tell these companies, as well as Trump and the Republican Senate, to take it or leave it.
This article was originally published at the Beat the Press blog.
Dean Baker is senior economist and co-founder of the Center for Economic Policy and Research.
Should U.S. Airlines, Suffering From Plunging Demand, Receive A Government Bailout?
By Palash Ghosh @Gooch700 IBT 03/19/2020
KEY POINTS
U.S. air carriers are now flying at only 20% to 30% of capacity
Donald Trump has vowed to help the airline industry
U.S. airlines have handed out massive payments in recent years to stockholders and executives.
U.S. airlines, suffering from falling demand and travel bans around the world as a result of the coronavirus epidemic, have pushed for a huge $50 bailout from the government to save their industry.
Airlines for America, a trade association and lobbying group that represents major North American airlines, said most U.S. air carriers are now flying at only 20% to 30% of capacity.
"This is getting worse each day with no end in sight," said the group's CEO, Nicholas Calio.
Delta Air Lines (DAL) has grounded 600 planes and slashed capacity by 70%. United Air Lines (UAL) cut capacity by 60%.
Airline stocks have also sunk. Year to date through Wednesday, United fell 75.7%, American Airlines (AAL) dropped 59.2%, Delta plunged 59.6% and Southwest Airlines (LUV) has tumbled 34.6%.
Aerospace giant Boeing (BA) has tumbled 68.5%.
The S&P 500 Airlines Industry Index has shed 42.5% year-to-date, versus the S&P 500’s overall 26.1% drop.
“The situation is deteriorating rapidly for the [airline] industry, increasing the likelihood that government assistance will be required to maintain liquidity and manage through this crisis,” Bernstein analyst David Vernon.
President Donald Trump has vowed to help the airline industry.
"Airlines would be No. 1," Trump said. "You go from having the best year they have ever had to having no passengers because of what we have had to do to win this war – and it's a war."
RELATED STORIES
Virus-stricken Airlines Face Bailout Or Bust
US Airlines Seek $50 Bn In Federal Loans, Grants Due To Virus
Lou Whiteman wrote in Fool.com: “If nothing else, a show of government support should help reassure airline suppliers, creditors, and counterparties that the companies can make it through the downturn, which should help the airlines negotiate extensions, raise new debt, and take other actions to get through the crisis.”
However, reports have emerged that U.S. airlines have handed out massive payments in recent years to stockholders (through share buybacks) and executives.
The Guardian reported that these payments amounted to $45 billion over the past five years for the country’s five largest airlines. These buybacks have improved earnings per share and stock prices.
Building up cash for a rainy day hasn’t been part of the plan for airlines despite their propensity for going bankrupt in hard times
American Airlines spent $13 billion on share buybacks for
S&P 500 AIRLINES + JETBLUE TICKER FREE CASH FLOW, PAST 10 YEARS ($ MILLIONS) DOLLARS SPENT ON COMMON-STOCK BUYBACKS - PAST 10 YEARS ($ MILLIONS) BUYBACKS/FCF
Southwest Airlines Co. LUV, -8.10% $15,103 $10,650 71%
Alaska Air Group, Inc. ALK, -22.74% $4,948 $1,590 32%
Delta Air Lines, Inc. DAL, -25.99% $23,186 $11,430 49%
United Airlines Holdings, Inc. UAL, -30.29% $11,526 $8,883 77%
American Airlines Group, Inc. AAL, -25.22% -$7,935 $12,957 N/A
JetBlue Airways Corporation JBLU, -19.53% $2,347 $1,771 75%
Totals $49,175 $47,281 96%
Source: FactSet
You can click on the tickers for more about each company.
You may have to scroll right to see all the data.
As a group, the six airlines spent 96% of their free cash flow on stock buybacks over the past 10 full years through 2019.
Boeing’s free cash flow for 10 years totaled $58.37 billion, while the company spent $43.44 billion, or 74% of free cash flow, on stock repurchases.
Boeing stock plunges as bailout prospects fail to comfort investors, and could even add to concerns
Published: March 19, 2020 By Tomi Kilgore
A taxpayer bailout would leave Boeing saddled with debt and regulatory oversight, and raise ‘moral hazard’ concerns, analyst says
By Palash Ghosh @Gooch700 IBT 03/19/2020
KEY POINTS
U.S. air carriers are now flying at only 20% to 30% of capacity
Donald Trump has vowed to help the airline industry
U.S. airlines have handed out massive payments in recent years to stockholders and executives.
U.S. airlines, suffering from falling demand and travel bans around the world as a result of the coronavirus epidemic, have pushed for a huge $50 bailout from the government to save their industry.
Airlines for America, a trade association and lobbying group that represents major North American airlines, said most U.S. air carriers are now flying at only 20% to 30% of capacity.
"This is getting worse each day with no end in sight," said the group's CEO, Nicholas Calio.
Delta Air Lines (DAL) has grounded 600 planes and slashed capacity by 70%. United Air Lines (UAL) cut capacity by 60%.
Airline stocks have also sunk. Year to date through Wednesday, United fell 75.7%, American Airlines (AAL) dropped 59.2%, Delta plunged 59.6% and Southwest Airlines (LUV) has tumbled 34.6%.
Aerospace giant Boeing (BA) has tumbled 68.5%.
The S&P 500 Airlines Industry Index has shed 42.5% year-to-date, versus the S&P 500’s overall 26.1% drop.
“The situation is deteriorating rapidly for the [airline] industry, increasing the likelihood that government assistance will be required to maintain liquidity and manage through this crisis,” Bernstein analyst David Vernon.
President Donald Trump has vowed to help the airline industry.
"Airlines would be No. 1," Trump said. "You go from having the best year they have ever had to having no passengers because of what we have had to do to win this war – and it's a war."
RELATED STORIES
Virus-stricken Airlines Face Bailout Or Bust
US Airlines Seek $50 Bn In Federal Loans, Grants Due To Virus
Lou Whiteman wrote in Fool.com: “If nothing else, a show of government support should help reassure airline suppliers, creditors, and counterparties that the companies can make it through the downturn, which should help the airlines negotiate extensions, raise new debt, and take other actions to get through the crisis.”
However, reports have emerged that U.S. airlines have handed out massive payments in recent years to stockholders (through share buybacks) and executives.
The Guardian reported that these payments amounted to $45 billion over the past five years for the country’s five largest airlines. These buybacks have improved earnings per share and stock prices.
Specifically, Delta Air Lines, American Airlines, United Airlines, Southwest Airlines and Alaska Air Group (ALK) spent $44.9 billion on share repurchases and dividends over the past five years, while paying almost $750 million to executives over that period.
For example, American Airlines spent $13 billion on share buybacks over 10 years through 2019, while it had negative free cash flow.
Sara Nelson, president of the Association of Flight Attendants, said that any bailout by the government should include “significant conditions” that bars airlines from enriching shareholders or padding executive bonuses.
“We have told Congress that any stimulus funds for the aviation industry must come with strict rules,” she said. “That includes requiring employers across aviation to maintain pay and benefits for every worker; no taxpayer money for CEO bonuses, stock buybacks or dividends; no breaking contracts through bankruptcy; and no federal funds for airlines that are fighting their workers’ efforts to join a union.”
An estimated 750,000 people currently work in the U.S. airlines industry, but these companies have already cut more than 10,000 jobs in the past five years.
However a spokesperson for Airlines for America, , defended such payouts, citing that U.S. carriers invested 73% of their operating cashflow “back into the product” -- including investments in new aircraft, facilities, grounding equipment and technologies – while reducing debts by $91 billion.
Still, any bailout of the airline industry may face stiff opposition from Democrats.
Among other things, Democrats have demanded restrictions on executive pay bonuses and stock buybacks.
Sen. Tammy Duckworth (D-Ill.) said she wanted to protect the jobs of airplane mechanics.
"The last time this happened, we wiped out the heavy repair industry and all those jobs went to Mexico and Brazil," she said. "The last time we helped out the airlines we didn’t actually put any guardrails around some of this money, whether it’s task credits for repair work -- so the maintenance companies actually went out of business. The airlines came back but all of those maintenance jobs went overseas and we need to make sure that we keep those jobs here. So the MROs, the maintenance repair operators, they need to be protected as well."
Even some Republicans are uncomfortable with the term bailout. Senate Appropriations Chairman Richard Shelby (R-Ala.) said he “would have some real concerns” about a “bailout” for the airline industry, but added that “loans” are a “different” matter.
“Given [the airlines’] importance to our economy, and to our eventual recovery… we are going to have to provide some sort of assistance — whether it should be in the form of loans, secured loans, I’m not sure yet,” said Sen. Susan Collins (R-Maine).
A group of eight Democratic senators headed by Sen. Sheldon Whitehouse of Rhode Island asked that any bailout include provisions for airlines to cut their carbon emissions.
“Given the poor records of some companies in these industries, we believe that any such financial assistance should be paired with requirements that companies act in a more responsible fashion,” read the letter from the group.
Deep Dive
Opinion: Airlines and Boeing want a bailout — but look how much they’ve spent on stock buybacks
Published: March 19, 2020 By Philip van Doorn
For example, American Airlines spent $13 billion on share buybacks over 10 years through 2019, while it had negative free cash flow.
Sara Nelson, president of the Association of Flight Attendants, said that any bailout by the government should include “significant conditions” that bars airlines from enriching shareholders or padding executive bonuses.
“We have told Congress that any stimulus funds for the aviation industry must come with strict rules,” she said. “That includes requiring employers across aviation to maintain pay and benefits for every worker; no taxpayer money for CEO bonuses, stock buybacks or dividends; no breaking contracts through bankruptcy; and no federal funds for airlines that are fighting their workers’ efforts to join a union.”
An estimated 750,000 people currently work in the U.S. airlines industry, but these companies have already cut more than 10,000 jobs in the past five years.
However a spokesperson for Airlines for America, , defended such payouts, citing that U.S. carriers invested 73% of their operating cashflow “back into the product” -- including investments in new aircraft, facilities, grounding equipment and technologies – while reducing debts by $91 billion.
Still, any bailout of the airline industry may face stiff opposition from Democrats.
Among other things, Democrats have demanded restrictions on executive pay bonuses and stock buybacks.
Sen. Tammy Duckworth (D-Ill.) said she wanted to protect the jobs of airplane mechanics.
"The last time this happened, we wiped out the heavy repair industry and all those jobs went to Mexico and Brazil," she said. "The last time we helped out the airlines we didn’t actually put any guardrails around some of this money, whether it’s task credits for repair work -- so the maintenance companies actually went out of business. The airlines came back but all of those maintenance jobs went overseas and we need to make sure that we keep those jobs here. So the MROs, the maintenance repair operators, they need to be protected as well."
Even some Republicans are uncomfortable with the term bailout. Senate Appropriations Chairman Richard Shelby (R-Ala.) said he “would have some real concerns” about a “bailout” for the airline industry, but added that “loans” are a “different” matter.
“Given [the airlines’] importance to our economy, and to our eventual recovery… we are going to have to provide some sort of assistance — whether it should be in the form of loans, secured loans, I’m not sure yet,” said Sen. Susan Collins (R-Maine).
A group of eight Democratic senators headed by Sen. Sheldon Whitehouse of Rhode Island asked that any bailout include provisions for airlines to cut their carbon emissions.
“Given the poor records of some companies in these industries, we believe that any such financial assistance should be paired with requirements that companies act in a more responsible fashion,” read the letter from the group.
Deep Dive
Opinion: Airlines and Boeing want a bailout — but look how much they’ve spent on stock buybacks
Published: March 19, 2020 By Philip van Doorn
Building up cash for a rainy day hasn’t been part of the plan for airlines despite their propensity for going bankrupt in hard times
American Airlines spent $13 billion on share buybacks for
10 years through 2019, even though its free cash flow for
that period was negative. Bloomberg
Many investors didn’t trust airline stocks through the bull market. Their valuation to earnings ratios were low, even as profits rose dramatically.
But despite a history of rough patches during unforeseen events, such as the Sept. 11, 2001, attacks and the volcanic eruption in Iceland in 2010 that disrupted air travel, large U.S. airline companies spent most of their free cash flow over the past 10 years on share buybacks, propping up their quarterly earnings-per-share results.
So did aerospace giant Boeing BA, -17.92%, but to a lesser extent.
Free-cash-flow and stock-buyback data for six large airline companies and Boeing are shown below.
Bailouts expected
Airlines have a long history of bankruptcies, and there is a very long of list of Chapter 7 and Chapter 11 filings, including TWA in 2001 and Eastern in 1991.
Now, large U.S. airlines and Boeing have requested massive aid from the federal government. Talks are ongoing, but President Trump said Tuesday that “we have to protect Boeing,” which is the largest U.S. exporter.
Boeing said March 17 that “a minimum of $60 billion in access to public and private liquidity, including loan guarantees” was appropriate for the aerospace-manufacturing industry.
Trump has been meeting with airline executives, who are seeking $50 billion in government money, according to The Wall Street Journal.
Bailouts may be necessary, and it remains to be seen what form they may take.
Read:Here are the industries that could get coronavirus aid from the U.S. government
Free cash flow and buybacks
Most investors know that cash flow is more important than earnings, because revenue can be booked, and profits shown, before a company actually receives payment. A company’s free cash flow is its remaining cash flow after planned capital expenditures. Free cash flow can be used to pay for dividends, buy back shares, expand operations or invest in other improvements for the business.
Companies that built up hoards of cash, such as Berkshire Hathaway BRK.B, -8.08%, have been criticized for doing so, because it lowers a company’s return on invested capital.
Then again, Berkshire CEO Warren Buffett has shown during down markets that the extra cash can be put to work by scooping up other companies’ shares at low prices, or making special, lucrative preferred-stock deals, such as the one Berkshire did with Goldman Sachs GS, -11.75% during the 2008 financial crisis. Berkshire had $125 billion in cash and short-term investments in U.S. Treasury bills as of Dec. 31.
Nobody could have predicted the coronavirus outbreak, but it is having a tremendous effect on Apple AAPL, -2.44%, not only because most of its stores are closed, but because iPhones are assembled at Foxconn’s 2354, -7.60% factories in China. But Apple has also been criticized for holding too much cash. It had $39.7 billion in cash, plus $67.4 billion in “marketable securities” as of Dec. 28. The extra cash will serve the company well during a massive decline in sales.
Companies use free cash flow to repurchase shares for several reasons. If the share count is reduced, it boosts earnings per share. If a company is issuing a significant number of new shares as part of its executive-compensation packages, buybacks mitigate the dilution of other shareholders’ ownership percentages.
A company may buy back shares because its executives cannot think of any better use for the money (such as expansion, equipment replacement, new product or service development, etc.), or maybe because the executives and board members are overly fixated on quarterly earnings results and boosting the share price, rather than the long-term health of the business and its ability to navigate storms.
Analysts, investors and corporate executives often call buybacks a “return of capital” to shareholders. This isn’t necessarily the case if the share price declines, despite the buybacks, or it eventually becomes clear the company was underinvesting in its ability to deliver competitive products and services.
The data
FactSet provided 10 years of free-cash-flow data, through the end of 2019 for the five airlines in the S&P 500 Index SPX, -5.18% plus JetBlue Airways JBLU, -19.53% and, separately, for Boeing.
Here is combined data for the six airlines:
Many investors didn’t trust airline stocks through the bull market. Their valuation to earnings ratios were low, even as profits rose dramatically.
But despite a history of rough patches during unforeseen events, such as the Sept. 11, 2001, attacks and the volcanic eruption in Iceland in 2010 that disrupted air travel, large U.S. airline companies spent most of their free cash flow over the past 10 years on share buybacks, propping up their quarterly earnings-per-share results.
So did aerospace giant Boeing BA, -17.92%, but to a lesser extent.
Free-cash-flow and stock-buyback data for six large airline companies and Boeing are shown below.
Bailouts expected
Airlines have a long history of bankruptcies, and there is a very long of list of Chapter 7 and Chapter 11 filings, including TWA in 2001 and Eastern in 1991.
Now, large U.S. airlines and Boeing have requested massive aid from the federal government. Talks are ongoing, but President Trump said Tuesday that “we have to protect Boeing,” which is the largest U.S. exporter.
Boeing said March 17 that “a minimum of $60 billion in access to public and private liquidity, including loan guarantees” was appropriate for the aerospace-manufacturing industry.
Trump has been meeting with airline executives, who are seeking $50 billion in government money, according to The Wall Street Journal.
Bailouts may be necessary, and it remains to be seen what form they may take.
Read:Here are the industries that could get coronavirus aid from the U.S. government
Free cash flow and buybacks
Most investors know that cash flow is more important than earnings, because revenue can be booked, and profits shown, before a company actually receives payment. A company’s free cash flow is its remaining cash flow after planned capital expenditures. Free cash flow can be used to pay for dividends, buy back shares, expand operations or invest in other improvements for the business.
Companies that built up hoards of cash, such as Berkshire Hathaway BRK.B, -8.08%, have been criticized for doing so, because it lowers a company’s return on invested capital.
Then again, Berkshire CEO Warren Buffett has shown during down markets that the extra cash can be put to work by scooping up other companies’ shares at low prices, or making special, lucrative preferred-stock deals, such as the one Berkshire did with Goldman Sachs GS, -11.75% during the 2008 financial crisis. Berkshire had $125 billion in cash and short-term investments in U.S. Treasury bills as of Dec. 31.
Nobody could have predicted the coronavirus outbreak, but it is having a tremendous effect on Apple AAPL, -2.44%, not only because most of its stores are closed, but because iPhones are assembled at Foxconn’s 2354, -7.60% factories in China. But Apple has also been criticized for holding too much cash. It had $39.7 billion in cash, plus $67.4 billion in “marketable securities” as of Dec. 28. The extra cash will serve the company well during a massive decline in sales.
Companies use free cash flow to repurchase shares for several reasons. If the share count is reduced, it boosts earnings per share. If a company is issuing a significant number of new shares as part of its executive-compensation packages, buybacks mitigate the dilution of other shareholders’ ownership percentages.
A company may buy back shares because its executives cannot think of any better use for the money (such as expansion, equipment replacement, new product or service development, etc.), or maybe because the executives and board members are overly fixated on quarterly earnings results and boosting the share price, rather than the long-term health of the business and its ability to navigate storms.
Analysts, investors and corporate executives often call buybacks a “return of capital” to shareholders. This isn’t necessarily the case if the share price declines, despite the buybacks, or it eventually becomes clear the company was underinvesting in its ability to deliver competitive products and services.
The data
FactSet provided 10 years of free-cash-flow data, through the end of 2019 for the five airlines in the S&P 500 Index SPX, -5.18% plus JetBlue Airways JBLU, -19.53% and, separately, for Boeing.
Here is combined data for the six airlines:
S&P 500 AIRLINES + JETBLUE TICKER FREE CASH FLOW, PAST 10 YEARS ($ MILLIONS) DOLLARS SPENT ON COMMON-STOCK BUYBACKS - PAST 10 YEARS ($ MILLIONS) BUYBACKS/FCF
Southwest Airlines Co. LUV, -8.10% $15,103 $10,650 71%
Alaska Air Group, Inc. ALK, -22.74% $4,948 $1,590 32%
Delta Air Lines, Inc. DAL, -25.99% $23,186 $11,430 49%
United Airlines Holdings, Inc. UAL, -30.29% $11,526 $8,883 77%
American Airlines Group, Inc. AAL, -25.22% -$7,935 $12,957 N/A
JetBlue Airways Corporation JBLU, -19.53% $2,347 $1,771 75%
Totals $49,175 $47,281 96%
Source: FactSet
You can click on the tickers for more about each company.
You may have to scroll right to see all the data.
As a group, the six airlines spent 96% of their free cash flow on stock buybacks over the past 10 full years through 2019.
Boeing’s free cash flow for 10 years totaled $58.37 billion, while the company spent $43.44 billion, or 74% of free cash flow, on stock repurchases.
Boeing stock plunges as bailout prospects fail to comfort investors, and could even add to concerns
Published: March 19, 2020 By Tomi Kilgore
A taxpayer bailout would leave Boeing saddled with debt and regulatory oversight, and raise ‘moral hazard’ concerns, analyst says
Bloomberg News/Landov
Referenced Symbols
BA
-17.92% DJIA
-6.30% XLI
-7.36% SPX
-5.18%
Shares of Boeing Co. plunged Wednesday to a seven-year low, as the prospects of a taxpayer bailout of the aerospace giant failed to allay investor fears of potential liquidity issues, as the COVID-19 pandemic continues to cripple the aerospace industry.
Analyst Robert Stallard at Vertical Research Partners suggested a government bailout would be far from a panacea for Boeing, as it would leave the company saddled with debt and subject to stringent regulatory oversight.
Boeing’s stock BA, -17.92% dropped 17.9% in active trading to $101.89, the lowest close since July 12, 2013. Trading volume swelled to 61.6 million shares, compared with the average volume of 11.8 million shares over the past 30 days.
The price decline acted as a 151-point drag on the Dow Jones Industrial Average’s DJIA, -6.30% price, which tumbled 1,338 points.
Boeing’s stock has already plummeted 63.0% in March, which puts it on track to suffer its worst-ever monthly performance, surpassing by a wide margin the previous record decline of 34.6% in September 2001.
“While on paper the price looks attractive, the timing does not. The impact of COVID-19 on aerospace has yet to be fully appreciated in our view, while the 2008-09 history shows that Boeing’s valuation can easily get worse before it gets better.”— Robert Stallard, analyst at Vertical Research Partners
The selloff comes despite President Donald Trump saying Tuesday, that “we have to protect Boeing,” as part of a “big, bold” stimulus package to combat the impact of the coronavirus outbreak. Separately, Boeing said late Tuesday that it supports a “minimum $60 billion” in government aid to help the aerospace industry navigate the negative impact of the outbreak, and said it was looking to access public and private liquidity and loan guarantees.
“Ultimately, we think the U.S. government will take the view that Boeing is ‘too big to fail,’ but that could provide little comfort to equity investors,” Stallard wrote in a note to clients.
He said that while Boeing’s liquidity situation “does not look pretty,” government aid and public markets would be sufficient to keep the company afloat. “However, this could leave Boeing so encumbered with debt that it is unable to effectively compete,” Stallard wrote. Read about Boeing credit downgrade.
See related: Boeing’s push to preserve cash and tap huge credit line spooks investors.
Given Boeing’s cash challenges, Stallard said it “makes sense” for Boeing to suspend its dividend, which would save the company about $4.7 billion in cash a year. Boeing has already moved to suspend share repurchases.
Boeing currently pays a quarterly dividend of $2.055 a share. That implies a dividend yield of 8.07% as of Wednesday’s closing price, compared with the yield for the SPDR Industrial Select Sector exchange-traded fund XLI, -7.36% of 2.93% and the implied yield for the S&P 500 index SPX, -5.18% of 2.54%, according to FactSet.
Stallard also noted the “moral hazard” of a Boeing bailout, similar to when banks were bailed out during the financial crisis.
“This is a company that boasts on its website that it has bought back $35 billion of shares and paid $15 billion in dividends over the last 5 years,” Stallard wrote. “It has also paid executives egregious amounts of money and been implicated in two fatal air crashes.”
Read more: Congressional report shows ‘culture of concealment’ at Boeing.
Boeing bought back $6.91 billion worth of its shares in the fourth-quarter alone, and paid out roughly $1.2 billion in dividends. In 2019, then-Chief Executive Dennis Muilenburg received total compensation of $14.25 million, compared with the annual total compensation of a “median employee” of $158,869.
Stallard said not only would it be “tricky” to get a bailout through Congress, it would likely require regulatory oversight similar to the strict measures defined by the Troubled Asset Relief Program (TARP) that bailed out the banks.
He reiterated his hold rating while cutting his stock price target to $154 from $183.
“While on paper the price looks attractive, the timing does not,” Stallard wrote. “The impact of COVID-19 on aerospace has yet to be fully appreciated in our view, while the 2008-09 history shows that Boeing’s valuation can easily get worse before it gets better.”
Referenced Symbols
BA
-17.92% DJIA
-6.30% XLI
-7.36% SPX
-5.18%
Shares of Boeing Co. plunged Wednesday to a seven-year low, as the prospects of a taxpayer bailout of the aerospace giant failed to allay investor fears of potential liquidity issues, as the COVID-19 pandemic continues to cripple the aerospace industry.
Analyst Robert Stallard at Vertical Research Partners suggested a government bailout would be far from a panacea for Boeing, as it would leave the company saddled with debt and subject to stringent regulatory oversight.
Boeing’s stock BA, -17.92% dropped 17.9% in active trading to $101.89, the lowest close since July 12, 2013. Trading volume swelled to 61.6 million shares, compared with the average volume of 11.8 million shares over the past 30 days.
The price decline acted as a 151-point drag on the Dow Jones Industrial Average’s DJIA, -6.30% price, which tumbled 1,338 points.
Boeing’s stock has already plummeted 63.0% in March, which puts it on track to suffer its worst-ever monthly performance, surpassing by a wide margin the previous record decline of 34.6% in September 2001.
“While on paper the price looks attractive, the timing does not. The impact of COVID-19 on aerospace has yet to be fully appreciated in our view, while the 2008-09 history shows that Boeing’s valuation can easily get worse before it gets better.”— Robert Stallard, analyst at Vertical Research Partners
The selloff comes despite President Donald Trump saying Tuesday, that “we have to protect Boeing,” as part of a “big, bold” stimulus package to combat the impact of the coronavirus outbreak. Separately, Boeing said late Tuesday that it supports a “minimum $60 billion” in government aid to help the aerospace industry navigate the negative impact of the outbreak, and said it was looking to access public and private liquidity and loan guarantees.
“Ultimately, we think the U.S. government will take the view that Boeing is ‘too big to fail,’ but that could provide little comfort to equity investors,” Stallard wrote in a note to clients.
He said that while Boeing’s liquidity situation “does not look pretty,” government aid and public markets would be sufficient to keep the company afloat. “However, this could leave Boeing so encumbered with debt that it is unable to effectively compete,” Stallard wrote. Read about Boeing credit downgrade.
See related: Boeing’s push to preserve cash and tap huge credit line spooks investors.
Given Boeing’s cash challenges, Stallard said it “makes sense” for Boeing to suspend its dividend, which would save the company about $4.7 billion in cash a year. Boeing has already moved to suspend share repurchases.
Boeing currently pays a quarterly dividend of $2.055 a share. That implies a dividend yield of 8.07% as of Wednesday’s closing price, compared with the yield for the SPDR Industrial Select Sector exchange-traded fund XLI, -7.36% of 2.93% and the implied yield for the S&P 500 index SPX, -5.18% of 2.54%, according to FactSet.
Stallard also noted the “moral hazard” of a Boeing bailout, similar to when banks were bailed out during the financial crisis.
“This is a company that boasts on its website that it has bought back $35 billion of shares and paid $15 billion in dividends over the last 5 years,” Stallard wrote. “It has also paid executives egregious amounts of money and been implicated in two fatal air crashes.”
Read more: Congressional report shows ‘culture of concealment’ at Boeing.
Boeing bought back $6.91 billion worth of its shares in the fourth-quarter alone, and paid out roughly $1.2 billion in dividends. In 2019, then-Chief Executive Dennis Muilenburg received total compensation of $14.25 million, compared with the annual total compensation of a “median employee” of $158,869.
Stallard said not only would it be “tricky” to get a bailout through Congress, it would likely require regulatory oversight similar to the strict measures defined by the Troubled Asset Relief Program (TARP) that bailed out the banks.
He reiterated his hold rating while cutting his stock price target to $154 from $183.
“While on paper the price looks attractive, the timing does not,” Stallard wrote. “The impact of COVID-19 on aerospace has yet to be fully appreciated in our view, while the 2008-09 history shows that Boeing’s valuation can easily get worse before it gets better.”
Bernanke, Yellen suggest Fed should move to start buying corporate debt
STATE CAPITALISM BY ANY OTHER NAME
Published: March 18, 2020 By Greg Robb
In Financial Times op-ed the two past Fed leaders tackle question of what central bank should do next
Former Fed Chairwoman Janet Yellen walks with President
STATE CAPITALISM BY ANY OTHER NAME
Published: March 18, 2020 By Greg Robb
In Financial Times op-ed the two past Fed leaders tackle question of what central bank should do next
Former Fed Chairwoman Janet Yellen walks with President
Barack Obama and former Fed Chairman Ben Bernanke
at the White House in 2013. Bloomberg News/Landov
Given that the Federal Reserve has slashed interest rates close to zero, what should the U.S. central bank do next?
The two past leaders of the Fed suggest the central bank should ask Congress for power to buy investment-grade corporate debt.
In an op-ed in the Financial Times, Ben Bernanke and Janet Yellen said such power “would help restart that part of the corporate debt market, which is under significant stress.”
They note that most central banks already have this power and said the European Central Bank and the Bank of England use the power regularly.
Earlier this month, Boston Fed President Eric Rosengren said he also thought the Fed needs to broaden the range of the securities or assets it can buy.
Fed Chairman Jerome Powell told reporters Sunday that he wasn’t asking for any new authority for the central bank, but U.S. Treasury Secretary Steven Mnuchin has sounded open to the idea.
In the past, proposals to give Fed power to buy more assets would essentially allow the central bank to pick winners and losers.
In past week the Fed has cut its policy interest rate close to zero, added extra repo auctions daily to provide liquidity to the short term money markets and restarted its longer term U.S. Treasury bond buying program.
In addition, it began a commercial paper back stopping facility.
Stocks were set for a volatile session on Wednesday after Dow futures tumbled overnight. The Dow Jones Industrial Average DJIA, -6.30% closed up over 1,000 points in Tuesday’s trading
Given that the Federal Reserve has slashed interest rates close to zero, what should the U.S. central bank do next?
The two past leaders of the Fed suggest the central bank should ask Congress for power to buy investment-grade corporate debt.
In an op-ed in the Financial Times, Ben Bernanke and Janet Yellen said such power “would help restart that part of the corporate debt market, which is under significant stress.”
They note that most central banks already have this power and said the European Central Bank and the Bank of England use the power regularly.
Earlier this month, Boston Fed President Eric Rosengren said he also thought the Fed needs to broaden the range of the securities or assets it can buy.
Fed Chairman Jerome Powell told reporters Sunday that he wasn’t asking for any new authority for the central bank, but U.S. Treasury Secretary Steven Mnuchin has sounded open to the idea.
In the past, proposals to give Fed power to buy more assets would essentially allow the central bank to pick winners and losers.
In past week the Fed has cut its policy interest rate close to zero, added extra repo auctions daily to provide liquidity to the short term money markets and restarted its longer term U.S. Treasury bond buying program.
In addition, it began a commercial paper back stopping facility.
Stocks were set for a volatile session on Wednesday after Dow futures tumbled overnight. The Dow Jones Industrial Average DJIA, -6.30% closed up over 1,000 points in Tuesday’s trading
On the Political Right, Anger and Suspicion Over Virus Precautions
Elizabeth Williamson, The New York Times•March 17, 2020
Virus Outbreak Trump
President Donald Trump and Treasury Secretary Steven Mnuchin, right, listen to a question during a press briefing with the coronavirus task force, at the White House, Tuesday, March 17, 2020, in Washington. Listening from left are Health and Human Services Secretary Alex Azar, Stephen Hahn, commissioner of the Food and Drug Administration, Administrator of the Centers for Medicare and Medicaid Services Seema Verma and Dr. Deborah Birx, White House coronavirus response coordinator, and Dr. Anthony Fauci, director of the National Institute of Allergy and Infectious Diseases. (AP Photo/Evan Vucc
WASHINGTON — When Deborah Frank Feinen, the mayor of Champaign, Illinois, drafted an emergency powers declaration Thursday to confront the coronavirus pandemic, she was proud of her city’s early preparation. But by the time she got to work the next morning, the National Rifle Association had blared a “national alert” saying “anti-gun extremists” were moving “to undermine our firearms freedom.”
The city government was soon under siege.
“We were talking about how to get food to kids when schools were closed, and suddenly I’m getting Facebook messages about how I’m violating the Constitution and taking away people’s rights,” Feinen said in an interview. Now, in addition to working on plans for fire and police departments, emergency supplies, and helping small businesses weather state-mandated closures, “I’m obsessively looking at my email, checking for threats.”
Keen to defend President Donald Trump from criticism and portray virus-related warnings as politically motivated fear-mongering, conservative organizations, media and Trump loyalists are undermining state and local government efforts to convey accurate information and protect their constituents.
An NBC News-Wall Street Journal poll conducted last week found that 81% of Republican voters said Trump has done well in handling the coronavirus crisis, and 84% of Democrats said the opposite. More than half of Republicans — 54% — worried that government will go too far in responding to the crisis, while just 31% of Democrats did, according to the poll.
Trump’s Republican loyalists, including Rep. Devin Nunes of California, Gov. Kevin Stitt of Oklahoma, Gov. Jim Justice of West Virginia and others, have made statements contradicting or flouting public health experts’ guidance.
“If you want to go to Bob Evans and eat, go to Bob Evans and eat,” Justice said Monday.
The former New York police chief Bernard Kerik, a felon pardoned by Trump, posted on Twitter on Sunday, “Why do I feel this hysteria is being created to destabilize the country, and destroy the unparalleled and historic economic successes of President @realDonaldTrump?”
On Monday the federal government issued new guidelines telling Americans to avoid bars, restaurants, travel and gatherings of more than 10 people. Some trusted figures on the right have joined the call for more dramatic action. Newt Gingrich, the former House speaker, said the Trump administration should be preparing military hospital ships and cruise ships to handle an overflow from the nation’s hospitals. And the latest maneuver on the right is to label the enemy “the Chinese virus,” as Trump did Tuesday morning.
Trump wrote on Twitter: “Cuomo wants “all states to be treated the same.” But all states aren’t the same. Some are being hit hard by the Chinese Virus, some are being hit practically not at all. New York is a very big “hotspot”, West Virginia has, thus far, zero cases. Andrew, keep politics out of it....”
But the president has not rebuked his allies for their denialism. During a news conference, Trump was asked about Nunes’ Fox News interview Sunday, in which he encouraged Americans “go to a local restaurant, go to your local pub.” Trump said he was not familiar with the comments.
In Florida, some megachurch pastors connected to Trump are defying public health officials’ guidance to avoid large gatherings, according to reports by The Miami Herald and the liberal People for the American Way’s Right Wing Watch project. On Sunday, designated by Trump as a national day of prayer, the Rev. Rodney Howard-Browne, an evangelical pastor and conspiracy theorist who has prayed with Trump in the White House, encouraged his tightly packed congregation to shake hands, to prove they were not “pansies.”
“Because the climate change narrative for global governance failed,” Howard-Browne said in a video of the service, “they are using the World Health Organization to then come in and take over the control of nations.” He added, “There’s going to be forced vaccines” to “kill off many people.”
In Kendall, Florida, the megachurch pastor Guillermo Maldonado, another Trump religious adviser, derided members of his flock who stayed “home in a cave afraid of the virus,” according to The Herald, saying, “If we die, we die for Christ.”
“There are a lot of people who are getting messages like this from media that they trust,” said Peter Montgomery, senior fellow at Right Wing Watch, who wrote about Maldonado’s service. “How does a public health official compete with that?”
On Monday, Sen. Marco Rubio, R-Fla., tried to combat the disinformation.
“Please stop spreading stupid rumors about marshall law. COMPLETELY FALSE,” he wrote. “We will continue to see closings & restrictions on hours of nonessential businesses in certain cities & states. But that is NOT marshall law.”
Rubio later acknowledged his misspelling of martial law but called it “marital” law.
The problems in Champaign began when Feinen included in materials for the City Council a section of municipal code that has been on the city’s website since at least 2006, granting the mayor wide latitude to respond to disasters such as tornadoes and riots. The section, used by the State of Illinois and other jurisdictions, contains 30 different provisions allowing a mayor to ration food and gasoline, enforce curfews, cut off utilities, and “order the discontinuance of selling, distributing, dispensing or giving away of explosives or explosive agents, firearms or ammunition of any character whatsoever.”
The mayor was chiefly concerned with such mundane items as closing the firehouse to public tours, giving the city manager broader authority to manage staffing and buy supplies like face masks. But the code provided for far more than that.
Feinen posted all the materials, including the code, to the city’s website Thursday night, in preparation for a required City Council approval vote Friday morning. Then she went home, thinking, “I’m pretty proud of us,” she said. “Instead of just referring to the code, we attached it, so people could see it.”
By Friday morning, the NRA had sent an alert, “Champaign, IL First Locality to Use ‘Emergency Powers’ to Ban Gun Transfers,” and urged members to “swiftly” oppose it.
Phones rang off the hook at City Hall, and “our social media just started blowing up,” Feinen said.
Stories about the gun provision were picked up by The Daily Caller, Breitbart News and several gun-rights and far-right conspiracy websites. Donald Trump Jr. tweeted about it. Rumors based on the NRA’s alert circulated on social media; one user wrote “WHEN TYRANNY BECOMES LAW, REBELLION BECOMES DUTY.” A friend of Feinen called her to report that sales of ammunition (and toilet paper) were booming at a local store.
Feinen emphasized that some comments and calls were from Champaign residents, legitimately confused and concerned by the sweeping provisions.
“I am a small government person. I understand that when you see it in a vacuum it’s very scary,” she said. “I also know that in a pandemic you need to protect health and safety and be proactive.
“I wasn’t trying to give myself a crown.”
The city of Champaign posted a clarification on its Facebook page reading, “There is currently no firearm ban and no intent to seize property or close businesses. Additionally there are no restrictions on the sale of alcohol or gas or the ability to enter or leave Champaign.”
“Some mayor and city council members are asking to get tarred and feathered,” wrote one commenter.
Feinen said: “Our staff was working around the clock to get accurate messaging out, but people weren’t paying attention to it. Whether or not someone’s angry with the mayor pales in comparison.”
City staff members worked all weekend to quell the uproar, in between preparing for statewide school, restaurant and bar closures ordered by Gov. J.B. Pritzker, a Democrat.
Champaign County on Sunday announced its first coronavirus case, a woman in her 60s who is recovering at home, Feinen said.
“So we weren’t out of line, being prepared,” she said. But it is strange, she added: “The governor has the same powers. He implemented his emergency order, and nobody blinked.”
This article originally appeared in The New York Times.
© 2020 The New York Times Company
Fox News hosts Sean Hannity and Laura Ingraham
have changed their coronavirus tune in a big way
March 18, 2020 By Shawn Langlois
Fox News personality Sean Hannity, an ally and informal adviser to President Trump, visiting the White House briefing room. Getty
What a difference a few days, and a few thousand coronavirus cases in the U.S., make.
On Fox News in recent weeks, downplaying the outbreak was all the rage. Pete Hegseth said “the more I learn about this, the less there is to worry about.” Jeanine Pirro said the mainstream-media “doesn’t reflect reality.” Ainsley Earhardt claimed “it’s actually the safest time to fly.” Sean Hannity and Laura Ingraham talked about the press as “panic pushers” stirring up “mass hysteria.”
And perhaps the most glaring of all came from Trish Regan over on Fox Business, who accused the “liberal media” of using the coronavirus “to impeach the president. Her monologue may have cost her the job, though she chalked it up to Fox’s “prioritizing its coverage during market hours.”
The tone has clearly shifted among the notable right-wing personalities on the network, as you can see from this Washington Post video that racked up more than 5 million views overnight:
Tucker Carlson was notably absent from the compilation. The “Tucker Carlson Tonight” host strayed from his colleagues early when he described the virus as “a very serious problem.”
The rest of the network now appears to be on board, with the “Fox & Friends” bunch spreading out across the studio on Tuesday to demonstrate best practices.
“To be responsible, to show social distancing, all three of us are apart — same studio, plenty of distance,” Brian Kilmeade told viewers to start the broadcast.
Meanwhile, the number of COVID-19 cases in the U.S. continues to rise as more testing options become available. There are now 6,510 cases and have been 114 deaths across the country, according to data aggregated by Johns Hopkins University.
The fear is reflected in the stock market, with the Dow Jones Industrial Average DJIA, -6.30% down more than 2,000 points in Wednesday’s trading session.
Fox News’s parent company, Fox Corp. FOX, -10.00%, shares common ownership with News NWS, -14.55%, the parent of MarketWatch publisher Dow Jones.
About the Author
Shawn Langlois
Shawn Langlois is an editor and writer for MarketWatch in Los Angeles.
March 18, 2020 By Shawn Langlois
Fox News personality Sean Hannity, an ally and informal adviser to President Trump, visiting the White House briefing room. Getty
What a difference a few days, and a few thousand coronavirus cases in the U.S., make.
On Fox News in recent weeks, downplaying the outbreak was all the rage. Pete Hegseth said “the more I learn about this, the less there is to worry about.” Jeanine Pirro said the mainstream-media “doesn’t reflect reality.” Ainsley Earhardt claimed “it’s actually the safest time to fly.” Sean Hannity and Laura Ingraham talked about the press as “panic pushers” stirring up “mass hysteria.”
And perhaps the most glaring of all came from Trish Regan over on Fox Business, who accused the “liberal media” of using the coronavirus “to impeach the president. Her monologue may have cost her the job, though she chalked it up to Fox’s “prioritizing its coverage during market hours.”
The tone has clearly shifted among the notable right-wing personalities on the network, as you can see from this Washington Post video that racked up more than 5 million views overnight:
Tucker Carlson was notably absent from the compilation. The “Tucker Carlson Tonight” host strayed from his colleagues early when he described the virus as “a very serious problem.”
The rest of the network now appears to be on board, with the “Fox & Friends” bunch spreading out across the studio on Tuesday to demonstrate best practices.
“To be responsible, to show social distancing, all three of us are apart — same studio, plenty of distance,” Brian Kilmeade told viewers to start the broadcast.
Meanwhile, the number of COVID-19 cases in the U.S. continues to rise as more testing options become available. There are now 6,510 cases and have been 114 deaths across the country, according to data aggregated by Johns Hopkins University.
The fear is reflected in the stock market, with the Dow Jones Industrial Average DJIA, -6.30% down more than 2,000 points in Wednesday’s trading session.
Fox News’s parent company, Fox Corp. FOX, -10.00%, shares common ownership with News NWS, -14.55%, the parent of MarketWatch publisher Dow Jones.
About the Author
Shawn Langlois
Shawn Langlois is an editor and writer for MarketWatch in Los Angeles.
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