May 31, 2020

Fed Warns of Financial Risks as Coronavirus Downturn Persists

Among the areas the Fed flagged:

Even the market for Treasury securities — the deepest and most liquid in the world — ceased to function normally as investors became attuned to the economic risk and cashed out their holdings.

  • “While the financial regulatory reforms adopted since 2008 have substantially increased the resilience of the financial sector, the financial system nonetheless amplified the shock, and financial sector vulnerabilities are likely to be significant in the near term,” the report said.

  • In March, “funding markets proved less fragile than during the 2007-09 financial crisis. Nonetheless, significant strains emerged, and emergency Federal Reserve actions were required to stabilize short-term funding markets.”

  • In the Treasury market — where the Fed has bought securities at a rapid pace since mid-March to restore functioning — the difference between selling prices and buyer asking prices has declined to more normal levels, but “some measures, such as market depth, have shown only modest signs of improvement.”

As investors pulled cash from money market mutual funds and the market for short-term business debt looked shaky a more surprising weakness surfaced in the market for Treasury bonds, especially older ones. Speculation has been rampant that hedge funds contributed to the turmoil, and the Fed acknowledged that in its report.

  • Some hedge funds buy and sell securities frequently to make small amounts of money that add up over a large number of trades. They are forced to sell their holdings if markets become hard to trade in, which “can lead to a rapid unraveling of market liquidity under certain circumstances,” the report said.

  • “The concentration of hedge fund leverage has increased markedly,” it said, and funds “may have to sell large amounts of assets to meet margin calls or reduce portfolio risk during periods of market stress.”

The Fed jumped in to ease the strains, rolling out a series of emergency lending facilities.

  • “Effectively, the ability of creditworthy households, businesses, and state and local governments to borrow, even at elevated rates, was threatened,” the Fed said. Together with the Treasury it “took a series of steps to support the flow of credit to households, businesses, and communities.”

Corporations went into the current crisis with huge debt loads, a vulnerability that threatens to continue.

  • “Economic activity is contracting sharply, and the associated reduction in earnings and increase in credit needed to bridge the downturn will expand the debt burden and default risk of a highly leveraged business sector,” the report said.

  • “Widespread downgrades of bonds to speculative-grade ratings could lead investors to accelerate the sale of downgraded bonds, possibly generating market dislocation and downward price pressures in a segment of the corporate bond market known to exhibit relatively low liquidity,” it warned.

  • “Defaults on leveraged loans ticked up in February and March and are likely to continue to increase,” it said of loans to already-indebted companies

The Fed noted that stock prices had “swung widely,” and said other assets could be in for lower prices.

  • “Asset prices remain vulnerable to significant declines should the pandemic worsen, the economic fallout prove more adverse or financial system strains re-emerge,” the Fed warned.

  • “The severe disruptions in economic activity following the outbreak could reduce house prices by bringing down household incomes and restricting access to mortgage credit,” the report said, though a decline in supply could limit that effect.

Article source: https://www.nytimes.com/2020/05/15/business/economy/fed-financial-stability-coronavirus.html

Wall Street Recovers After a Day of Turbulent Trading

  • The New York Stock Exchange will begin to reopen its trading floor the day after Memorial Day, the exchange’s president, Stacey Cunningham, wrote in an op-ed article in The Wall Street Journal. As part of “measured reopening plans,” floor brokers will return in small numbers and be required to wear masks. Social distancing requirements will be in place, and workers and visitors will be screened before entry.

  • Disney Theatrical Productions said Thursday that its stage adaptation of “Frozen” would not reopen on Broadway once the pandemic eases, making the musical the first to be felled by the current crisis. “We believe that three Disney productions will be one too many titles to run successfully in Broadway’s new landscape,” Thomas Schumacher, the president of Disney Theatrical Productions, said in a letter to his staff.

  • Nissan said the head of its North American operation, José Luis Valls, had resigned for “personal reasons” and would leave the company on June 15. Nissan has struggled with anemic sales in the United States, its most important market after China. Jérémie Papin, the senior vice president for finance at Nissan North America, will replace Mr. Luis Valls, the company said.

  • Leslie H. Wexner, the longtime chief executive officer and chairman of L Brands, stepped down from both roles on Thursday as expected, though he will retain a board seat. Mr. Wexner, 82, the longest serving chief executive of a company in the SP 500, recently faced serious questions about his leadership because of issues with the company’s culture and his relationship with the disgraced financier Jeffrey Epstein, a convicted sex offender.

Reporting was contributed by Liz Alderman, Adam Satariano, David McCabe, Vanessa Friedman, Gregory Schmidt, Jason Karaian, David Yaffe-Bellany, Michael Corkery, Patricia Cohen, Tiffany Hsu, Stanley Reed, Niraj Chokshi, Li Yuan, Ben Dooley, Carlos Tejada, Jeanna Smialek, Tara Siegel Bernard Jim Tankersely, Matt Phillips, Sapna Maheshwari, Michael J. de la Merced and Kevin Granville.

Article source: https://www.nytimes.com/2020/05/14/business/stocks-live-coronavirus.html

Unemployment Claims Show More Jobs Are Vanishing: Live Updates

Catch up: Here’s what else is happening.

  • The New York Stock Exchange will begin to reopen its trading floor the day after Memorial Day, the exchange’s president, Stacey Cunningham, wrote in an op-ed article in The Wall Street Journal. As part of “measured reopening plans,” floor brokers will return in small numbers and be required to wear masks. Social distancing requirements will be in place, and workers and visitors will be screened before entry.

  • Disney Theatrical Productions said Thursday that its stage adaptation of “Frozen” will not reopen on Broadway once the pandemic eases, making the musical the first to be felled by the current crisis. “We believe that three Disney productions will be one too many titles to run successfully in Broadway’s new landscape,” Thomas Schumacher, the president of Disney Theatrical Productions, said in a letter to his staff.

  • Nissan said the head of its North American operation, José Luis Valls, had resigned for “personal reasons” and would leave the company on June 15. Nissan has struggled with anemic sales in the United States, its most important market after China. Jérémie Papin, the senior vice president for finance at Nissan North America, will replace Mr. Luis Valls, the company said.

  • Leslie H. Wexner, the longtime chief executive officer and chairman of L Brands, stepped down from both roles on Thursday as expected, though he will retain a board seat. Mr. Wexner, 82, the longest serving chief executive of a company in the SP 500, recently faced serious questions about his leadership because of issues with the company’s culture and his relationship with the disgraced financier Jeffrey Epstein, a convicted sex offender.

  • J.C. Penney might file for bankruptcy as soon as Friday after skipping two interest payments on its debt in the past month, according to two people familiar with the matter. The company is in talks to secure about $450 million in debtor-in-possession financing, which would allow it to keep operating the business, according to the people, who spoke on condition of anonymity because discussions were confidential.

  • Sony reported a 57 percent drop in operating profit in the three months ending in March. The coronavirus has hit Sony’s electronics business hard, while giving a boost to some of its entertainment offerings, as people stuck at home seek to keep themselves busy.

Reporting was contributed by Patricia Cohen, Tiffany Hsu, Stanley Reed, Niraj Chokshi, Li Yuan, Ben Dooley, Carlos Tejada, Jeanna Smialek, Tara Siegel Bernard Jim Tankersely, Matt Phillips, Sapna Maheshwari, Michael J. de la Merced and Kevin Granville.

Article source: https://www.nytimes.com/2020/05/14/business/stocks-live-coronavirus.html

What Negative Oil Prices Mean and How the Impact Could Last

This had never happened before, and experts do not expect prices to stay negative for days or weeks. Demand for oil is likely to remain tepid for months because few experts believe the economy will quickly rebound to where it was before the pandemic.

But the low prices will also put pressure on oil companies and countries like Saudi Arabia and Russia, huge producers, to pump less oil because they themselves will run out of room to store it. That should, over time, help lift prices — or at least slow down declines.

No, you can’t. The contract for oil traded in the United States is for delivery of oil at Cushing, Okla., a critical storage hub where lots of oil pipelines converge.

In addition, each contract is for 1,000 barrels of oil, or about five tanker trucks’ worth. Even if you had a place to park five tanker trucks filled with oil, you would be hard pressed to find a trader willing to sell you a single contract. Most trades are for many times that amount.

Monday’s abnormal fall in prices was a reminder that the industry — and for that matter, the world economy — has changed a lot since the last oil crisis. For one, the United States is now one of the biggest producers in the world, and the country has in recent years been pumping out crude oil as fast it can.

The steep rise in output has outpaced the world’s need for energy, a problem that is magnified by the coronavirus.

What’s not known is how long this slowdown will last, as well as the long-term consequences of an economic recession, and if that will fundamentally change how much oil the world needs.

Article source: https://www.nytimes.com/article/negative-oil-prices-facts-history.html

Fed Gearing Up to Help to Smaller Local Governments

But as the coronavirus plunges the economy into a steep downturn, causing growth to swan dive in a way unseen since the Great Depression, Mr. Powell and his colleagues have been breaking all of their own rules — taking a “move fast and save the economy” approach, despite the consequences that might follow.

Congress specifically directed the central bank in the CARES Act response package to try to help out state and local governments. The Fed complied weeks later, and its initial, hastily formed pass at the municipal bond market relied on simplistic cutoffs: Officials pledged to buy from counties with more than two million people or cities with more than one million, and from states.

That left out heavily black cities like Atlanta and Baltimore, based on a Brookings Institution analysis, and touched off prompt criticism.

“Congress made no distinction regarding the size of a municipality that should directly benefit from such a program,” Representative Maxine Waters, Democrat of California and the chairwoman of the Financial Services Committee, wrote in a letter on April 16 poking holes in the program’s design.

Other lawmakers have followed her in calling for more. Democratic senators including Elizabeth Warren of Massachusetts and Mr. Schumer sent a letter to Mr. Powell on Saturday “expressing serious concern with the arbitrary population thresholds used to determine eligibility.”

Senator Michael D. Crapo, Republican of Idaho, the chairman of the Senate Banking Committee and one of Mr. Powell’s key bosses, pointed out in a letter that as it stands now, “no city or county in Idaho would qualify, which precludes rural communities from receiving significant and critical assistance.”

Such concerns will probably draw a response before long, Ian Katz, an analyst at Capital Alpha, wrote in a note on Sunday.

“The complaints about the reach of the Municipal Liquidity Facility seem like common sense and probably won’t be ignored,” he wrote. That said, the outpouring of questions “may end up vindicating those at the central bank who view this as fiscal policy that Congress should decide.”

Article source: https://www.nytimes.com/2020/04/20/business/economy/fed-local-governments-coronavirus.html

Hollywood’s Specialized Backstage Workers Try to Soldier On

LOS ANGELES — Just a few weeks ago, Hollywood’s global assembly lines were spinning at full speed.

Crews were working on Universal’s latest “Jurassic World” installment and Disney’s live-action “Little Mermaid” in Britain. Guillermo del Toro was in Toronto shooting “Nightmare Alley,” a Fox Searchlight remake. Marvel had productions running in Australia and Atlanta. On the Warner Bros. lot in Burbank, Calif., cameras were rolling on multiple soundstages and editors were working on Lin-Manuel Miranda’s musical “In the Heights.”

But that was another epoch. As with much of life around the world, film and television production has ground to a halt because of the coronavirus pandemic — leaving stars, stylists, directors, studio chiefs, grips, writers, set builders, trailer cutters, agents and scores of other specialized Hollywood workers at home and confronting the same question almost everyone has: Now what?

Across the industry, shooting is not expected to resume until August, in part because of the time it will take to reassemble casts and crews once the coronavirus threat subsides. That leaves a vast number of people without work. Hollywood supports 2.5 million jobs, according to the Motion Picture Association of America; many workers are freelancers, getting paid project to project.

“I keep telling myself, ‘Panicking is not going to help,’” said Muffett Brinkman, an associate casting director who has been unemployed for more than a month. “Hopefully things restart before I’m completely financially ruined.” She is a member of Teamsters Local 399, where the hourly minimum for her job category is $18.45.

Article source: https://www.nytimes.com/2020/04/19/business/media/coronavirus-hollywood-production-jobs.html

White House and Democrats Near Deal on Aid for Small Businesses

Later on Sunday, Senators Bill Cassidy, Republican of Louisiana, and Bob Menendez, Democrat of New Jersey, announced what they described as “a major bipartisan breakthrough” to deliver funds to states and communities on the front lines of the fight against the coronavirus.

Their proposal would make counties and towns with 50,000 or more people eligible for federal dollars; the current population threshold is 500,000. The senators said they would introduce the plan when the Senate convened.

“Senator Menendez’s state and mine were hit hard by the Covid-19 epidemic,” Dr. Cassidy, a gastroenterologist, said in a statement, adding that the two “worked hard to make sure state and local governments can maintain essential services necessary for employees and employers to survive.”

That bipartisan effort stood in stark contrast to the partisan warfare that has enveloped the talks over the small-business aid since the start. On Sunday, Mr. Trump attacked Ms. Pelosi on Twitter as “an inherently ‘dumb’ person” and predicted that she would be “overthrown” as speaker, “either by inside or out.”

That capped a week that Republicans and Democrats on Capitol Hill spent trading barbs. Republicans, who argued that there was no need to add money for hospitals and testing when it had not yet run out, accused Democrats of holding small businesses hostage while unemployment numbers soared.

“I cannot understand after watching another five million get unemployed how Speaker Pelosi continues to say no,” Representative Kevin McCarthy, Republican of California and the minority leader, said Thursday morning on a conference call with reporters.

Republicans have also expressed strong opposition to adding money for states and municipalities, saying Democrats have pushed for unrestricted funds, not related to the coronavirus, that would effectively subsidize bad fiscal decisions that occurred before the pandemic. That has been a red line for Republicans throughout the talks.

Article source: https://www.nytimes.com/2020/04/19/us/politics/coronavirus-small-business-aid-congress.html

Hollywood’s Backstage Creatives Try to Soldier On

LOS ANGELES — Just a few weeks ago, Hollywood’s global assembly lines were spinning at full speed.

Crews were working on Universal’s latest “Jurassic World” installment and Disney’s live-action “Little Mermaid” in Britain. Guillermo del Toro was in Toronto shooting “Nightmare Alley,” a Fox Searchlight remake. Marvel had productions running in Australia and Atlanta. On the Warner Bros. lot in Burbank, Calif., cameras were rolling on multiple soundstages and editors were working on Lin-Manuel Miranda’s musical “In the Heights.”

But that was another epoch. As with much of life around the world, film and television production has ground to a halt because of the coronavirus pandemic — leaving stars, stylists, directors, studio chiefs, grips, writers, set builders, trailer cutters, agents and scores of other specialized Hollywood workers at home and confronting the same question almost everyone has: Now what?

Across the industry, shooting is not expected to resume until August, in part because of the time it will take to reassemble casts and crews once the coronavirus threat subsides. That leaves a vast number of people without work. Hollywood supports 2.5 million jobs, according to the Motion Picture Association of America; many workers are freelancers, getting paid project to project.

“I keep telling myself, ‘Panicking is not going to help,’” said Muffett Brinkman, an associate casting director who has been unemployed for more than a month. “Hopefully things restart before I’m completely financially ruined.” She is a member of Teamsters Local 399, where the hourly minimum for her job category is $18.45.

Article source: https://www.nytimes.com/2020/04/19/business/media/coronavirus-hollywood-production-jobs.html

Don’t Mention the Virus! And Other Marketing Tips

Some companies have barred any mention of the coronavirus or Covid-19 in influencer posts, even if the ads are about staying at home or taking care of family. Ms. Karwowski’s agency, Obviously, has recommended that influencers working at home should portray products in everyday clothing and that images should feel “bright and cheerful.” It advised against advertising from bed or in pajamas.

“Being in bed can work if you’re talking about self-care and taking care of yourself, but not ‘Haven’t left my bed in days — send help,’” Ms. Karwowski said. “One thing to ask yourself if you are a creator: How is this going to make my audience feel, what emotions will it bring out in them?”

The idea, she said, is to aim for positivity and calmness rather than stress or anxiety.

Ulta Beauty, the cosmetics chain with 1,200 stores that are currently closed, introduced a new ad campaign with Obviously this month called “See Beautiful Today.” It was based on the idea that “no matter how dark the world seems, people seek moments of beauty to help get through difficult times,” a representative said. A group of influencers will create quarantine content for Ulta this month, like how-to hair tutorials and do-it-yourself nail care as part of its broader focus on self-care and joy.

This type of messaging represents a “much softer sell” and acknowledges today’s reality, Ms. Karwowski said. “It’s more of a conversation.”

Influencers are also changing how they sell products based on their personal challenges. Jacqueline Granquist, a 31-year-old part-time influencer in San Diego who has worked with brands like Joie and Hobo bags, said that she had been posting more about her own struggles and encouragement for others even as she promotes fashion items. Ms. Granquist recently lost her waitressing job because the restaurant closed, and she said others are facing similar issues and may not want to shop.

Article source: https://www.nytimes.com/2020/04/19/business/coronavirus-influencers.html

The Food Chain’s Weakest Link: Slaughterhouses

On Thursday, officials from the Centers for Disease Control and Prevention toured the Sioux Falls plant, an eight-story facility that churned 24 hours a day alongside the Big Sioux River, producing 5 percent of the nation’s pork. The agency is expected to release recommendations in the next few days on how to prevent another outbreak when the plant reopens. The company has not given a date.

Before the plant closed this past week, the company had provided employees with face shields and masks and installed plexiglass barriers in certain areas to separate employees. But in reality, it may be difficult for any meat plant to accommodate social distancing and remain as profitable. Jobs with titles like “gut snatcher” require people to work closely, slicing open pigs and pulling out entrails.

“It is not going to be easy to get workers six feet apart,” said Dr. William Schaffner, a professor of infectious diseases at Vanderbilt University’s medical school. “If you space people out, you reduce productivity.”

Officials in the meat industry have also argued that South Dakota’s decision to not issue a stay-at-home order may be contributing to the outbreak, because it has left relatives and neighbors of plant employees free to mingle. South Dakota officials have said residents should exercise “personal responsibility” and practice social distancing.

“That’s a very, very high rate,” Dr. Schaffner said of the infections at the Smithfield plant. “But it’s difficult to know how much of the transmission occurred in the workplace or in the community.”

Some meat companies have expressed reluctance to test workers, saying such targeted testing creates the false impression that meat plants are the main culprits for the spread of the virus. The more aggressively employees are tested, the more cases emerge, putting pressure on plants to shut down.

“Everybody wants to test meatpacking employees, but nobody is testing the communities around them to show what’s the baseline,” said Steve Stouffer, the president of the fresh meats division at Tyson Foods. “And until we know the baselines, my question has always been: Are we the cause or are we just the victim of our surroundings?”

Article source: https://www.nytimes.com/2020/04/18/business/coronavirus-meat-slaughterhouses.html