3/30/2020

Holla at your quarantine,

I hope everyone has been making the most of the ongoing quarantine that is happening pretty much everywhere. Each week feels like a month with all of the late-breaking news that has been firing off lately. Every bit of the news is worth reading as well as we are living during a time that will forever be remembered in the history books. The habits of everyday people might be forever changed once / if the majority of the world finally gains control over COVID-19. What will sporting events be like in the future after most people have conditioned themselves to social distance? Will people eat next to each other in restaurants any more? Will durant continue to not guard anybody on defense but have an excuse now? Will Lance Stephenson start blowing in opposing player's ears more often when he desperately feels like he needs to get a bucket? Will the traditional father-daughter dance at the daughter's wedding be done from a comfortable 6 feet away? Some of that is hyperbole, but it might not be. Last week, $2T was pulled out of thin air, MIT researchers wants to be your big brother, the Dow is likely a drug addict now, WTI prices are tanking - NBA style, Chevron is becoming more thrifty, and Icahn scores against Occidental, finally.

March 30, 2020

U.S. lawmakers actually do something

• Top U.S. lawmakers had to cease dueling in the streets and challenging each other to sword fights for the past couple of weeks in order to figure out how to deal with coronavirus and its massive effect it is having on everything in the world. The U.S. Senate voted in favor of a $2T bill that will provide American families and businesses financial assistance. The bill passed with a 96-0 vote. Impressive coming together of the Senate, finally. The bill then moved to the House of Reps and then to President Trump. The House approved the bill on Friday. Mr. Trump signed it immediately after and used one ink pen per letter in his name and handed out each pen after he wrote each letter. It has been rumored that he licked the tip of each pen in order to get it to write correctly before he handed it off to someone else. I made up that rumor just now, but it is kinda sorta believable. What all does the bill do? Roughly the things below, via the Wall Street Journal (WSJ):

• Provide loans and other disbursements to a wide swath of the economy, including direct payments to Americans and loans to large and small companies

• Expand unemployment insurance to cover freelance and gig workers, refill drained state coffers and extend additional resources to health-care providers

• Provide one-time checks:

- $1,200 to Americans with adjusted gross income up to $75,000 for individuals and $150,000 for married couples

- Individuals and couples are eligible for an additional $500 per child

- The government rebates will be pared by $5 for each $100 of income over those thresholds, completely phasing out for individuals whose incomes exceed $99,000, $146,500 for head of households with one child, and $198,000 for joint filers who don’t have children.

• Handy graph via WSJ:

• The biggest snag in the bill was the $500B that was being set aside to finally purchase the Knicks away from James Dolan and actually turn it into a contender. Nah just kidding. Everyone loves seeing the Knicks be terrible. Maybe they could buy the Warriors though. Install Will Ferrell as Owner, GM, coach, and player a la Semi-Pro style and just tell him to go full on Jackie Moon with it for five years and see what happens. If the Warriors thing doesn't work out, then the money will be used for corporate aid with much of it serving as a backstop to Fed Reserve loans. The Treasury Secretary, Steven Mnuchin, will have authority to lend a part of these funds. That was the sticking point with the bill last week. Democrats wanted to have some oversight on Mr. Mnuchin and they were able to achieve that as both parties agreed to install an inspector general and oversight board to monitor the aid. $17B is being set aside to assist companies that are deemed to be to crucial to America's security, which includes firms such as Boeing and General Electric. Somehow Chesapeake did not make that list. A GE spokeswoman has already said that GE doesn't plan to request any funds. Seems like a dumb thing to say right now. It's nice they don't plan on using taxpayer money but that kind of puts GE at risk of having to flip flop on that statement if things don't improve. Boeing has been on the prowl for at least $60B in public and private assistance, but has resisted the idea of taking on federal funding if it involves giving up any type of equity stake in the company. The bill also provides grants of $25B for passenger air carriers, $4B for air-cargo carriers, and $3B for contractors. Health-care providers will have $100B set aside for them with an additional $16B going towards building a stockpile of medical equipment. Last thing, an interesting tidbit on who is excluded from receiving any type of aid:

• Good for America that lawmakers on both sides of the aisle were finally able to come together and pass a bill in a time of great need.

MIT Researchers want to be your big brother

• Will Hunting and his friends are seeking to develop an app for American citizens that would help track coronavirus carriers and hot spots. Countries like China and South Korea are already using tracking technology like this in order to try and stunt the spread of COVID-19. There are privacy concerns in the U.S. however. The MIT project is dependent on having a large number of people participate in the process which would mean MIT would know the location of whoever participates at all times and would be able to track people who already had the virus. The app would provide notifications on where current hot spots are that need to be avoided and provide push notifications whenever a user is approaching a person who had, or is showings signs of, COVID-19. MIT claims all data would be anonymous and that users would have the option to edit data before it is submitted. Brazil and Taiwan are using systems similar to this at the moment. Dr. Suraj Kapa, cardiologist at the Mayo Clinic, said there are pros to this type of tracking system:

• Mass closings of cities, states, and countries could, in theory, just be reduced to localized closings if the app gains enough participation and its methods can be proven as effective. Where all of this data would be stored is still unclear at the moment. Local government servers seem to be the storage location of choice for this potential mass amount of data. There are benefits to doing something like this, sure, but at what ultimate cost to privacy? Albert Gidari, consulting director of privacy at Stanford Law School's Center for Internet and Society, commented on privacy concerns:

• Big brother could be on its way and it may never leave. Israel recently launched an opt-in location-tracking app called "The Shield" which does pretty much the same thing as what MIT is wanting to develop. Israel has come under fire from privacy critics for some of its surveillance tech. Not surprising there. Google and Facebook have been working with the federal government on developing some type of tracking technology as well even though both companies are probably already doing this exact thing.

Stock market gets hooked on hard drugs

• Has anyone bothered to test the stock market to see if it has developed an addiction to Hesienberg's product? It has been experiencing the highest of highs and lowest of lows every other day. One day it's up a billion points and the next it is getting halted from trading within 5 seconds of the opening bell. Only one thing can explain this: the stock market has become Hesienberg's best customer and there is no end in sight. The bow chica bow Dow Jones Industrial Average entered a bull market last Thursday (26th). Ya you read that right if you didn't lose focus after the bow chica thing. A bull market. It finished Thursday up 6.4% and up 21% from Tuesday to Thursday. Anything above a 20% jump from lows represents a bull market and it took three days for the Dow to get there. The bull rode the back of the federal government's hefty relief plan. The bull even shrugged off a record unemployment number as 3.28mm American workers filed for unemployment benefits last week. That number is five times higher than the previous record high. The Dow don't care though. Surge on young fella.

This just goes to show that no one has any idea what the stock market is going to do, especially now that algorithmic trading seems to enhance the highs and lower the lows just through automatic trading. The bear-market that the Dow was in lasted only 11 days which is also good for an all time record for the index for the shortest bear-market in its history. The Dow rose the hot hand of Boeing as it surged 14% on Thursday on the news that $17B was being set aside for giant companies that are deemed critical to national security, such as itself. Even the beat down energy sector saw some of its bellwether companies see stock price appreciation. Marathon surged by 8.4%, Chevron north of 10%, and Exxon was up 4.1%. This occurred despite oil prices declining on Thursday as Brent dropped 3.8% to finish the day at $26.34. Fed Reserve Chairman Jerome Powell believes that economic activity will decline "pretty substantially" in the second quarter. According to WSJ research:

• Plenty of bearish news to go around for everyone but yet the Dow decided to take off its bear costume after only being in it for just 11 days. It had to have some type of bad smell in it I guess since it has been 11 years since it was put on. The bull market that began in March 2009 carried through to March 2020 making it the longest in history for the Dow. Then it spent 11 days in bear mode and now its back to bull mode. Even dion/DION is impressed with the volatility.

U.S. oil prices are tanking harder than a Sam Hinkie Team

• Sam Hinkie is a legendary former general manager of the Philadelphia 76ers. He was pretty straightforward with his plan to have the Sixers be terrible for a few years in order to accumulate as many high first round drafts picks, and just draft picks in general, to ultimately build a championship team for a decade. His mission has been carried out before, see; Presti, Sam, but no one was ever as blatant about it as Hinkie was. His plan, dubbed "The Process," was working but the NBA ultimately had him fired for publicly gaming the draft system. Hinkie was robbed of seeing his plan come to fruition as the Sixers now have one of the best starting fives in the league thanks to the arsenal of assets that Hinkie left behind. U.S. oil prices (WTI) are going through the beginning phases of Hinkie's "tanking plan" but WTI is executing the plan more like the Sacramento Kings than the Hinkie led Sixers. The Kings have been tanking since their glory days in the early 2000s and keep whiffing on high first round picks, badly. They have some okay talent now but they aren't making the playoffs anytime soon, and neither are energy producers that are oil-weighted. WTI prices dropped to its lowest level since February 2002 as it dipped below $20/bbl on Monday (30th). Brent crude prices and WTI have shed almost half of their values since the start of March due to lockdowns occurring across Europe and North America that have stunted demand. Goldman Sachs (GS) estimated that oil demand this week will fall by 26mmbpd, or 25% of global demand. There were some rumblings that Saudi and Russian officials might meet soon in order to discuss production cuts but that has since been denied by both camps. We need Adrian Wojnarowski on this. That leaves the world with the last resort option to shut-in oil production in order to try and stem the slide of crude prices. However, Tamas Varga, analyst at brokerage PVM Oil Associates, believes that it's too late for that:

• Regardless, shut-ins are likely on the way. Jeffrey Currie, head of commodities research at GS, also said in the GS note that the magnitude of the shut-ins will have massive ripple effects for the future:

• Lose/lose/lose for U.S. oil and gas producers and, well, for any oil and gas producer around the world for the most part.

Chevron cutting back spending in 2020

• Pretty much every producer in America has announced capital spending cutbacks in 2020 since Saudi Arabia started a price war with Russia a couple weeks ago. Plus, oil and gas demand is getting whacked worse than.... Ah man.. I have no current sports analogy to use here. Thanks corona. Chevron (CVX, CVXXX when it's feeling like Vin Diesel) announced it will cut spending by $4B in 2020 in an effort to stay alive through the supply and demand shock combination. This represents a 20% cut in spending versus what was originally budgeted before the world was on the brink of a great depression. The biggest cut will be realized in its Permian Basin operations. Stock buybacks will also be suspended but the dividend will be untouched and oil production overall will be flat year-over-year. As we learned last week, share buybacks seem like a dumb use of precious cash. CVX is not alone in its major peer group on spending cuts:

• Shell: Halted its $25B share buyback program plus cut its 2020 capital budget by 20% -- will go from $25B to $20B.

• TOTAL: Cutting spending by $3B. Halting $2B share buyback program. Will borrow $4B to make up for a $9B shortfall created by low oil prices.

• Exxon: Updated spending plan not released as of 3.24.20.

• Pretty good reason as to why. IHS Markit, analytics firm for energy, recently stated this will be the largest ever oil glut if market dynamics hold for 2020. From IHS:

• Makes quite a bit of sense for producers to be slashing spending, and thus production, more than Michael Myers does on a Halloween spree. CVX CEO, Mike Wirth, stated that maintaining the company's dividend is his top priority and that the company also plans on reducing its workforce. The dividend has not been cut since the Great Depression. Employees have worked at CVX since before then. Mr. Wirth claims that CVX can pay its dividend from cash flow at current oil prices, but cannot pay capital expenditures as well at current oil prices. If oil prices remain below $30/bbl, then CVX will draw on its balance sheet to cover both the dividend and its new, lower capex program.

Scoreboard: Carl Icahn 1 - Oxy 0

• Score one for the ole soul snatcher last week as he was finally able to gain a result out of his pursuit to destroy everyone on Oxy's exec team and board of directors. Oxy leadership finally came to the conclusion that it can't beat Icahn, but it can join him and hope for the best. There really wasn't another option for current leadership. Icahn is talented at being an activist investor, as a couple of Oklahoma companies, Chesapeake and SandRidge, are well aware. He usually gets most of what he wants but that doesn't always result in a better, healthier company by the time he is finished doing Icahn things to it like getting board seats, forcing the company to focus solely on investor returns, and ignoring expansion opportunities. Oxy's leadership will allow Icahn to gain two boards seats and possibly a third. Each seat will be filled by an Icahn crony. In return, Icahn allowed Oxy to bring back former CEO Stephen Chazen to take over chairman duties. CEO Vicki Hollub is expected to retain her position as of now. However, given Icahn's outspoken beliefs on how Oxy should be ran, it would be a surprise if Ms. Hollub survives Icahn's shareholder tenure since she has been the equivalent of an NBA rim on a prime RUSS dunk when Icahn goes on one of his tirades about Oxy. Icahn was originally targeting to replace Oxy's entire board. Now he at least gets a say in strategic decision making and his words with two or three board seats have a solid chance of carrying more weight than the rest of the board combined. To date, Icahn has lost ~$1B on his all out pursuit to take over Oxy. That is only based on his initial purchase made in May 2019 which was shortly after Ms. Hollub finally outbid Chevron to acquire Anadarko for $38B. He has since upped his stake to control 10% of Oxy's outstanding shares which means he has likely lost even more money than just $1B on Oxy. A money losing Ichan has to be the worst type of Icahn.

Thoughts of the week

• I don't understand why anyone feels the need to hang a "keep out" sign on a privacy fence. Seems redundant. At least have the sign indicate why a person should keep out. If there are 250+ tigers in your backyard like Tiger King has, then that would make sense for a sign to say "keep out, tigers are back here," or something like that.

• I never knew what life was like in the 1950s, but I now feel like I know what that decade was like after being home bound for two straight weeks. Nowhere to be. Nothing to do. Just staying at home, working, hanging out with the family, taking a ton of walks. I even read the paper on Saturday morning while eating breakfast with the fam. Like a paper that was actually made out of paper. Seems like all that was missing was a cigarette to go with my french toast and coffee. And no, I don't smoke, but it feels right if I'm going full on 1950s now.