Mar 12, 2020 Bear market puts the "b-word" on everyone's lips: bailouts Read More Bad news Bear Market... With the Dow down 20% from the record high it notched in February, we've reached the technical definition of a "bear market" after a historic 11-year bull run. Wednesday's 1,465 point drop was the 2nd largest on record (after Monday's) — The stocks of 94% of S&P 500 companies are now 10%+ lower than their recent highs. You may hear the term "bailouts" tossed around, aka tax-payer funds loaned by the gov to key companies/sectors at risk of going broke...
Pros: Bailouts can save hundreds of thousands of jobs and protect from defaults that might cause industry-wide domino-effect collapses.
Cons: They cut into tax-payer $$ and might encourage companies to operate more recklessly (aka "moral hazard").
Recent bailout history: '08 (financial institutions — except Lehman Brothers), '09 (Detroit's General Motors and Chrysler), '19 ($28B for farmers suffering from the US/China trade war).
And the bailout bachelors are... Unlike in 2008, the issue hurting markets now isn't fundamentally related to the health of the economy. It's the effect of people staying home (not spending) that hurts — that's hitting some industries harder than others, earning them (still early) bailout attention:
Airlines: Cancellations have skyrocketed — but the major carriers have decades-long profits to cushion falls.
Cruiseliners: Cruise operators including (and especially) Carnival have seen bookings drop — but we don't think they employ enough people or are integral enough to the economy.
Oil: Energy giants are struggling through a 50% plunge in prices — but these pump icons have plenty of cash and it would be optically hard to bailout fossil fuel companies while climate change happens.
The Takeaway:The bachelor most in need of the bailout rose... Boeing might be the only one. As America's only major commercial airplane manufacturer, Boeing is an industry in itself. And just one of its models, the 737 Max, feeds 600 supply companies with business. Boeing was already struggling hard before with its grounded planes and cancelled orders. Now coronavirus has put it in a harder spot — it's reportedly maxed out its $14B credit line and it's no longer hiring. Mar 6, 2020 Carnival is on an epic losing streak with (another) coronavirus-infected ship Read More Not living up to the name... Carnival. The cruise operator's slogan is "fun for all, all for fun" — its customers are far from feeling it. A 71-year-old man just died after sailing on Carnival's Grand Princess cruise, on which he was "likely exposed" to coronavirus. Now the ship is being held off the coast of SF, with 100 people identified for testing. This is Carnival's 3rd debacle in 3 months:
First, 2 Carnival ships collided in a Mexican port.
Then, there was Carnival's Diamond Princess ship, quarantined off the coast of Japan with almost 700 coronavirus-infected passengers (leading to 6 deaths).
Now, another ship's infected — Carnival stock plummeted 14% on Thursday, and is down 46% since mid-January. Still...
Carnival enthusiastically dominates the cruise world... In 2018, Carnival took home 50% of sales in the entire cruise market. Since January, shares of the 3 big operators — Carnival, Royal Caribbean, and Norwegian — have plummeted 30% to multiyear lows. Still... Excluding the coronavirus outbreak, Americans' cruise-thusiasm has been strong: Carnival's sales have risen 7% each year since 2015.
The Takeaway:Major players in successful industries have resources to weather storms... Carnival's dominance might protect it long term from temporary (but major) setbacks. Today's coronavirus impact reminds us of the travel industry's struggle post-9/11. But industry-shaking issues like coronavirus could be bigger tests for smaller players with fewer resources:
Luminous Cruise, a small Japanese operator, filed for bankruptcy due to virus cancellations.
Struggling UK airline Flybe collapsed — the virus-related fall in sales dealt it its final blow. Jan 28, 2020 Coronavirus hits global markets — and some sectors get a double whammy Read More Spreading fast ... Coronavirus. The contagious respiratory illness is alarming the world and dragging down global markets. It first broke out in Wuhan, China, but has expanded far beyond the fish/meat/live animal market where it originated:
Over 2,700 people infected, with over 100 deaths
The virus has spread to 13 countries, with 5 cases confirmed in the US
Nearly 50M people are under quarantine in China — Travel restrictions are an attempt to contain the spread of the disease (as surgical masks are selling out across Asia)
Stocks take a hit... As fears of coronavirus intensify, US markets have been jolted out of the blissful serenity they've enjoyed since October. The Dow and the S&P 500 both fell Monday by 1.6% and the Nasdaq dropped 1.9%. Some sectors are feeling it more than others:
Travel-related companies (think United Airlines, Marriott hotels, and Carnival cruises) were hit hardest and all traded lower — oil prices have also fallen because of reduced travel demand.
Luxury fashion companies that rely heavily on Chinese buyers (like Burberry and LVMH also took a tumble — in 2018, Chinese consumers spent $115B on luxury goods
Nike and Estée Lauder dropped too, since both now get nearly 1/5 of their revenues from China
Some investors ditched stocks and bought into "safe haven" assets like gold and treasury billsThe Takeaway:The world's 2nd largest economy is China... No surprise that a viral outbreak there hurts global markets. Oh, and this is all happening during the Lunar New Year holiday, China's busiest travel season (3 billion trips were expected) — the holiday was just extended to keep stores closed, and US companies that do business in China are suffering as well (like Starbucks). FYI, 2002's SARS outbreak cost the global economy around $40B. Dec 26, 2019 Carnival stock jumps despite a stormy 2019 (numbers can change the tides) Read More If two Carnival ships collide in a Mexican port... the stock still jumps 9% because Carnival reported strong earnings literally as that accident was unfolding. It's been a rough year for the cruiseliner — Case(s) in point:
Natural Disaster: Hurricane Dorian, one of the most powerful hurricanes ever recorded, made many cruises not happen.
Geopolitics: President Trump reinstated the Cuba travel ban, while unstable politics in the Arabian Gulf limited Carnival's sailing latitude.
Reputation Sinkers: That memed-about collision between a pair of Carnival ships last week looks bad. So is having to cancel 8 cruise sailings after new ships were delayed.
Euro Downturn: As the European economy limps along with low growth rates, Carnival sales struggle — Europeans make up a hefty 30% of Carnival's business, and they don't splurge on cruises when their "European carryall" purses are hurting.
Does this mean the buffet is still open?... While Carnival didn't have 2019 under (cruise) control, the stock inched up 3% this year. Plus, just this week in time for the holidays, analysts optimistically raised their price targets for 2020, thinking Carnival shares can cruise higher.The Takeaway:Show me the money... At the end of the day, a company's present and future profitability matter most. Carnival didn't have much control over the issues it faced this year (except for that fender bender). While Carnival's global sales have lagged, its critical North American revenues have risen consistently without life vests (and the numbers below make up about over 50% of Carnival's sales):
$8B in 2016
$9B in 2017
$10B in 2018