Bail

Bear market puts the "b-word" on everyone's lips: bailouts

Thursday, March 12, 2020 by Snacks

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.

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