4/6/2020

Hello there good folks,

I hope everyone is doing well and had a good weekend. Although the weekend is not quite what it used to be at the moment as it basically just feels like another weekday now. Everyday kind of feels the same at the moment. At least this is happening during the spring time and the weather has mostly been fantastic. I ended up watching a replay of game 7 of the 2010 NBA Finals between the Lakers and Celtics because I miss the NBA that much. Both rosters were loaded with talent and then I see derek fisher on the court and start having terrible flashbacks to when he "played" for OKC and was guarding Tim "First Ballot HOFer" Duncan in the post in overtime of game 6 in the 2014 Western Conference Finals. Spoiler alert, fisher was roasted. I will never understand why he was allowed to even put on a basketball shoe for OKC. He was more washed up than a washed up 2010 Rasheed Wallace playing for the Celtics. I then watched what I think was the world championship final of Rocket League and then watched a couple NBA players battle it out on NBA 2k. This is where I'm at with sports right now. Anything will due. Hopefully COVID-19 can be solved sooner rather than later so real, live sports can return but things do not look promising right now. Even after it is temporarily solved, it doesn't seem likely that things will go back to "normal." Attending concerts or sports games may not be a realistic and/or popular thing to do until an actual vaccine can be developed and Johnson and Johnson estimates that one will not be ready until early 2021. The year 2020 is an odd one so far. Nothing has shut down the entire world like this in quite some time, if ever. In this week's #bucketsblog, U.S. unemployment applications sky-rocket (again), some companies are opting to slash pay as opposed to laying people off, tracking tech is getting more and more attention, U.S. oil prices had itself a week, and a few U.S. Senators are being investigated for possibly conducting insider trading.

April 6, 2020

Record number of Americans file for unemployment

• 6.6 million Americans applied for unemployment benefits last week as COVID-19 continues its ravage rampage across the States. This is double the application amount from two weeks ago that came in at 3.3 million. The number from two weeks ago was 5x greater than the previous record for one week unemployment filings. Comparing two week's ago to this week's, and this week's number is Shawn Bradley compared to two week's ago Muggsy Bogues. Highly related to that comparison, I recently watched Space Jam again. Unless you have been living under a disinfected rock, America has been under siege from COVID-19 and this has shut down large parts of the economy with service oriented companies taking the brunt of the financial destruction. According to the Wall Street Journal (WSJ), the last two week's worth of unemployment filings represent about 6% of the U.S. labor force. Just 0.3% of the labor force had filed for unemployment benefits at the end of February. The acceleration of economic destruction has been breathtaking. Constance Hunter, chief economist at KPMG LLP, said this is unlike any other economic event in history:

• Ms. Hunter expects 20 million jobs will be lost in total as a result of the massive disruption. One reason this number will continue to increase is the fact that the federal relief package of $2T that was passed two weeks ago enables independent contractors and self-employed individuals to be eligible for unemployment benefits. Prior to that, workers in that category were not allowed to apply for unemployment benefits. New York state has been one of the hardest hit by COVID. The velocity of unemployment benefit applications has caused the state's website to crash several times as a result. Small businesses are believed to be the area where layoffs have hit particularly hard since most states went into some version of a lockdown over the past few weeks, according to researches at the University of North Carolina's Kenan-Flagler Business School. It has been rumored that MJ dunked on that business school during his time at UNC. No need to fact check that. MJ does what he wants. UNC's business school, second only to Michael Scott's school of hard knocks, estimates that up to 6.6 million small-business employees were immediately laid off after states started to go into lockdown mode throughout March. Man the U.S. needs a lot of Bluth Family banana stands right now. State-by-state look at unemployment filings:

Quite a few companies are opting to slash pay as opposed to layoffs

• There has been a slew of companies that have decided to slash employee and executive pay instead of letting part of their workforce go. That could be considered a 'glass half full' message that is being sent out to the American labor force given the current circumstances. Slashing employee pay used to be untouchable but then the financial crisis of 2008 happened. Kenan Abosch, partner at Aon PLC's compensation practice, released these #stats in a recent WSJ article:

• It seems like once the seal is broken on providing a benefit or taking one away, then the "normal" that existed before the addition or subtraction is very hard to go back to. 2008's economic meltdown could be tied back to bad federal regulation and short-sited money making schemes cooked up by mortgage lenders. 2020's meltdown is just a flat out lack of demand because of a global health crisis that has never been experienced on this level before. Consumer spending is tanking, especially in the service and travel industries. No spending = no cash for small to large businesses alike. At least companies are doing what they can in order to try and keep employees onboard and pay them some type of salary in order to try and get through this. The salary cuts range from 20% (GM) to 70% (Hilton) and everything in between. Oxy cut its U.S. employee salaries by 30% recently and executive salaries by up to 80%. GM plans to repay, with interest, the loss in salaries due to the recent cuts by March 15, 2021. Small businesses have an incentive to keep most of its workforce onboard and paid. The $2T federal relief package specifically states that small businesses cannot cut more than 25% of their total salary or wages for workers in order to have their federal loans, if taken, forgiven, according to deputy director of the economic program at Third Way - Zach Moller. Some pay is better than no pay. Hopefully companies who engaged in this strategy will return their employees' salaries back to where they were before the pandemic, at the minimum.

As COVID spreads, tracking tools are getting more attention

• Never before seen surveillance measures for western governments may be well on the way to being implemented. According to WSJ, western governments are looking for ways to relax movement restrictions for their citizens in order to try and free people back into the economic wild. China, Singapore, Israel, and South Korea are already utilizing significant tracking technology that keeps tabs on citizens who have had the virus and then identify those with whom they have been in contact with. This technology has been credited with helping to slow the spread. U.S. and European countries have taken notice and are considering implementing the same type of measures. The U.S. federal government is already working with the CDC to create a "portal that will compile phone geolocation data to help authorities predict where outbreaks could next occur and determine where resources are needed." This data is supposedly anonymized and will show which retail establishments, parks, and other public spaces are still drawing crowds that could cause an acceleration of the spread of COVID. Google has released a portion of its data trove to the U.S. government that tracks people's movements already. Of course, there are already privacy concerns around this effort and this is ultimately what has always stunted tracking technology in western countries. The calculus may be changing on why not to implement this tech however. Lockdowns continue to be extended but yet the virus continues to spread. Governments in Europe have started asking citizens to voluntarily sign up to be tracked. They have also started to pass laws that enable their governments to track citizens anyways. If tracking is established in mass amounts, then the second phase would require mass testing in order to justify the use of tracking people. Best case scenario for this route would be for the majority of a country's population to return to "normal" until a vaccine can be developed. The key here for any type of interim tracking solution is for that tech to eventually be suspended from use until another pandemic situation breaks out, if one ever does. Would it ever actually go away though? Or would this just be the start of a new "normal" thing for governments around the world to perform in perpetuity? Slovak Justice Minister Maria Koliková summed up the dilemma astutely when talking about her government's recently passed law that will allow its public-health office to collect phone data:

• So the cost in fundamental rights and freedoms may be worth it at the moment, but the worry about this becoming permanent might be enough to outweigh the temporary benefit. If the spread of COVID continues to be severe in most western countries, then citizens in those countries may end up not having a say in the matter.

U.S. oil prices put its rally cap on

• U.S. oil prices (WTI) may be down something like 137-77 to the game of life late in the 4th quarter but it decided to go down swinging and only lose 137-83. That 5-0 run at the end really caused some bad beats to happen, probably. WTI prices rallied by $5.01/bbl last Thursday (2nd) and closed the day at $25.32, good for a 25% one day rise. It set a record for the largest one-day percentage gain in WTI's history. Percentages can make anything look good or bad. For example, if Chesapeake Energy's stock price experienced an increase of 6% in one day then that sounds fantastic, but when considering that would only represent a $0.01 move in the stock price then it's still abysmal. Another example, if RUSS didn't shoot a single three pointer in his career than the old school poster that says "you miss 100% of the shots you don't take" could be changed to "you don't miss any bad shots if you don't take them and then your fans will be much, much happier" or something like that. I don't know. That has nothing to do with percentages but it's not like someone can say 'if RUSS only made 10 more threes in 2015-16 then he would have shot 40% from 3-point land' because RUSS's denominator is ~eleventy billion so any change in the numerator basically does nothing. I really am considering just taking the rest of the space to write about RUSS things because WTI prices, stock prices, latest COVID numbers, and everything else are so volatile right now that writing something at 5 PM on a Thursday will probably be completely irrelevant by 5:05 PM on that same Thursday. Within the last week, a major U.S. bank called for WTI prices to hang out in the teens, if not lower, for 2Q-20. Then on Thursday, President Trump tweeted how he expects Russia and Saudia Arabia to agree on a production cut of millions of barrels a day. Prices sky-rocketed by 35% after the tweet and then some gains were knocked off when the Kremlin just replied back with a shoulder shrug emoji and denied ever talking to the Saudis. Then prices came back up a bit after the Saudis responded with a picture of a checked checkbox that said "maybe" next to it. Eventually, news broke that Russian and Saudi leadership is expected to discuss cutting production by up to 6mmbpd on a conference call on Monday (6th). Hopefully the call takes place on Zoom and both sides come up with some sweet virtual Tiger King backgrounds while they chat. The total production cut target has since been increased to 10mmbpd but Saudi Arabia has become adamant about North American producers participating in some way in the cuts. Canada has already indicated that they would participate while the U.S. has not. The meeting between Russia and Saudi Arabia ended up being pushed back until this coming Thursday (9th) after the two countries exchanged mean words last week. It was reported on Friday (3rd) by WSJ that the Trump administration has discussed shutting in Gulf of Mexico production as an olive branch since COVID-19 has been spreading among workers on offshore platforms. If this occurs, then ~2mmbpd of U.S. production would be shut-in. Oil majors such as Exxon and Chevron have adamantly opposed any type of U.S. production curtailment. It appears the middle eastern power house has run out of patience trying to be the primary balancer of crude markets. Cutting supply down will help stabilize crude a bit but the future still looks bleak as demand has been destroyed and storage around the world is quickly filling up. The supply surplus and demand shock has already led a decent sized U.S. shale company, Whiting Petroleum, to do this:

• Other U.S. shale producers have asked federal and state government departments to step in. President Trump is set to meet with a few leaders of the largest U.S. oil companies on Friday (3rd) which includes the heads of Exxon, Chevron, Oxy, OKC's own Continental's Harold Hamm, and Devon's Dave Hager, according to WSJ. It is likely that Mr. Trump will endorse direct federal aid or market interventions in the meeting, also according to WSJ. A few Permian producers have asked the Texas Railroad Commission, which actually overseas Texas oil and gas production - weird, I know, to consider limiting the state's production. The state is considering how this would be implemented and if it is something worth pursuing, but there will not be a decision made on this until April 14th which is five days after the Russia and Saudi call. Inventories could be filled to the brim in a few months if nothing can be agreed to on the supply side of things. There is plenty of doubt from oil experts on the probability of a deal actually being consummated. The two sharpest inventory build years were 2005 and 2015. In 2015, inventories rose by ~400mmbbls. In 2020, inventories could rise by three times that amount in the first half of the year alone, according to IHS Markit - energy research firm. Lastly, Mr. Trump's response to lower oil prices, and thus lower gasoline prices, has been very inconsistent. He has usually worked to keep oil prices down so gasoline prices would stay down by sending out a tweet about releasing oil out of the SPR or encouraging more production out of OPEC or something like that. These tweets were usually pretty effective as oil prices always seemed to respond quickly to them. Lately though, Mr. Trump's desire to have low gasoline prices versus the looming potential collapse of the oil and gas industry in the U.S. have been at odds. Axios put together a timeline of Trump's tweets over the last month on the subject plus provided a high level snapshot of what the industry is facing:

• On March 9, right at the beginning of the cascading shutdowns across the country, Trump tweeted that it was good for consumers that gasoline prices were going down.

• On March 12, Trump told reporters about oil prices dropping, per Bloomberg: “Frankly that’s like a big tax cut, not a little tax cut for the consumer. So there’s something about that that I like.”

• On March 19, Trump said for the first time that he would, at the “appropriate time,” get involved in a price war between mega-producers Saudi Arabia and Russia. That price war began March 6, almost three weeks prior.

• By March 26, Trump administration officials had ramped up their diplomatic overtures to Saudi Arabia.

• On March 30, Trump surprised even himself. “I never thought I would be saying this: maybe we have to have an oil increase,” Trump said in a Fox News interview. “Because we do. The price is so low now. We don’t want to have an industry that’s wiped out.” Trump tweeted Thursday that he called the leaders of Saudi Arabia and Russia, fully engaging himself in the saga, at least for the moment.

• On Friday (3rd), Trump again emphasized cheap prices and indicated a reluctance to take major action. He suggested his administration find even more places to store excess oil than the nation’s strategic reserves. “At these prices, you should do it,” Trump said. “Fill it up, right?”

• The intrigue: "Up until recently, he has had very little sympathy for oil companies," said one person familiar with Trump's thinking who requested anonymity to talk candidly about the president's sentiment. "He approaches this issue as a true populist, up until this crisis."

• In the short term, expect bankruptcies and layoffs. The industry and related sectors account for about 2.5 million jobs, according to IHS Markit, a consultancy. Oil prices persisting in the range of $30 a barrel could prompt 150 to 200 Chapter 11 filings in the sector through 2021, according to research published Friday by consultancy Rystad Energy. If prices fall closer to $20 a barrel, that number could rise to 400.

• In the longer term, experts are warning that oil prices — and therefore gasoline prices — will rise more in the coming years than they would have absent the pandemic due to how classic boom and bust cycles work. The demand cutoff — roughly a quarter of the nearly 100 million barrels a day that are consumed now — will eventually prompt the industry to curtail production so much that in a few years’ time the world could be in a supply crunch, not a demand crunch. Paradoxically, "this [demand cutoff] will ultimately create an inflationary oil supply shock of historic proportions because so much oil production will be forced to be shut-in,” Goldman Sachs wrote in a note last week. “Unless there's some structural break when we emerge, a thirstier world is going to run into larger shortages," and oil prices will go through the roof, said Bob McNally, founder of consultancy Rapidan Energy. The firm forecasts that oil prices could breach the $100-per-barrel mark by the mid-2020s — light years from now in our current time frames. That could mean $4 per gallon gasoline.

• Yes, but: Despite tanking stocks and oil prices, the oil and gas industry is enjoying a record high positive reception from the public, according to Gallup data going back to 2001. For the first time since Gallup began asking the question, the industry received a net positive rating in August 2019, with 39% of respondents rating the sector positive and 36% rating it negative. The probable reason why is the same reason Trump likes the sector: low gasoline prices.

• The bottom line: The irony, of course, is that right now, most of us can't take advantage of these rock-bottom prices as we're locked down. When we can drive and fly again like normal, prices are poised to rise.

U.S. Senators might have committed some Martha Stewart insider trading shenanigans

• Remember that one time when Martha Stewart was on top of the world with her cooking and decorating prowess? Then it all came crashing down in late 2001 when her broker tipped her off about how a company she held stock in was about to drop. She sold all of her shares the day before the FDA denied that specific company's drug from going to market. Ms. Stewart was caught and was eventually sentenced to five months in prison, five months of home confinement, and two years worth of probation for lying about a stock sale, conspiracy, and obstruction of justice, according to good ole Wikipedia. Now she is back on top of the world and doing commercials with Snoop Dog so it's all good again. It appears as though some U.S. lawmakers might have been inspired by Ms. Stewart's stock trading strategies. U.S. Senators Richard Burr (R., N.C.), Kelly Loeffler and David Perdue (Rs., Georgia), husband of Dianne Feinstein (D., CA), and Oklahoma's own James Inhofe were all actively trading before the spread of coronavirus in the U.S. caused markets to tank. Each lawmaker attended closed-door briefings where sensitive information was presented about the threat of the new disease weeks before the outbreak started to occur. All have excuses at the moment. Ms. Loeffler and Ms. Feinstein are both married to investment pros and claim they were unaware of the trades that were being made and left things up to their advisers. Mr. Perdue stated his portfolio is managed by an investment adviser. Mr. Inhofe also said he has an investment adviser and that he does not actively manage his positions. Mr. Burr sold off as much as $1.7mm worth of shares he owns in various companies on February 13th that ended up saving him from suffering ~$250k in losses if he still held those stocks as of the close of trading on March 19th, according to WSJ. Mr. Burr was involved in a briefing on the looming pandemic on January 24th. The Senator is claiming that he made these decisions based on public information as he specifically cited CNBC's reports out of Asia at the time. There was a specific bill that was passed in 2012 by Congress that bans members from trading stocks based on information that is picked up in the halls of Capitol Hill. This is a bit different than specific insider trading laws as it directly pertains to members of Congress. Mr. Burr was one of only three senators to vote against that bill at the time as he believed it was just a "duplication" of existing insider trading laws. Doug Davison, partner at Linklaters LLP and a former enforcement attorney at the SEC, stated that insider trading violations for these Senators will largely depend on how "general" the information was in the closed door briefings:

• Currently, the Justice Department is examining lawmakers who made trades before the pandemic broke out. As of now, all of the Senators above who are suspected of insider trading are cooperating with the JD.

Thoughts of the week:

• It seems like the career choice to go with if you want to play in fronts of "fans" everyday is to be a garbage truck driver. If I have learned anything during this quarantine period, it is that garbage truck drivers may have thousands of kids watch them take out the trash everyday. Seems like the best job to go with if someone wants to play in front of fans everyday but can't make it as a professional athlete.

• Glass half full approach from sheltering at home is that I finally have time to do all of the projects around my house that I never had time for previously. Glass half empty approach is that now I have to do these projects.