"BMT Investors" Bulletin Board

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Saudi Arabia is escalating its oil price war with Russia today by pledging to supply a record 12.3 million barrels a day next month, an amount 25 percent higher than last month when it produced 9.7 million barrels a day.

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CNBC  /  March 13, 2020

Oil prices jumped more than 5% in extended hours on Friday after President Donald Trump said the Department of Energy would purchase crude for the nation's strategic petroleum reserve (SPR).

The move comes as U.S. energy companies, and shale producers in particular, have been battered by falling oil prices. On the week oil fell more than 24%, in its largest weekly decline since the financial crisis.

"Based on the price of oil, I've also instructed the Secretary of Energy to purchase at a very good price large quantities of crude oil for storage in the U.S. strategic reserve," Trump said as he addressed the nation from the Rose Garden on Friday.

"We're going to fill it right up to the top, saving the American taxpayer billions and billions of dollars, helping our oil industry [and furthering] that wonderful goal — which we've achieved, which nobody thought was possible — of energy independence."

U.S. West Texas Intermediate crude rose $1.61, or 5.1%, to trade at $33.13 per barrel. International benchmark Brent crude was up $1.71, or 5.1%, to trade at $34.93 per barrel.

As of March 6, the SPR held a total of 635 million barrels of crude oil. Its current storage capacity is 713.5 million barrels.

That would leave a gap of 80 million barrels that the U.S. could fill. At today’s prices, that much crude would cost taxpayers about $2.6 billion. “It puts us in a position that’s very strong and we’re buying it at the right price,” Trump said.

The U.S. established the SPR after the 1973-74 oil embargo to make sure the country had enough supplies if there was another threat to imports.

[kscarbel2]

Fed Slashes Interest Rates to ZERO

LinkedIn  /  March 15, 2020

The Federal Reserve cut interest rates to zero Sunday, saying "the coronavirus outbreak has harmed communities and disrupted economic activity."

In addition, it is introducing a $700 billion program to shield the U.S. economy from the impact of COVID-19.

It's the "largest single day set of moves" the Fed has ever taken.

The low interest rates, which aim to make borrowing cheap for Americans and businesses in crisis, will likely remain until the economy recovers from the coronavirus downturn.

Futures trading on Sunday pointed to an impending stock-market decline on Monday.

The Fed's board of governors, who had been set to meet this Wednesday, were widely expected to cut rates to zero at that meeting, after they cut rates to a half a percentage point in another emergency cut on March 3. Sunday's latest emergency action suggests the Fed was concerned that waiting even three more days could be too late to prop up the economy. The Fed will no longer meet later this week.

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MarketWatch  /  March 15, 2020

The Federal Reserve on Sunday threw in the proverbial kitchen sink to lessen the expected blow to the U.S. economy from the coronavirus.

In a rare Sunday decision that comes three days before a scheduled formal meeting, the central bank slashed its benchmark interest rate to zero and implemented a bond-buying program, known as quantitative easing (QE), of at least $700 billion.

“The virus presents significant economic challenges,” said Fed Chairman Jerome Powell.

“Measures to stem the spread of the illness will have a significant effect on economic activity in the near term,” he added.

Powell acknowledge the Fed can’t help businesses or workers who are hurt by the broad shutdown of normal day-to-day activity. That is the role for Congress and the administration, he said.

The Fed’s job is to make sure financial markets are not dysfunctional and credit is flowing, he said.

Powell said the economy would be weak in the April-June quarter, with a likely decline in output. What happens after that depends on developments with the pandemic, he said.

The Fed cut its key benchmark rates by 100 basis points to a range of zero to 0.25%. That’s the “zero lower bound” for rates. Powell repeated that the central bank doesn’t intend to push the benchmark rate into negative territory, as some foreign central banks have.

The vote to slash rates was not unanimous. Cleveland Fed President Loretta Mester dissented, saying she preferred a half-point cut.

The new round of QE will consist of open-ended purchases of $500 billion of Treasury securities and $200 billion of agency mortgage-backed securities.

Powell said the asset purchases were designed to restore smooth Treasury market functioning so credit could flow to households and businesses. Some of the crises-era bond-buying programs were controversial with lawmakers.

Powell used stark language to defend the new QE. The Treasury bond market is the foundation of the U.S. financial system, and the mortgage-backed securities market is closely aligned with that.

“If they don’t function well, that will spread, Powell said.

In a sign of a dovish stance, the Fed stressed rates would stay near zero for a long time. Specifically, the Fed said it expected to keep rates near zero “until it is confident the economy has weathered recent events and is on track to achieve its maximum employment and price stability goals.” That means rates will stay low as the Fed expects inflation to hit 2%. That has only happened a few times since the 2008 financial crisis and never for a sustained period.

The Fed is “willing to be patient,” Powell said.

Dow futures sank after the announcement Sunday.

The Fed said it was willing “to use its full range of tools” to support the flow of credit in the markets, again pledging to do whatever it takes to keep short-term lending markets liquid.

The Fed lowered the rate charged to banks for short-term emergency loans from its discount window to 0.25% from 1.75%, and eliminated reserve requirements for banks and said it would urge banks to tap their liquidity and capital buffers to lend to clients.

To help foreign firms and banks who need dollars , the Fed activated dollar swap plans with the Bank of Canada, the Bank of England, the Bank of Japan, the European Central Bank and the Swiss National Bank.

Powell stressed that he didn’t think the Fed was out of tools after today’s actions. He said Sunday’s decision was in lieu of a the meeting set for Tuesday and Wednesday. The Fed won’t release a “dot plot” showing the expected path of interest rates over the next few years or an economic forecast until June, he said

 

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Goldman Sachs has downgraded U.S. GDP forecasts and said a recession was on its way.

The investment bank’s economic research team, led by Jan Hatzius, said economic activity would “contract sharply” for the rest of March and April as consumers and businesses cut back on spending. They expected a recovery after April, though that was uncertainty, but said their new forecasts “probably” met the criteria for a recession.

They expected real GDP growth of 0% in the first quarter and a contraction of 5% in the second quarter. “This takes our 2020 GDP forecast down to +0.4%(from 1.2%). The uncertainty around all of these numbers is much greater than normal.”

The team said the prospect of a recovery and strong growth in the second half were dependent on whether social distancing and warmer weather reduces the number of virus cases, how quickly reduced infections will bring a return to normality and how effective fiscal and monetary policy turns out to be.

Goldman Sachs chief equity strategist David Kostin said, in a separate note, the S&P 500 could fall to as low as 2,000 points if the economic impact of the virus worsens but expected the index to reach 3,200 by the end of 2020.

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S&P Global's economists today forecast a global recession this year. They now estimate global GDP growth in 2020 at just 1.0%-1.5%, with risks remaining firmly on the downside.

IHS Markit now expects a recession to begin in the second quarter, and predicts the downturn will last through the end of the year. They see unemployment rate rising to 6% from the current 50-year low of 3.5%, a large increase that would hinder a recovery.

Saudi Aramco Chief Executive Amin Nasser said on Monday that he is “very comfortable” with $30 oil.

Goldman Sachs says oil consumption is down by 8 million barrels a day. The bank expects West Texas Intermediate (WTI) to trade higher than Brent this quarter, and cut its Brent forecast for the second quarter to just $20 a barrel.

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U.S. stock-index futures trigger ‘limit-down’ rule. How the stock market “circuit breakers” work

A fall of 7% for the S&P 500 index once markets open would trigger a separate circuit-breaker rule that pauses market-wide stock trading for 15 minutes.

If the S&P 500 were to extend a fall to 13% on the day in the regular stock market session once trading resumes after a 7% halt, it would trigger another 15-minute halt. However, trading wouldn’t stop if the decline occurred after 3:25 p.m.

A 20% drop in the S&P 500 would trigger what’s known as a level three circuit breaker, which would stop trading for the remainder of the session.

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Reuters  /  March 18, 2020

Pressure is growing in Washington for the U.S. Federal Reserve to use its emergency powers to lend directly to businesses hurt by the coronavirus.

The U.S. Treasury, senior bankers, the U.S. Chamber of Commerce, and some senior senators want the central bank to make broader use of its powers under Section 13(3) of the Federal Reserve Act to provide credit directly to businesses under “unusual and exigent” circumstances.

On Tuesday, the Fed used that authority to resurrect a pair of 2008 financial crisis-era programs aimed at boosting liquidity for the two dozen banks that transact directly with the Fed and to unclog a short-term funding market essential to large corporations.

But those programs do not get funds directly to small businesses, a lynchpin of the U.S. economy. Bolstering this sector is seen as critical at a time that measures taken to contain the virus outbreak have started forcing closures of enterprises ranging from corner bodegas and restaurants to fashion boutiques and health spas.

Policymakers are wrestling with unprecedented issues, including which type of businesses the Fed could lend to and at what rate, what collateral the Fed would need in return, what extra conditions it should impose on the loans, and how the Treasury would backstop the risk.

Any such plan would have to be approved by the Treasury, which would also have to guarantee the loans because the Fed is not allowed to take on such large credit risk. The Treasury had indicated a willingness to do this.

Aspects of such a facility may also require approval from Congress, and some lawmakers may be reluctant to hand so much power to the Fed, an independent agency.

In recent interviews, Treasury secretary Steven Mnuchin has said he wants to see the Fed’s powers expanded by Congress after they were curtailed following the financial crisis.

In a news conference on Sunday night after the Fed slashed interest rates to near zero and announced new bond purchases, Fed chair Jerome Powell said he felt the central bank’s existing authority was adequate, and asking Congress for new powers “is not something we’re actively considering right now…I think we do have plenty of space to adjust our policy.”

The Fed is reluctant to become a direct lender to large portions of the economy, preferring to focus on providing liquidity to the financial system and leave fiscal stimulus measures to Congress instead.

Members of the Treasury Borrowing Advisory Committee (TBAC), which regularly talks with the administration on market issues, have discussed ways in which the Fed can use its emergency power to support smaller businesses in phone calls over the past week.

Some TBAC members are concerned that securing needed approvals could take weeks, while measures are required immediately to support the economy. But they believe there was already enough momentum on Capitol Hill for measures to be approved in days, adding that Congress had been able to move swiftly to adopt fiscal measures after the terrorist attacks of 9/11.

With liquidity rapidly drying up in short-term funding markets, the Fed has taken a raft of measures over the past week to ease the strain, including urging banks to use its discount window and providing cash through the commercial paper markets.

Those interventions lead the U.S. markets to briefly rebound 6% on Tuesday, but with markets falling again 8% on Wednesday, investors, bankers and lobbyists said the Fed may need to take further steps to ease liquidity strain.

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Two US senators sold shares after receiving virus briefing

Financial Times  /  March 20, 2020

Two Republican senators offloaded millions of dollars in stock shortly before the US markets crashed in response to the coronavirus pandemic.

Richard Burr, the Republican chairman of the Senate intelligence committee, and his wife sold up to $1.7 million worth of shares on February 13, according to congressional disclosures.

Kelly Loeffler, a former Intercontinental Exchange executive who joined the Senate this year, sold as much as $3.1 million of stock over three weeks until February 14, congressional records show.

The transactions were recorded as joint sales with her husband, Jeffrey Sprecher, the chairman and CEO of Intercontinental Exchange, which operates the New York Stock Exchange. 

The sales meant both senators avoided significant losses on the disposed stock when US equity markets began crashing after February 20 as the global economy slowed in response to the coronavirus pandemic.

[kscarbel2]

The US government today has moved the federal tax deadline back from April 15th to July 15th.

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Treasury Secretary Steven Mnuchin on Thursday said the historic jump in jobless claims today to 3.28 million was not a piece of economic data to focus on because it was for a period before government relief was assured.

"To be honest with you, I just think these numbers right now are not relevant, whether they are bigger or smaller in the short-term," says Mnuchin said.

With the Senate coronavirus relief bill now so close to passage in the House, Mnuchin hopes that firms start to rehire these workers. As late as last week businesses didn't have another choice except let workers go because they didn't have cash and didn't know that protections would be forthcoming, Mnuchin said.

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[kscarbel2]

Daimler is seeking an $11 billion line of credit (credit line) in order to weather the crisis (and Toyota $9 billion). Some of the big boys are in trouble.

[fjh]

Most everyone will be in trouble soon !  the banks get richer the working man gets stiffed as usual!

[Mack Technician]

3 hours ago, fjh said:

Most everyone will be in trouble soon !  the banks get richer the working man gets stiffed as usual!

Have they created a lower branch position to Hedge Fund Management called Stimulus Plan Management. That'$ where the money i$.

Edited March 27, 2020 by Mack Technician

[kscarbel2]

West Texas Intermediate (WTI) reached an 18-year low overnight of $19.92.

I expect WTI to fall to the low teens, worsening a disaster for the U.S. energy sector.

[kscarbel2]

Reuters  /  April 2, 2020

President Trump said on Thursday he had brokered a deal with top crude producers Russia and Saudi Arabia to cut output and arrest an oil price rout.

Trump said Russia and Saudi Arabia could cut output by 10 to 15 million barrels per day (bpd) - an unprecedented amount representing 10% to 15% of global supply, and one that would require the participation of nations outside of OPEC and its allies [meaning US, Canadian and Brazilian producers must agree to production limits for the first time].

Trump will not "formally" ask U.S. oil companies to contribute to the production cuts, because such an act is forbidden by U.S. antitrust legislation.

Russia and Saudi Arabia have been at odds since early March, when the two nations failed to agree on a deal curbing output. The coronavirus pandemic has worsened since, freezing economic activity and sending oil prices into a tailspin as producers confronted the prospect of a dramatic fall in demand with a flood of unwanted oil supply.

Saudi Arabia, the de facto head of OPEC, called on Thursday for an emergency meeting of OPEC and non-OPEC oil producers, known as OPEC+, saying it aimed to reach a fair agreement to stabilize oil markets.

Trump is separately set to meet with U.S. oil industry executives on Friday.

Trump said he spoke with both Russian President Vladimir Putin and Saudi Crown Prince Mohammed bin Salman on Thursday. “I expect & hope that they will be cutting back approximately 10 Million Barrels, and maybe substantially more which, if it happens, will be GREAT for the oil & gas industry!” Trump wrote.

“Trump’s call to Putin has changed everything,” one OPEC+ source said, adding that initial talk among the group was about how other large producers such as Canada and Brazil would need to join in any coordinated output cuts.

Global oil demand is expected to fall by about 30 million bpd in April, or about one-third of daily consumption.

The immense decline in demand sent oil prices to their lowest levels since 2002, close to $20 per barrel, hitting budgets of oil producing nations and dealing a huge blow to the U.S. shale oil industry, which cannot compete at low prices.

The downward pressure has been exacerbated by the battle for market share between Russia and Saudi Arabia. Russia rejected the Saudi proposal to take supply off the market in part because it has cut its own output for years while U.S. production grew to a record 13 million bpd, gobbling up more market share.

Russian Energy Minister Alexander Novak said on Thursday that Moscow was no longer planning to raise output and was ready to cooperate with OPEC and other [US, Canadian and Brazilian] producers to stabilize the market.

A meeting could represent a thaw in Saudi-Russia tensions. Russia’s opposition to Saudi Arabia's proposal to deepen output cuts was the cause of market turmoil.

At the time of the deal’s collapse, OPEC and its allies were collectively cutting output by about 1.7 million bpd - making a 10-to-15 million-bpd cut a big hurdle unless it brought in other major worldwide producers.

The swift and aggressive Saudi response to the collapse of the OPEC+ deal shocked the oil industry. The kingdom slashed export prices, opened the taps to pump at maximum production and tried to sell cheaper oil to refiners that buy Russian crude.

Major global oil producers including Chevron, Brazil’s Petrobras and BP Plc have already scaled back production estimates as fuel demand has dropped precipitously and storage is rapidly filling. Storage is expected to be full by May, which would force oil producers to cut output anyway.

The free-fall in prices has spurred regulators in Texas to consider regulating output for the first time in nearly 50 years.

Ryan Sitton, one of three elected oil-and-gas regulators in Texas, has spoken with Russia’s Novak about a cut of 10 million bpd in global supply.

“While we normally compete, we agreed that #COVID19 requires unprecedented level of int’l cooperation,” Sitton said.

Brent oil prices today rose 21% to $29.94 per barrel, with a daytime high of $36.29. U.S. benchmark WTI crude settled up 25% to $25.32 a barrel.

Even with Thursday’s surge, Brent is still less than half its $66 closing level at the end of 2019.

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Market bottom or ‘very tough times ahead’?

MarketWatch  /  April 3, 2020

Kimble Charting Solutions technical analyst Chris Kimble suggested Friday that an important tell could be offered by a commodity index that is testing a support level that has held for the past 40 years.

Kimble pointed to the chart above for the Thomson Reuters Equally Weighted Commodities Index, which he said “will go miles and miles towards telling us if we are headed towards very tough times or if the huge declines of late are actually in a bottoming process.”

The chart tracks the index on a monthly basis back to 1954.

The index tracks a basket of 17 commodities, including cocoa, coffee, copper, corn, soybeans, cotton, crude oil, gold, heating oil, lean hogs, live cattle, natural gas, platinum, silver, soybean oil, sugar and wheat.

The index has been headed south over the last nine years, reflecting general weakness in commodities.

In 2009, a then-29-year-old support level held, indicating that the worst of the financial crisis was priced in. It’s testing that level again now.

“If the index holds at 2009 support, it would suggest that lows are in play and the worst has already been priced into the markets,” says Kimble. “If the index breaks this 40-year support/resistance line, it would suggest that some really tough times are ahead.”

Few investors have ruled out a retest of the stock market’s March 23 lows, but bulls contend that despite what promises to be a tide of negative news on public health and the economy in coming weeks, investors are primed for a quick economic rebound once the outbreak is contained, limiting further downside. Bears contend that the sheer uncertainty around the pandemic make it unlikely a deeper selloff can be averted.

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[kscarbel2]

MarketWatch  /  April 8, 2020

Ben Bernanke, the former chairman of the Federal Reserve, is a scholar of the Great Depression, a background he put to use during the global financial crisis when he invented many of the emergency lending programs the central bank is now reusing.

“People have made comparisons to the Great Depression. It’s not a very good comparison. The Depression was 12 years long,” he said.

“This is like a natural disaster, and the response is more like an emergency relief than it is a typical stimulus or anti-recessionary response.” He said he was “pretty pleased” with the fiscal and monetary responses.

Bernanke’s prognosis for the economy was pretty grim, however, saying gross domestic product (GDP) on an annualized basis could fall by 30% or greater in the second quarter.

Bernanke raised the prospect the economy could be partly opened up in the summer and closed back down again in the fall.

“So overall, it could be a very bad year for the U.S. economy,” said Bernanke.

[kscarbel2]

A cluster……at a moment when we least need one

Reuters  /  April 8, 2020

The U.S. government’s massive effort to nurse the economy through the coronavirus crisis was billed as a send-money-and-don’t-sweat-the-details flood of cash to people and businesses in a $22 trillion system that has ground to a halt.

So far, the checks are not in the mail.

From technological glitches to confusion over the fine points of policy, the delays are mounting. The federal government’s muddled response risks deepening and lengthening a recession already historic for the speed of its onset.

States are struggling to process a historic mountain of unemployment claims on outdated technology.

Large corporations, including companies slammed by the “social distancing” edicts keeping people at home, remain in the dark on the details of promised loans.

Small businesses by the millions are desperately seeking cash, while banks still lack the right paperwork days into a lending program.

The Federal Reserve, quick to throw a backstop (Read more here ) under large portions of the financial system and major corporations through open-ended bond purchases, has yet to complete a promised "

Main Street

" program of an all-encompassing safety net of credit.

Making matters worse, the original $2.3 trillion in aid that was passed by Congress late last month isn’t nearly enough, businesses warn.

Speed was considered of the essence when the so-called CARES Act became law on March 27, committing the $2.3 trillion to make up for the wages and incomes lost after Americans were ordered to stay home to control the spread of the novel coronavirus.

It was a rare moment of bipartisanship in Washington, with both liberal and conservative economists mostly agreeing this was not the time to argue philosophical points about moral hazard, misplaced incentives, or the dangers of public debt, but to get money to people before they were bankrupt or hungry.

As infections of COVID-19, the respiratory illness spread by the coronavirus, rose in the United States, so did concerns that without a broad government backstop, businesses would fail and households default on loans at such a scale that it would collapse the financial system as well.

Instead of a quick “V-shaped” recession, with a deep drop but a fast and sharp rebound, delay could generate more chronic, systemic problems.

But theory and practice have diverged.

States have struggled just with the sheer volume of unemployment claims, which rocketed from about a couple hundred thousand a week in what was an era of historically low unemployment to millions (Read more here ) at a time. More than half the states, including California, New York and Pennsylvania, still rely on decades-old mainframe systems based on the COBOL language first introduced in 1959.

Major corporations, including airlines, due for direct loans under the $2.3 trillion emergency legislation are still waiting for detailed guidance from the U.S. Treasury Department on how and when it will show up.

Perhaps most unnerving to America’s millions of mom-and-pop restaurants, smaller manufacturers, and other small businesses considered the spine of the U.S. economy, the promise of quick checks and forgivable loans has fallen flat.

When the $350 billion “Payroll Protection Program” was launched last week, Treasury Secretary Steven Mnuchin said small entrepreneurs as of last Friday could “walk into a bank ... and get money.”

Instead, there has been a maze (Read more here) of red tape.

Lenders have complained about conflicting or incomplete information from Treasury and the Small Business Administration (SBA). Businesses say banks have not been responsive or limited access to existing customers.

The rollout has been so patchy that the Fed had to step in on Monday with a blanket offer to banks to take the small business loans into a new program of its own.

Even band-aid emergency cash hasn’t shown up. Borrowers applying under the SBA’s disaster loan program last Monday could check a box to receive $10,000 as an advance on the loan in three days. More than a week later, several borrowers told Reuters they hadn’t received the money.

The SBA refuses to comment. Mnuchin on Tuesday asked Congress for an additional $250 billion for the program because the demand by businesses has been so great.

The U.S. central bank’s ultimate rescue effort is still in the works - a potential $4.5 trillion program that could open its vault to mid-size and smaller companies, municipal governments, and perhaps even less creditworthy corporations pushed to the brink because of the current health crisis.

Like Mnuchin, Fed officials have promised details “soon.”

Until that happens, key parts of the “real” economy are in a sort of suspended animation waiting to know what sort of lifeline is coming, how quickly and on what terms.

Cities, states, counties and other government entities are unable to borrow in the $4 trillion municipal bond market except at extremely high short-term rates as their sales and income tax revenues plunge.

“You can’t raise new money for your water system or your middle school or any of that because there’s no buyers for it, so you’ve got a lot of deals that are essentially shelved,” said Emily Brock, policy director for the Government Finance Officers Association.

She said if the Fed buys up secondary-market securities, there will be room for new issuance.

“We’re asking the Federal Reserve to be that savvy investor, to make other investors feel comfortable to help to drive down the yields that we’re seeing,” Brock said.

[mrsmackpaul]

Yep the world is sure in a mess over something we cant see taste smell or feel

Im fortunate or unfortunate enough to remember the last big crash in Australia in the late 80's early 90's so took very drastic and decisive measures early on 

I'm not sure what everyone else is doing in Australia but people are just starting to look at the longer term effect of Covid 19 in the weeks months and year ahead

I think only now are Mum and Dads getting concerned 

Hopefully for them it isnt all to late but I feel unfortunately really tough times are fairly likely ahead for a lot of us

Paul

[kscarbel2]

MarketWatch  /  April 8, 2020

The worst-case economic scenario imagined by the Federal Reserve is no recovery until next year, according to minutes of the central bank's March 15 policy meeting released Wednesday.

The Fed foresees two plausible scenarios for the U.S. economy grappling with the coronavirus.

In one scenario, the U.S. economy would start to recover in the second half of the year.

The more adverse scenario was that the economy entered a recession with no significant rebound until next year.

Facing this uncertainty, Fed officials responded by slashing interest rates to zero and launching open-ended purchases of Treasury and asset-backed securities.

Supporters of the full percentage point cut on March 15 called it "forceful."

A few officials wanted to cut rates only by half-point.

There was concern expressed that the central bank would be out of ammunition with its benchmark rate essentially at zero. But some officials said the Fed had other tools to ease monetary policy.

[kscarbel2]

Reuters  /  April 11, 2020

Major U.S. airlines were urging Treasury officials and the federal government’s outside advisers on Saturday to scrap or revise a proposal that would make part of the $25 billion earmarked by Congress repayable in the form of low-cost loans.

Treasury Secretary Steven Mnuchin told the airlines on Friday the government would require them to repay [a mere] 30% of the grants in low-cost loans over 10 years — with the first five years at 1% interest — before the interest rate would rise. The government is also seeking warrants equal to 10% of the loan amount.

Airlines, in calls with U.S. Treasury officials and the government’s outside advisers, were making the case that Treasury should not require them to repay a big chunk of grants, in part because the $25 billion is not sufficient to cover the full amount of payroll costs submitted.

Airlines for America, a trade group representing American Airlines, United Airlines, Delta Air Lines, Southwest Airlines, JetBlue, Alaska Airlines and others, said Saturday it believes the $25 billion in payroll assistance was “to be only in grants – which is considerably more effective for our employees – and not a combination of grants and loans.”

Under the terms laid out in the statute, companies receiving funds cannot lay off employees before Sept. 30 or change collective bargaining agreements. Mnuchin has authority to demand compensation for the grants but is not required to do so.

Sara Nelson, president of the Association of Flight Attendants union, [arrogantly] wrote on Saturday that if Treasury insists on airlines repaying $7 billion in grants, “job cuts will happen now AND longer term cuts will come in October. This is absolutely stealing from the money Congress allocated directly to workers.”

Congress set aside another $25 billion in loans to passenger airlines, but no action on those is expected until Treasury makes decisions on the grants.

Some airlines were seeking other changes in the terms including ensuring grant funds are paid as a lump sum rather than on a monthly basis.

The Treasury said Friday Mnuchin will not require passenger air carriers that will receive $100 million in assistance or less to provide compensation.

Treasury said Friday it is working with 12 larger passenger air carriers “to secure appropriate financial instruments to compensate taxpayers.”

Airlines were told they could apply for the amount they paid in salaries and benefits in the second and third quarters of 2019. American Airlines, with the largest number of employees, had said it was seeking around $6 billion.

[kscarbel2]

Fitch Downgrades Navistar to 'B-'; Rating Outlook Negative

April 14, 2020

Fitch Ratings has downgraded the Issuer Default Ratings (IDRs) for Navistar International Corporation (NAV), Navistar, Inc., and Navistar Financial Corporation (NFC) to 'B-' from 'B'. The Rating Outlook is Negative.

KEY RATING DRIVERS

The downgrade of NAV's ratings reflects the negative impact of the COVID-19 pandemic, which Fitch Ratings expects will worsen the industry downturn that was already anticipated in 2020. Fitch previously expected NAV's results and leverage would deteriorate temporarily, including negative FCF in 2020, but that the company's performance would gradually recover and remain on track for long-term revenue and margin growth.

As a result of deteriorating demand for heavy- and medium-duty trucks, Fitch believes NAV's earnings, FCF and liquidity will be constrained for at least two years, and that leverage will be materially higher until a recovery takes hold.

Negative Rating Outlook: The Negative Rating Outlook incorporates the expectation that additional capital will be required to finance negative FCF.

Assuming the company obtains additional financing, recovery ratings could be negatively affected, particularly for unsecured debt, although the impact would be determined by the terms of any financing if it occurs.

Fitch's rating case includes negative FCF in 2020 in excess of $300 million, excluding the impact of possible restructuring or other cost actions, and improved but still negative FCF in 2021.

The ratings could be downgraded if actions to reduce costs and potential financing are insufficient to maintain minimum operating cash balances.

Fitch estimates NAV requires approximately $1 billion of cash at fiscal year end, although the amount can vary, to fund seasonal working capital requirements and maintain flexibility for other uses.

The Rating Outlook could be changed to stable if demand for heavy-duty trucks recovers solidly in 2021 accompanied by a return to positive FCF and lower leverage.

Fitch expects leverage will be elevated through 2021 with debt/EBITDA above 6.0x in Fitch's rating case, which incorporates additional debt used by NAV to offset negative FCF. Debt/EBITDA was 3.4x at the end of fiscal 2019.

Lower Liquidity: NAV had unrestricted manufacturing cash of approximately $1.3 billion at Oct. 31, 2019 that was available to fund cash requirements, which typically are highest in the first half of the year. Liquidity may become constrained if the downturn is sustained. Uses of cash include working capital requirements, pension contributions and higher capex although $162 million of pension contributions in 2020 are being deferred until 2021 as allowed by the CARES Act. Near-term concerns about liquidity are reduced, but not eliminated, by the absence of large debt maturities prior to calendar 2024. Low leverage at NFC mitigates the risk of support being required from NAV.

Traton Alliance: Traton SE submitted a proposal earlier this year to acquire all of NAV's shares for approximately $2.9 billion but suggested recently that the proposed transaction, currently being reviewed by NAV, could be delayed due to the Covid-19 pandemic. Fitch's rating case does not incorporate any changes to NAV's alliance with Traton and does not assume any additional financial support for Navistar from Traton. If a transaction occurs, it could lead to further integration between the two companies and provide broader opportunities to participate in the global heavy duty truck market.

Other Rating Concerns: Rating concerns include NAV's weaker financial position and scale compared to large global peers and a low share of proprietary engines in NAV trucks, although Fitch expects the share to increase over time. NAV continues to address litigation around legacy engines, emissions compliance, retiree benefits and other items. Among these cases are two claims by the U.S. Department of Justice that total up to $555 million and a False Claims Act case claiming more than $5 billion pertaining to Navistar Defense, LLC.

Streamlined Operating Profile: A long-term realignment of NAV's operations, including the Traton alliance, is contributing to a lower cost structure and gradual recovery of market share. NAV's EBITDA margin was 8.5% in 2019 as calculated by Fitch, which could narrow to 5% in 2020 based on a revenue decline of 30% in Fitch's rating case.

Captive Support: Under its criteria for rating non-financial corporates, Fitch calculates an appropriate debt/equity ratio of 3.0x at financial services based on asset quality as well as funding and liquidity. Actual debt/equity at financial services as measured by Fitch, including intangible assets, was 2.8x as of Jan. 31, 2020. As a result, Fitch calculates a pro forma equity injection is not required. Fitch assumes NAV would fund any required equity injection through the use of available cash or debt.

Navistar Financial Corporation

Fitch believes NFC is core to NAV's overall franchise, thus, the IDR of the finance subsidiary is equalized with, and directly linked to, that of its ultimate parent. The view that the subsidiary is core is supported by shared branding and the close operating relationship with and importance to NAV, as substantially all of NFC's business is connected to the financing of dealer inventory and trucks sold by NAV's dealers. The relationship is formally governed by the Master Intercompany Agreement, as well as a provision referenced within NFC's credit agreement requiring NAV to own 100% of NFC's equity at all times.

Beyond these support-driven considerations, Fitch also considers NFC's consistent operating performance and solid asset quality, which are counterbalanced by elevated leverage levels relative to stand-alone finance companies, although leverage is consistent with that of other captive finance companies.

Asset quality metrics at NFC were strong heading into 2020, with negligible net charge offs in fiscal 2019. NFC has been focusing on growing the wholesale portfolio, which has historically experienced lower loss rates compared to the retail portfolio. At Jan. 31, 2020 (1Q20) delinquencies greater than 90 days past due as a percentage of total finance receivables were 0.03%, similar to the level experienced in the prior year.. Fitch expects modest asset quality deterioration at NFC as a result of coronavirus pandemic.

NFC's profitability metrics deteriorated in 1Q20, with revenue declining 34% compared to 1Q19 primarily as a result of lower average portfolio balances as well as a reduction in the interest and fee revenue rates charged to NAV. Annualized pretax returns on average assets decreased to 1.9% in 1Q20 from 4.7% in 1Q19. Fitch expects NFC's operating metrics to remain weak near term given slower loan and lease growth and the potential for further increases in provision expense caused by the current economic disruption.

NFC's leverage (debt to tangible equity) decreased to 3.8x at 1Q20 from 4.4x at 1Q19 as a result of lower funding requirements for reduced finance receivables, partially offset by a reduction in equity given dividend payments to NAV. If NFC's loan to its parent were classified as a dividend, thus reducing NFC equity, leverage would have been 8.2x at 1Q20. Fitch believes that the company's leverage, including the intercompany loan, is in line with that of other captive finance peers in Fitch's rated universe. Fitch expects adjusted leverage to remain at or near current levels as NAV continues to use NFC's balance sheet to enhance liquidity at the parent company.

NFC's funding profile is fully secured, which compares unfavorably to other captive finance companies. Secured debt consists of warehouse facilities, asset-backed securitization issuances and bank credit facilities. Fitch believes NFC's secured funding profile, and lack of an unencumbered asset pool, reduces its funding flexibility relative to higher rated firms, particularly in times of market stress.

The rating assigned to the senior secured bank credit facility is one-notch above the long-term IDR and reflects Fitch's view that recovery prospects on the facility under a stress scenario are good. The credit facility's collateral coverage covenant of 1.25x mitigates Fitch's concerns that NFC could securitize all its remaining unencumbered assets, leaving other senior secured lenders in a subordinate collateral position to the company's securitizations.

DERIVATION SUMMARY

NAV has a weaker financial profile including lower margins, FCF and liquidity than other global heavy-duty truck OEMs. These factors are important with respect to investing in the business and managing the business through industry cycles. Several OEMs are larger than NAV or are affiliates of global vehicle manufacturing companies, giving them greater access to financial and operational resources and markets. Peers include Daimler Trucks North America LLC (DTNA), a subsidiary of Daimler AG (A-/Stable); AB Volvo (BBB+/Positive); PACCAR Inc. (NPR); and MAN SE and Scania AB, which are part of Volkswagen AG's (BBB+/Stable) Traton Group. NAV's alliance with Traton mitigates concerns about NAV's smaller scale and weaker financial position compared with its global peers. Eighty-nine percent of NAV's consolidated revenue was located in the U.S. and Canada in 2019, which makes it more sensitive to industry cycles compared to competing OEMs that have greater geographic diversification.

KEY ASSUMPTIONS

Fitch's key assumptions within the rating case for the issuer include:

--Significant downturn in NAV's heavy-duty truck markets contributes to Fitch's estimated revenue decline at NAV of 30% in 2020.

--EBITDA margins decline to approximately 5% in 2020 before beginning to recover in 2021.

--Debt/EBITDA is above 6.0x through 2021. Leverage improves after 2020 but remains elevated, compared with debt/EBITDA of 3.4x in 2019.

--NAV's market share increases further but remains below historical levels in the near term.

--FCF is negative by approximately $300 million in 2020, excluding the impact of possible restructuring or other cost actions, followed by improved but still negative FCF in 2021;

--Fitch's base case for NAV assumes the current alliance with Traton is unchanged and that cost efficiencies and product development are executed as planned.

Recovery Analysis:

--The recovery analysis for NAV reflects Fitch's expectation that the enterprise value of the company would be maximized as a going concern rather than through liquidation. Fitch has assumed a 10% administrative claim.

--The going concern EBITDA represents Fitch's estimated post-emergence stabilized EBITDA following an industry downturn.

--An EBITDA multiple of 5.0x is used to calculate a post-reorganization valuation, below the 6.7x median for the industrial and manufacturing sector. The multiple incorporates cyclicality in the heavy-duty truck market, the highly competitive nature of the heavy-duty truck market and NAV's smaller size compared to large global OEMs.

--Fitch assumes a fully used ABL facility, excluding a liquidity block, primarily for standby letters of credit that could be utilized during a distress scenario.

--The secured term loan is rated 'BB-'/'RR1', three levels above NAV's IDR, as Fitch expects the loan would see a full recovery in a distressed scenario based on a strong collateral position. The recovery zone bonds have a junior lien position behind the term loan but are rated 'BB-' as they would also be expected to see a full recovery. The 'RR3' for senior unsecured debt reflects good recovery prospects in a distressed scenario.

RATING SENSITIVITIES

Factors that could, individually or collectively, lead to positive rating action/upgrade:

--FCF is positive in 2021.

--Debt/EBITDA is below 5.5.

--EBITDA margins as calculated by Fitch are sustained above 7%.

--NAV's retail market share continues to improve.

--Litigation with the DOJ and other contingent liabilities are resolved with little financial impact on NAV.

Factors that could, individually or collectively, lead to negative rating action/downgrade:

--FCF is negative in 2021.

--Manufacturing EBITDA margins are below 5% in 2021.

--There is a material adverse outcome from litigation.

--The alliance with Traton is terminated.

--Material support is required for financial services.

Navistar Financial Corporation

Factors that could, individually or collectively, lead to positive rating action/upgrade would be linked to Fitch's view of NAV's credit profile, as NFC's ratings and Rating Outlook are linked to those of its parent. Fitch cannot envision a scenario where the captive would be rated higher than its parent.

Factors that could, individually or collectively, lead to negative rating action/downgrade include a change in the perceived relationship between NAV and NFC. For example, if Fitch believed that NFC had become less central to NAV's strategic operations and/or adequate financial support was not provided to the captive finance company in a time of need. In addition, consistent operating losses, a material and sustained change in balance sheet leverage, and/or deterioration in the company's liquidity profile, any of which alters NFC's perceived risk profile and/or requires the injection of regular financial support from NAV, could also drive negative rating actions.

The ratings on the senior secured bank credit facility are sensitive to changes in NFC's IDR, as well as the level of unencumbered balance sheet assets available relative to outstanding debt.

BEST/WORST CASE RATING SCENARIO

International scale credit ratings of Financial Institutions issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579.

International scale credit ratings of Non-Financial Corporate issuers have a best-case rating upgrade scenario (defined as the 99th percentile of rating transitions, measured in a positive direction) of three notches over a three-year rating horizon; and a worst-case rating downgrade scenario (defined as the 99th percentile of rating transitions, measured in a negative direction) of four notches over three years. The complete span of best- and worst-case scenario credit ratings for all rating categories ranges from 'AAA' to 'D'. Best- and worst-case scenario credit ratings are based on historical performance. For more information about the methodology used to determine sector-specific best- and worst-case scenario credit ratings, visit https://www.fitchratings.com/site/re/10111579.

LIQUIDITY AND DEBT STRUCTURE

Liquidity Sources - NAV's liquidity at the manufacturing business as of Jan. 31, 2020 included cash and marketable securities totaling $967 million, excluding restricted cash and cash at Blue Diamond Parts. Liquidity includes availability under a $125 million asset-backed lending (ABL) facility. Borrowing capacity under the ABL is reduced by a $13 million liquidity block and letters of credit issued under the facility. Liquidity was offset by current maturities of manufacturing long-term debt of $31 million. There are no large debt maturities before November 2024. NAV had intercompany loans totaling $301 million from financial services, which are included by Fitch in manufacturing debt. The net pension obligation was $1.3 billion (60% funded) at Oct. 31, 2019.

Navistar Financial Corporation

Fitch believes NFC's liquidity profile is constrained given the company's limited ability to securitize originated assets in the current market environment. Fitch notes that liquidity may become further constrained if NFC is unable to refinance maturing debt on economic terms.

At 1Q20, NFC had sufficient availability under its wholesale note funding facility (subject to collateral requirements) as well as its senior secured bank revolving facility. The maturity date for the revolver is May 2024.

As of Jan. 31, 2020, debt at NAV's manufacturing business totaled approximately $3.3 billion as calculated by Fitch including intercompany debt, unamortized discount and debt issuance costs. Debt was $1.8 billion at the financial services segment, the majority of which is at NFC. Consolidated debt totaled $4.7 billion.

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MarketWatch  /  April 16, 2020

University of Chicago Medicine researchers said they saw “rapid recoveries” in 125 COVID-19 patients taking Gilead Sciences Inc.’s experimental drug remdesivir as part of a clinical trial.

125 people with COVID-19 receiving care at the University of Chicago are participating in two Phase 3 clinical trials conducted by Gilead; 113 of them have severe forms of the disease. When people start taking remdesivir, fevers come down and some come off ventilators.

One trial is evaluating remdesivir in 2,400 people with severe forms of the disease, the other is testing the drug in 1,600 patients who are moderately ill. Both trials are being conducted at multiple sites around the world. Both trials began in March and are expected to conclude in May.