- "Beware the Ides of March!"
- W. Shakespeare
The effects of the coronavirus into the US stock market has begun to become a disaster. I will not mention certain industries like the aircraft builder, Boeing. They have there own unique problem. I won't include steel producers for the same reason. Both of these producers had problems long before the virus. Steel has the tariff issue. I will select two that effects many others. As I state in my unpublished work, "All things are connected."
OIL
This is the most important commodity. It is in a bear market. More on that projection in a moment. OPEC failed with its meeting with top producer, Russia to cut production. Russia is basically saying, "I need to worry about surviving. We need to get whatever revenues we can get."
Russia gets 37% of its revenue from oil.
Saudi Arabia gets 65% of its revenue from oil.
"Whenever oil spikes too high or falls too low, we will have a recession," is words that Sebastian lives by. As my readers know, I believe in charting with the input of fundamentals along with the volume of shares traded to get a clearer picture. At the moment the charts are all scary to the negative in the oil industry. If you look at the XLE, energy sector fund, it was $61 in January 2020. It is now $42.50. It fell on high volume of over 61 million shares. Not good. It got slaughtered on "Bloody Monday" of this week.
If you look at the two top US oil firms, the picture is the same. The fundamentals say that we produced too much oil prior to the virus worries. The virus is adding to the shrinking in demand. No one wants to risk being in a controlled environment that is crowded like planes, trains and buses. Cruise ships are breeding grounds for a flu and they had other problems like food being tainted. Firms are cancelling sailing trips. These and many other reasons like school closings, factory work being suspended have all taken a bite out of the demand for oil. A closer look...
XOM was $83. in April 2019. Today, it is $47.69. Bear territory. It trades where it was in 2000.
CVX was $127. in July 2019. Today, it is $95. Both pay a good dividend, but still in bear mode.
By the way as mention in previous articles, dividends will be cut like Occidental Petroleum did on Tuesday. Its dividend went from .79-cents down to .11-cents.
How about a global giant?
BP was $45. in April 2019. Today, it is $31. It fell on high volume.
All of the above will continue to feel pressure as the commodity price of oil falls even further from $41. Oil blasted through its test of the low at $44. Now, the next level is $36 with the all-time low of $26 on the horizon. Not good. On Monday oil busted through the $36 barrier to touch $32. Terrible!
Airlines
I have already mentioned the virus fears have hurt the travel industry. It is not necessary to mention all the various firms. Keep in mind that travel agencies will also feel the pain like Expedia and Priceline. With that said, I will concentrate on the most important and most used-airlines.
Planes are flying with many vacant seats and even though fuel prices have declined, the other fixed costs along with debt weigh heavily to their bottom line. A closer look...
AAL was $35. in July 2019. Today, it is $15.
DAL was $63. in July. Today, it is $45.
JBLU was $21. in February 2020. Today, it is $13.
HA was $31 in February 2020. Today, it is $17.
All these airlines are in bear territory. Both of these industries are tied to banking. Sometimes, conditions of loans are related to a firms stock price. This adds more fear to the market as new worries begin to surface. This is why the Federal Reserve tried to calm the market with a big surprise rate cut. If you go back to their playbook, Alan Greenspan did the same technique. Problem: central banks throughout the world have fired all their ammunition. Negative rates are growing again. Banks will seek other capital controls. Stock brokers will increase margins. This action could cause more selling. Always notice the volume in down or up bounces. It indicates strength of conviction in a worried market. The next quarterly earnings will be another disaster, but the shills will say, "Buy the dip!" Other shills will stress central bank stimulus like is happening in China like is pending in UK. On Tuesday Boston Fed member, Eric Rosengren made the first pitch even before the baseball season. He said, "We should allow the central bank to purchase a broader range of securities or assets." This is also looking to expand a corrupt bureaucratic agency. Still another reason to End the Fed!
In past articles I have informed my readers of the peril in the US retail market. This has been going on since the advent of the internet. In addition, the restaurant industry has suffered for many reasons. One of the most central is also the most important aspect in real estate-location. The retail problems centered around malls and their collapse effects other stores in malls and within the immediate area. This is your restaurant playing field. They have build the stores, but no one comes. Keep in mind the industry has a 37% failure rate. I have assembled a list that was on the brink of joining the Dodo bird long before the virus. This flu is the nail in the coffin. This aspect won't help the stock market.
Fuddruckers: owner is selling.
Joe's Crab Shack: location, virus.
Papa Murphy's: competition. Who wants to make it, after going out to get it?
Checker's: food code problems.
Ruby Tuesday: weather and virus along with mall locations.
Home Town Buffet: already entered in bankruptcy for the third time.
Red Robbin: competition and location along with menu pricing.
Steak 'n Shake: time has passed.
Friendly's: see above.
Howard Johnson's: hard to believe this firm had over 2,000 stores and now, one.
Marie Callenders: under funded, virus, menu.
Golden Corral: I like this place, but not enough other people.
Perkins: menu, competition.
Baja Fresh: management.
Quiznos: already entered into bankruptcy.
O'Charley's: mall locations.
Bar Louie: entered into Chapter 2.
Applebee's: over expansion, menu changes and location.
Hooter's: sadly, time has passed.
Sbarro: mall locations.
Boston Market: competition and menu choice.
Carrabba's Italian Grill: parent cutting funding-money going its other restaurants.
Krystal's: moving into bankruptcy.
Chipotle: consolidating after back streak of problems. Fifty-fifty chance.
Jack in the Box: competition, pricing.
All these chains could fold. This could send unemployment higher to which could start another contagion to the economy that would be even more deadlier than the virus. Next earning season will be a disaster. Not good.
