This is another situation where an industry deemed "essential", and unaffected directly by lockdown directives, is still impacted.
While there's some ambiguity, nothing in the state-level lockdowns prevents travel in a meaningful way (it's just a jurisdictional thing). But no one is travelling anyway, because no one is willing to sit in an airplane right now.
And Boeing sees that, and knows the recovery will be slow no matter when the official "end" of the lockdowns arrives.
Travel has certainly been a great deal affected, but the 737 Max was a pretty massive disaster in an of itself.
With the coronavirus this is a huge 1-2 blow to Boeing.
I wonder how much of their go forward business will be military contracts, as the their civilian aviation business seems to be dead for the next 3-5 years.
They can get the 737 Max recertified to fly, but I think the damage to the reputation is done, so they probably will need to release a brand new plane to be competitive. Not sure on the design to production timeline for an airplane, but that's where I assumed 3-5 years.
Actually in a cynical sense this may actually be good for Boeing (not in absolute terms, but in terms of market share). A downturn in the industry gives them more time to get a replacement ready before orders start picking up. The size of the market void into which Airbus could have jumped with extra A320 orders has shunk, basically.
That is getting more and more dubious every day. Do you have a source which says this is doable? To recap, the 737 Max was not only fitted with the MCAS to save money but because it was relying on being grandfathered in to be able to be certified at all. So if they are forced to make so much change to the MCAS to require recertification they will fail doing so.
I thought the MCAS was to grandfather in pilots to be able to fly. Without it, the plain itself would still be certifiable; but pilots would need training before being allowed to fly it.
Basically all the issues of the Max come down to the pilot certification issue: the shared "type rating" with the prior 737s. That's why they needed to make the necessary changes to fit bigger engines on the old design, why they added MCAS to basically "simulate" more similar handling in some situations, and why they made so many decisions to downplay the existence of the system or offer new indicators or controls.
The whole business case for the Max was to fend off the A320neo, and if airlines were going to have to retrain pilots, that's one less reason for legacy customers to stay.
Sure, but they have already delivered about 400 of them and have another 400 built and waiting to be delivered. At 100 million a piece, that's 40 billion they will probably have to refund in some fashion if they scrap the ones delivered, and another 40 billion in sales waiting to be realized. Granted, they probably could get some money back by scrapping all of those planes, but I cannot imagine them losing more money training some pilots than refunding and scrapping all of those planes (at least for the currently built ones).
Airplanes are notoriously slow. I would expect turnaround on a new airframe to be over a decade, and on a new design at least 5 years.
That said, I don't think a "new design" ontop of the 737 airframe exists. The whole point of the 737 Max and its failures is that the airframe was old so they tried to make a radical design change and handle the shortcomings in fly-by-wire software, but who on earth is going to trust Boeing with that now?
Boeing's market is global, and it does not matter if you can fly within USA if flights are shut down everywhere else - in the coming year any USA domestic airline will be able to get cheap planes from other airlines instead of buying new ones from Boeing.
If global demand for flights is down even 20% then this means that the global demand for new planes is close to zero.
> Boeing said it hopes to reach its job cut targets through voluntary means, including buyouts and early retirement offers. Employees who take the buyout will receive three months of health care and one week of pay for every year they have worked at Boeing, up to 26 years, the company told workers last week.
I don't have any reference here because I have worked only in europe or asia, but is this a good offer? I don't think its a very good offer. Why will someone take this?
If someone is completely burnt out from their job or close to retirement already, they will take it. One week of pay per year is stingy, though, but they start with voluntary and move from there.
I guess it depends on the company. My wife's company's standard buyout is 2 weeks per year worked (she works in travel). 1 week of severance per year worked is not great. In the current economic environment I would think people would be very hesitant to take it. Lets say I have been there 10 years, means I only get 10 weeks severance. I still need to find a new job and there are tens of thousands of other laid off engineers competing for jobs and those jobs are very limited. Odds of finding a new one before severance runs out is low.
If you don't take it you run the very real risk of getting cut with nothing.
It would be very unfair for Boeing to offer 1 week per year served if you leave voluntarily, and then revoke that payment if they forcibly lay you off.
At $OLD_TECH_CORPORATION_MAKING_DATABASES, we received one week per year served after being forced out, plus an additional "free month" of pay as well.
sure, but the reality is that in the beginning of layoffs they will have larger reserves available for severance. As economic hardships mount those reserves will dwindle. Companies pretty much stopped caring about fair a long time ago unless you are lucky enough to have reached the C-Suite. Some companies alter the severance package based on nothing but how much your VP level officer likes you.
Which is one way to ensure not too many people sign up. Losing people that you expect to lose in a couple years saves some money and presumably everybody was planning on them retiring soon anyway and so had plans in place so knowledge isn't lost.
It might also get a few people who have personal reasons to leave, but headcount is lost with people who wouldn't stay so there is no loss.
Boeing has done this voluntary offer several times. The goal is specifically to entice people who have 25+ years of service and are at or close to eligibility for collecting their pension.
When I worked there I had coworkers who were ready to retire but were hoping for one of these rounds so that they could get a little extra on the way out.
By American standards, it's not awful. There are very few legally mandated protections for employees.
2 weeks per year of service is also a typical value.
Healthcare is often not included, which is a real shit sandwich for the ex-employee. Their options are COBRA (basically, pick up the full tab for coverage on their own dime - employer usually pays >50% of the cost of a policy). Or, buy a plan on the ACA marketplace. Or, do without.
either 1 or 2 weeks per year of service is pretty normal for a buyout - 2 weeks is more seen in forced layoff, but I suspect this package is targeted at people near retirement, hence the lower value.
My main point was that none of this is legally mandated at the federal level (though there may be state laws or union contracts at play depending on who is being let go).
I've also seen severance plans that are variations on...
It’s debatable that it worked even with the mandate. Plenty of young, healthy people decided paying the penalty was a better option than paying some amount of money greater than the penalty for bad coverage.
It would work if the option was for people to purchase health insurance on healthcare.gov or pay the equivalent amount in extra taxes. Then people wouldn't have any reason not to purchase it. But also, everyone would have to be directed to healthcare.gov without exception to create the appropriate mix of healthy and sick lives for a viable marketplace, which means banning employer involvement in health insurance.
You could keep employee insurance. If everyone else has to sign up, you still get a diverse risk pool. Maybe not perfect but way better than what we have now.
Short term insurance is now a viable option for many. If you dont get rated up its significantly more affordable than an aca plan for most people. Ironic isnt it.
Intel, Cisco etc I know had similar severance packages. They rehire experienced ppl after things settle down. Lot of the 40/50+ crowd will have multiple entries on their resume of leaving and rejoining later. I worked with one greybeard who had left and rejoined the same division 4 times.
"Always take the package" is a mantra you'll hear from some folks who have been through earlier market carnage. The idea is that you're liable to be laid off in the next round of cuts, or the next; and subsequent packages are never as good as the first one, if they exist at all. But if you're sure things will turn around in the economy in general, and for the company you work for in particular, then don't take the package.
At least in my little bubble at Boeing, a large fraction of us are union employees, and our union contract stipulates that involuntary layoffs also provide the same severance benefit (1 week per year of service, capped at 26 weeks). The medical coverage may be different, I'd have to refer back to our contract to see.
Wow; not too many HNers are in a union, I'd guess. Next thing you'll be telling us is that you have a pension.
Of course, if the company goes bankrupt, all bets are off. Or even if things get so dire that the company manages to claw back some benefits in the next negotiation. Seems unlikely though.
I do have a very small pension benefit. They eliminated the pension for new employees in 2013, and the existing pensions were frozen sometime around 2016 or 2017.
Boeing is one of the very few companies with an engineers union in part I think because of their practice on other times because of the hiring/layoff patterns that included engineering layoffs en masse - even in non pandemic years.
This is Boeing we're talking about here... They won't be allowed to go bankrupt - they're a national symbol of the USA, and will get a bottemless-bailout well before bankrupcy.
You might be surprised how many above a certain age have at least small (defined benefit) pensions. People who work/have worked for government as well as a variety of $BIG_CORP. But pensions used to be pretty common among the larger tech companies of the day. I have one from a 1980s/1990s employer.(It was discontinued when they were acquired and I left shortly thereafter.)
Here in Norway, the most common form (90%) of pensions from private companies[1] is required to be handled by a bank, insurance company or similar institution[2].
I've got this. So each month my company pays a percentage of my salary to my pension account with the bank our company has a deal with. The percentage is part of my employee contract.
This ensures my pension is still around if the company goes belly up, and my pension is protected as banks are required by law to buy insurance covering savings in case of bankruptcy.
After my previous employer went through a merger I let it be known to upper management that I was friendly with that I wanted to be laid off. They arranged it, then quit and hired me at their next place a year later. Got a severance package and a signing bonus and a 40% raise from the same manager within two years.
It's a respectable offer for a company outside the tech space, especially considering that many other companies simply laid off workers without providing severance or post-termination health care. It's not a great offer, but considering their change in fortunes over the past 1.5 years, its better than most people would have expected them to offer.
Generally, in the US buyouts are always better than layoff severance.
It's about average for salaried office workers in the US, but probably pretty good for their South Carolina laborers (where only about 2% of Boeing employees are unionized).
Boeing has factories in multiple states and in the US labor law and employment contracts vary based on state laws and labor union presence.
If they were thinking about retiring already; at 20 years, that's an extra half a year of salary than yesterday. This offer is in addition to retirement plans they already have (401k and pension)
Boeing has not taken a bailout, they didnt like the fact that the government would take an equity position. The bailout was as much targeted at Boeing suppliers as it was at Boeing itself.
Boeing was negotiating with gov to drop the equity requirement - does anyone know what the upshot was? They also did take money from other programs targeted at Airline industry, though I don't know exactly how much.
Boeing is one of few companies using program accounting. Won't this kind of slump drastically cut the number of planes they can distribute their development costs over for the 787 and 737 Max projects also?
More to the point, their stock is up 8% today on this news, because short term, this quarter, will look better with reduced costs. Who cares about the quarter after that, where production will have to be impacted by reduced workforce.
> Who cares about the quarter after that, where production will have to be impacted by reduced workforce.
You were being sarcastic but you're kind of right. In the same way that this quarter isn't the be all-end all, neither is next quarter. Over, say, a 10 year time horizon, the next couple quarters will just be a blip.
Plus, Boeing doesn't exist in a vacuum. The US Govt is going to let anything happen to them due to national security reasons and they've shown that they aren't willing to wipe out shareholders as part of a bailout.
Frankly I'd be much more worried about the culture that allowed the 787MAX to happen than I would be about short-term COVID-19 reductions.
I disagree that this quarter will be a blip, but I agree with the sentiment here.
There are runways and parking lots in Washington full of undelivered planes which are waiting on contractual disputes related to the quality assurance of the 737 MAX issues. A significant percentage of Boeing planes are currently undeliverable and post-pandemic world airlines are likely going to cancel / downsize contracts or at least spend significant legal fees to attempt to do so.
Barring a quick and easy vaccination or herd immunity that accidentally happens much faster than expected, travel is unlikely to recover this year and perhaps not next. Clearing their backlog of planes will likely take 4+ years unless the company can convince people and airlines to trust them again.
Delivery has taken so long that they are going to run into refund periods soon. There's normally massive down payments for these which deters cancellations but these aren't ordinary times. You are almost certainly going to see consolidation within the airlines and there's little to no chance of more plane purchases in that case.
The government definitely could let them wipeout shareholders, and then step in during the bankruptcy process.
In short, the bond holders would become the new shareholders, and the government would be able to drive it to the conclusion that the government wants. This is oversimplified, as reality has much more nuance than this.
That might actually be the best option going forward, as they could clean up a bunch of legacy crap and streamline the firm.
Plus, the government might want multiple companies ( e.g. commercial/defense/space ) instead of one monolith.
> The government definitely could let them wipeout shareholders, and then step in during the bankruptcy process.
That definitely won't happen this year, perhaps ever.
Trump said today that states are responsible for procurement and development of virus tests, labs and processing material. Each state, on their own. If he's afraid of that responsibility, Boeing is going to be something he's never heard of.
Trump is the head of the government, but he is not the government. The US government is such a behemoth not even he can stop it doing what it does. Too many vested interests in Boeing to let it fail.
The US Govt isn't going to let anything happen to Boeing, but protecting their shareholders isn't a national security issue. They will still probably protect them since it is a government imposed travel shutdown.
Why would a government shutdown impact Boeing? I mean people fly less, but that's a few months, how many planes will not be replaced because they're getting 2 months less use?
Unless you're counting the crashes that won't happen because of the shutdown, of course.
This may be true but keep in mind BA looked like /\/\/\ over the last month, and those were big swings too. Maybe there are reasonable explanations or maybe there's just a lot of movement right now
Doesn’t matter that much. Their income statement will screw around but cash flows will only go up. Complex accounting like that can just get in the way.
> An economic and political system in which a country's trade and industry are controlled by private owners for profit, rather than by the state.
A privately-owned monopoly that ruthlessly crushes all competition is just as capitalistic as a privately-owned competitor in a market with perfect competition. The key concept is private ownership and control, not competition. Competition is is only required if you want the resulting system to have some positive externalities for consumers and society at large.
This. The only stuff that needs to be nationalized is some fraction of certain industries that are critical for the nation (eg infrastructure, shipping, defense, energy, etc...).
> This. The only stuff that needs to be nationalized is some fraction of certain industries that are critical for the nation (eg infrastructure, shipping, defense, energy, etc...).
> In addition to being the world's biggest producer of commercial airplanes, Boeing is also one of the world's biggest defense businesses -- and this is key to understanding Boeing stock. Commercial Airplanes may provide 69% of Boeing's revenue, but according to data from S&P Global Market Intelligence, Commercial Airplanes contributes only 54% of the company's profits. The bulk of Boeing's remaining business comes from its big Defense, Space & Security division, which comprises three parts: Military Aircraft, Network & Space Systems, and Global Services & Support.
Initially I was opposed to this idea, but I'm coming around on it. We invest heavy tax subsidies into Boeing, and time and time again their executives seek short term profits at the expense of safety, worker protections, jobs, etc.
A nationalized Boeing could have different objectives, provide a strong set of working class jobs, and ensure we continue to produce planes here in the States.
Investors will feel the pain and demand a change of leadership (very badly needed after the 737 MAX debacle).
A bankruptcy that large will be shepherded by the government to prevent too many long-term job losses and to prevent the defense-sensitive projects/info from being owned by foreign companies.
There was already a change of leadership in the wake of the MAX issues. Are you suggesting that more changes need to be made? If so, which would be most impactful and why?
I've always thought it was sorta ridiculous that the venn diagram of people screaming at the government over the handling of the coronavirus and the people who want to nationalise industry is nearly a perfect circle.
Can someone help me understand why the broader stock market is actually up compared to six months ago despite all these dire numbers being thrown around? Heck, Boeing stock is up today!
The economy looked very rosy in October 2019 and NASDAQ was near 8300. Now it's 8900 even when millions are unemployed and even millions more furloughed.
Should the stock market simply be seen as an isolated, self-contained entity with no real correlation to the broader economy?
The stock market reflects investor sentiment about the viability of of the entities traded. If there's a notion that a company will be worth more in the future and will either pay out a nice dividend or can be later sold at a profit, shares of that company will be in demand and the price will go up. If the company is expected to be losing money and not be worth much or paying out a nice dividend in the future, prices will be going down as everyone tries to sell shares and not be the last one holding something worthless.
If a company sheds a bunch of jobs, that can signal a number of things. One of the things it signals is that it has reduced its expenses. Reduced expenses means, all else equal, less chances of it running out of cash or hitting other kind of money problems, and thereby improves its chances of weathering the coming economic storm. If you thought that Boeing shedding a bunch of jobs meant that it had just secured it's ability to continue to exist and be more valuable once the coming recession/depression is over, would you not want to buy shares now to sell at a nice profit later?
> If there's a notion that a company will be worth more in the future and will either pay out a nice dividend or can be later sold at a profit, shares of that company will be in demand and the price will go up.
Or if they are sure the FED will keep it from falling
I argue that falls into my point above. If there is a sentiment that by having a thing now, and by either holding it or selling it later, it will make you money, there will be demand for the thing. Whether being able to sell it later for a profit is because of an intrinsic increase in its value or because the Fed propped it up is immaterial. You bought a thing, and later sold it for more money.
The 30 year TIPS are yielding at -0.22%. In other words people holding ultra safe investment are expected to lose money in real terms year after year for 30 years. BTW the 30 year TIPS gained around 30% in value over the last year.
The feds printed trillions of dollars. Much of it ended up on the stock market, especially since there is a dearth of other viable investments and the interest rate is low. Also the developing world is suffering even worse downturns and investors there are moving their money to relatively safer economies. Also some gun-jumping with Gilead's study. And a big short-squeeze since the recession is postponed.
I still think a recession is coming. It's just a matter of time now that the lockdowns are getting lifted without any real control over covid. There'll be a rise in new cases, slightly more stringent measures will come and go, other countries with proper recoveries will keep the US travel bans in place, etc. The market can't defy gravity forever.
It can, of course, defy gravity for long enough to lose you your shirt.
>One of the most common questions about the Federal Reserve is this: Does the Fed print money?
>There are really two ways to address this question. In terms of the actual, physical printing, no, the Fed doesn’t actually print or produce money in any form. Coins come from the U.S. Mint, and paper currency comes from the U.S. Treasury’s Bureau of Engraving and Printing. The Fed distributes currency after it’s printed.
>However, what many questioners might really be asking is whether the Fed has the ability to control how much money is in our economy. That’s a different story.
>The Fed adds to (or subtracts from) the amount of money in the economy by buying (or selling) U.S. Treasury securities and other financial instruments. This is referred to as “open market operations,” since these transactions take place in the open market. (The Fed isn’t allowed to buy securities directly from the U.S. Treasury.)
>The Fed pays for those securities by crediting funds to the reserves that banks are required to hold, either cash in their vaults or deposits at a Reserve bank.
>“So, in that sense, we can think of ‘printing money’ as adding reserves to the banking system,” said David Wheelock, vice president and deputy director of research.
Your link supports the claim instead of debunking it. Off course they don’t physically print cash, but they increase the account balances.
The Fed adds to (or subtracts from) the amount of money in the economy by buying (or selling) U.S. Treasury securities and other financial instruments. This is referred to as “open market operations,” since these transactions take place in the open market. (The Fed isn’t allowed to buy securities directly from the U.S. Treasury.)
The Fed pays for those securities by crediting funds to the reserves that banks are required to hold, either cash in their vaults or deposits at a Reserve bank.
“So, in that sense, we can think of ‘printing money’ as adding reserves to the banking system,” said David Wheelock, vice president and deputy director of research.
I see context is something you struggle with regularly. I'm surprised a Senior Staff Engineer at Shopify has so much trouble with such a simple concept.
Yes, but a euphemism for what? Increase money supply without increasing the balance sheet of the Fed? Increase money supply by increasing the balance sheet of the Fed. These two might sound similar but they are worlds apart. One of them matches the physical process of printing money and the other one doesn't. Yet somehow in this HN submission "printing money" suddenly became a euphemism for both at the same time and the authors of the comments using the euphemism simply change the meaning to something convenient after the fact.
I'm trying to understand what the company stock performance has to do with the company performance. Sure, if the company is mismanaged and fails to operate the stock might become worthless and if the company is very successful and has piles of cash can buy stocks back at higher prices but besides that I am not under the impression that people are putting their money in stocks for the dividends.
Yes, if everybody thinks that good performance should increase the stock prices then the performance matters but this is a self-fulfilling prophecy.
Celebrity CEO smoking weed and being cool should be able to beat any technical indicator IMHO. A large number of people might simply act irrationally just to be a part of a movement.
Maybe the best thing Boeing can do for its the stock price is to install a really cool CEO who is good with memes, close down the factories and concentrate on the brand. Is there anything to compel them to produce planes?
> I am not under the impression that people are putting their money in stocks for the dividends.
The potential of future dividends, buybacks, or acquisitions differentiate stocks from sportsbetting
> self-fulfilling prophecy.
Celebrity CEO...
The exceptions prove the rule. You can and do get irrational stock prices. Not everyone can follow the musk model, and if they did, investors would be back to using the fundamentals to differentiate them. If Boeing really thought they could follow the musk model, they would, but I personally don’t think they are in a good position to do so.
Sometimes you can fake it until you make it, but most often you won’t.
Yes, Musk is the example here but I don’t think that it’s that hard to implement this, simply because there are many many cults out there that function in similar manner. Probably there is a formula for that.
Please don’t take this the wrong way, but I’m not sure what exactly your claim here is. Are you saying that nearly every company on the exchange is missing out on tens of billions of dollars by not implementing this formula you assume to exist?
The stock market is always looking forward. Things will be bad for a few months yet, but in 10 years this will be a memory. The market expects things to just fine again in 10 years and is willing to accept a few bad times on the way.
It dropped in March because of fear and uncertainty. We didn't guess how bad the impact of the virus would be and no one knew how much ink the Fed's printer has (turns out it's infinite!)
So...I've started to view the economy as a distributed voting algorithm where we decide what companies should exist and where people should spend their attention. If the fed is adding 6 trillion votes to the financial markets then won't that mean that we focus more of our attention on solving the problems of companies that either:
A) Are large enough to overcome the regulator hurdles to participate in financial markets.
B) Are explosively-growing enough to get VC funding.
C) Are underpriced enough to get private equity funding.
As a software engineer who's mostly worked for companies in category B, I guess I'm fine with this attention. But given what the pandemic is doing to small business, shouldn't society be preparing to devote more of its attention to companies solving problems like "I want some chicken & rice in Roxbury."?
> Can someone help me understand why the broader stock market is actually up compared to six months ago despite all these dire numbers being thrown around? Heck, Boeing stock is up today!
Dumb money is pouring in, and institutional investors are riding the dead cat bounce.
For Boeing specifically, it's because they fired thousands of workers to cut their costs. And to their credit, they're actually expecting a long slump. Many businesses are still deluding themselves.
Amazon is propping up the major stock market indices [0]. While Amazon's services and hiring are playing a role in stabilizing the economy, it can't do it alone and its outsized impact on stock indices is misleading as a general economic health indicator.
I heard an idea from "Economics Explained" that since the Fed is pumping money into the economy it is inflating stock prices, even though the CPI has gone down slightly. The intrinsic value of AAPL ~ $288 now is not the same as AAPL ~ $288 late December 2019.
Because the stock market going up or down is a proxy for changes in expectations about the future. If people are slightly less pessimistic than before, it will go up. Boeing being in dire straits is old news – it's all priced in, pretty much.
Besides, there are lots of news out there, including the fact that we're seeing stimulus that dwarfs even what was done during the '08-'09 crisis. Case in point, the top story at the WSJ website now is: https://www.wsj.com/articles/federal-reserve-interest-rates-...
Think of stock market swings as the second derivative of the actual information you're seeing.
Boeing has been in a bad spot since the MAX disasters. It was probably one of the first stocks to dump once COVID-19 hit, so it's not like a lot of people are being caught off-guard by this new development.
Not an economist, but I don't see how, given that I'm specifically mentioning people's expectations about the future, not just cold hard facts. Those expectations may or may not be rational, but they're still driven (in part) by news.
Almost nobody assumes absolutely perfect information; even Adam Smith was relying on approximations of actual behaviour. Most economics relies on the assumption that information is close enough to perfect that we can just assume away any difference.
Behavioural economics has proven unreliable, with results that are (at least) difficult to replicate, and non-predictive.
Sure, you can say behAvioral economics experiments are unreliable. But even if this field did not exist, assuming close to perfect information is simply naive in my opinion. Unless you account for insider trading, which the pessimist in me believes is rampant. In truth, none of us know, but I think it’s worthwhile to consider the alternative to what is taught in textbooks.
There exists a horrible misunderstanding on the efficient market hypothesis. Markets are difficult to beat not because they reflect all available information, but because they do not, and nobody knows by how much they misreflect the information tomorrow. (This is my personal pet theory)
Stock market is a predictive pricing mechanism. It prices assets based on future expected returns. News about the economy is history and hence it is already priced in.
In 2008 every day brought in bad news, with more and more banks failing, home being foreclosed, bad financial numbers, Congress trying to bailout .... which led to overall bad sentiment and the decline in stock market.
Right now, if I look at the new cycle what do I see: A city wants to open up, layoffs, a state wants to open up, stimulus money, people on the beach, layoffs, more stimulus money, GDP down, virus in works, 20% in NY may have been infected, Remdesivir is working....
So, is it a bad news or optimistic news? It's all mixed in. No one knows how to process medical side and financial side together. On top of that there is a lot of liquidity in the market. So, what happens, it ends up in the stock market thus inflating it.
I think there would be a massive whiplash once we start seeing higher unemployment numbers and the real impact of March-? shutdown and see a massive drop in the stock market.
>> a massive whiplash once we start seeing higher unemployment numbers
My bet is on this. A lot of people in the market and on main street are assuming that we'll be able to get up and running again quickly when we have better treatments and later a vaccine, i.e. there is nothing structural weighing down a return.
I'm not so optimistic because tourism and travel are huge markets with impacts on other markets. I also don't believe that the situation from 2018 until the pandemic was sustainable. Problems existed then, but were not exposed. There are leadership failures in different places, but it's hard to account for all of those across government and business right now.
> situation from 2018 until the pandemic was sustainable
Exactly. Many, most ?, were expecting a correction/recession even without any pandemic in 2019/2020. Now this massive shock is bound to shake everything up. I'm not going to use the D word but recession is a given.
"The market can stay irrational longer than you can stay solvent." - attrib. J.M. Keynes
Some of it is the common adage "Don't fight the Fed(eral Reserve Bank)." They are dumping what in any other time would be insane amounts of cash into the markets.
Then, there's hopium. Everyone hoping that there will be some quick way out.
This goes beyond just a few stocks like Amazon overweighting the averages - there are broad run-ups.
this does often happen in bear markets, where there's a first initial fall, then a rise, then the real crash to the ultimate lows.
We certainly have not yet seen the capitulation, evident of bear market bottoms, where the last holdouts finally throw in the towel and sell.
My thought experiment is to consider what would happen if it were magically fixed at midnight tonight. Six weeks ago, it probably would have returned to relatively solid footing. Now, I think significant permanent damage has been done. Six more weeks, likely more damage.
I'd love to see any other thoughts on how this thought experiment might play out
I think the truth is no one really knows what's happening, and won't until whatever "reality" is anymore finally hits. Don't buy into the HN "it's already priced in!" rants. I have a fair number of acquaintances in finance and plenty of 30 year industry vets, who are they type that aren't surprised or concerned about hardly anything, are absolutely scratching their heads right now.
The obvious problem right now is, supposing you're a 100% sure that things are going to get worse, where do you put your investments if you're a large firm? Sure if you're a HNer go ahead an buy some put options. Bond rates are extremely low right now so that wouldn't be a wise investment especially if stocks, rational or not, keep going up.
Even though everyone knows this will be bad, nobody knows how bad or exactly what it will look like. So it's very hard to price that. It's almost like we were in a terrible accident, and are still walking around like normal because of shock despite missing a limb.
There was a great Twitter thread[0] on this the other day. To summarize, value has shifted from the energy sector to online services and technology dramatically.
I read this as another step by Boeing to get rid of its unionized workforce in Washington in favor of plants in other states and in China. The market downturn provides a nice rationale for doing so.
With $BA stock at a lower valuation, the union should go to the capital markets to perform a leveraged buyout and take control of the company. Likely better management material in the ranks than at the top.
in Boeing's case, a lot of that backlog is 737 max...which comes off the lime and immediately goes into storage, which (I'm guessing) means no delivery hand off and no booked income.
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[ 4.2 ms ] story [ 108 ms ] threadWhile there's some ambiguity, nothing in the state-level lockdowns prevents travel in a meaningful way (it's just a jurisdictional thing). But no one is travelling anyway, because no one is willing to sit in an airplane right now.
And Boeing sees that, and knows the recovery will be slow no matter when the official "end" of the lockdowns arrives.
With the coronavirus this is a huge 1-2 blow to Boeing.
I wonder how much of their go forward business will be military contracts, as the their civilian aviation business seems to be dead for the next 3-5 years.
They can get the 737 Max recertified to fly, but I think the damage to the reputation is done, so they probably will need to release a brand new plane to be competitive. Not sure on the design to production timeline for an airplane, but that's where I assumed 3-5 years.
That is getting more and more dubious every day. Do you have a source which says this is doable? To recap, the 737 Max was not only fitted with the MCAS to save money but because it was relying on being grandfathered in to be able to be certified at all. So if they are forced to make so much change to the MCAS to require recertification they will fail doing so.
The whole business case for the Max was to fend off the A320neo, and if airlines were going to have to retrain pilots, that's one less reason for legacy customers to stay.
That said, I don't think a "new design" ontop of the 737 airframe exists. The whole point of the 737 Max and its failures is that the airframe was old so they tried to make a radical design change and handle the shortcomings in fly-by-wire software, but who on earth is going to trust Boeing with that now?
... yes, because if I travel to Canada, the first thing I want to do is be stuck in quarantine for two weeks. Are you serious?
If global demand for flights is down even 20% then this means that the global demand for new planes is close to zero.
I don't have any reference here because I have worked only in europe or asia, but is this a good offer? I don't think its a very good offer. Why will someone take this?
If you don't take it you run the very real risk of getting cut with nothing.
Unfortunate situation all around.
At $OLD_TECH_CORPORATION_MAKING_DATABASES, we received one week per year served after being forced out, plus an additional "free month" of pay as well.
Fortunately I am a Boeing shareholder at $139.xx per share, so any measure to cut costs and reduce bureaucracy is welcome in my book. What a world!
It might also get a few people who have personal reasons to leave, but headcount is lost with people who wouldn't stay so there is no loss.
When I worked there I had coworkers who were ready to retire but were hoping for one of these rounds so that they could get a little extra on the way out.
2 weeks per year of service is also a typical value.
Healthcare is often not included, which is a real shit sandwich for the ex-employee. Their options are COBRA (basically, pick up the full tab for coverage on their own dime - employer usually pays >50% of the cost of a policy). Or, buy a plan on the ACA marketplace. Or, do without.
My main point was that none of this is legally mandated at the federal level (though there may be state laws or union contracts at play depending on who is being let go).
I've also seen severance plans that are variations on...
(2 weeks pay) + (1 weeks pay * years service)
You could keep employee insurance. If everyone else has to sign up, you still get a diverse risk pool. Maybe not perfect but way better than what we have now.
Of course, if the company goes bankrupt, all bets are off. Or even if things get so dire that the company manages to claw back some benefits in the next negotiation. Seems unlikely though.
https://en.m.wikipedia.org/wiki/Pension_Benefit_Guaranty_Cor...
I've got this. So each month my company pays a percentage of my salary to my pension account with the bank our company has a deal with. The percentage is part of my employee contract.
This ensures my pension is still around if the company goes belly up, and my pension is protected as banks are required by law to buy insurance covering savings in case of bankruptcy.
[1]: https://www.nho.no/tema/pensjon-og-forsikring/artikler/tjene...
[2]: https://lovdata.no/lov/2000-11-24-81/§2-2
Generally, in the US buyouts are always better than layoff severance.
Boeing has factories in multiple states and in the US labor law and employment contracts vary based on state laws and labor union presence.
More to the point, their stock is up 8% today on this news, because short term, this quarter, will look better with reduced costs. Who cares about the quarter after that, where production will have to be impacted by reduced workforce.
You were being sarcastic but you're kind of right. In the same way that this quarter isn't the be all-end all, neither is next quarter. Over, say, a 10 year time horizon, the next couple quarters will just be a blip.
Plus, Boeing doesn't exist in a vacuum. The US Govt is going to let anything happen to them due to national security reasons and they've shown that they aren't willing to wipe out shareholders as part of a bailout.
Frankly I'd be much more worried about the culture that allowed the 787MAX to happen than I would be about short-term COVID-19 reductions.
There are runways and parking lots in Washington full of undelivered planes which are waiting on contractual disputes related to the quality assurance of the 737 MAX issues. A significant percentage of Boeing planes are currently undeliverable and post-pandemic world airlines are likely going to cancel / downsize contracts or at least spend significant legal fees to attempt to do so.
Barring a quick and easy vaccination or herd immunity that accidentally happens much faster than expected, travel is unlikely to recover this year and perhaps not next. Clearing their backlog of planes will likely take 4+ years unless the company can convince people and airlines to trust them again.
Or if countries close borders and don't reopen as much.
Or...
There are a lot more risks here than just draw-out pandemic.
In short, the bond holders would become the new shareholders, and the government would be able to drive it to the conclusion that the government wants. This is oversimplified, as reality has much more nuance than this.
That might actually be the best option going forward, as they could clean up a bunch of legacy crap and streamline the firm.
Plus, the government might want multiple companies ( e.g. commercial/defense/space ) instead of one monolith.
That definitely won't happen this year, perhaps ever.
Trump said today that states are responsible for procurement and development of virus tests, labs and processing material. Each state, on their own. If he's afraid of that responsibility, Boeing is going to be something he's never heard of.
And you believed?
Unless you're counting the crashes that won't happen because of the shutdown, of course.
Actually, I don't think it does:
https://www.lexico.com/en/definition/capitalism:
> An economic and political system in which a country's trade and industry are controlled by private owners for profit, rather than by the state.
A privately-owned monopoly that ruthlessly crushes all competition is just as capitalistic as a privately-owned competitor in a market with perfect competition. The key concept is private ownership and control, not competition. Competition is is only required if you want the resulting system to have some positive externalities for consumers and society at large.
That class sees competition is an unnecessary, and a profit-reducing problem[1] that can be routed around.
[1] See Thiel's monopoly essay.
Boeing is a big defense contractor:
https://www.fool.com/investing/2017/01/30/boeing-earnings-th...:
> In addition to being the world's biggest producer of commercial airplanes, Boeing is also one of the world's biggest defense businesses -- and this is key to understanding Boeing stock. Commercial Airplanes may provide 69% of Boeing's revenue, but according to data from S&P Global Market Intelligence, Commercial Airplanes contributes only 54% of the company's profits. The bulk of Boeing's remaining business comes from its big Defense, Space & Security division, which comprises three parts: Military Aircraft, Network & Space Systems, and Global Services & Support.
A nationalized Boeing could have different objectives, provide a strong set of working class jobs, and ensure we continue to produce planes here in the States.
Investors will feel the pain and demand a change of leadership (very badly needed after the 737 MAX debacle).
A bankruptcy that large will be shepherded by the government to prevent too many long-term job losses and to prevent the defense-sensitive projects/info from being owned by foreign companies.
The economy looked very rosy in October 2019 and NASDAQ was near 8300. Now it's 8900 even when millions are unemployed and even millions more furloughed.
Should the stock market simply be seen as an isolated, self-contained entity with no real correlation to the broader economy?
https://www.youtube.com/watch?v=ZCFkWDdmXG8
https://www.youtube.com/watch?v=0ECqDaPjjV0
Also: trillions in new spending causing asset inflation further lowering SPY below its price it would have if such spending happened without covid.
Third reason: SPY yields are still above treasury (risk free) yields... significantly.
The stock market reflects investor sentiment about the viability of of the entities traded. If there's a notion that a company will be worth more in the future and will either pay out a nice dividend or can be later sold at a profit, shares of that company will be in demand and the price will go up. If the company is expected to be losing money and not be worth much or paying out a nice dividend in the future, prices will be going down as everyone tries to sell shares and not be the last one holding something worthless.
If a company sheds a bunch of jobs, that can signal a number of things. One of the things it signals is that it has reduced its expenses. Reduced expenses means, all else equal, less chances of it running out of cash or hitting other kind of money problems, and thereby improves its chances of weathering the coming economic storm. If you thought that Boeing shedding a bunch of jobs meant that it had just secured it's ability to continue to exist and be more valuable once the coming recession/depression is over, would you not want to buy shares now to sell at a nice profit later?
Or if they are sure the FED will keep it from falling
I still think a recession is coming. It's just a matter of time now that the lockdowns are getting lifted without any real control over covid. There'll be a rise in new cases, slightly more stringent measures will come and go, other countries with proper recoveries will keep the US travel bans in place, etc. The market can't defy gravity forever.
It can, of course, defy gravity for long enough to lose you your shirt.
You're repeating a debunked myth https://www.stlouisfed.org/open-vault/2017/november/does-fed...
>One of the most common questions about the Federal Reserve is this: Does the Fed print money?
>There are really two ways to address this question. In terms of the actual, physical printing, no, the Fed doesn’t actually print or produce money in any form. Coins come from the U.S. Mint, and paper currency comes from the U.S. Treasury’s Bureau of Engraving and Printing. The Fed distributes currency after it’s printed.
>However, what many questioners might really be asking is whether the Fed has the ability to control how much money is in our economy. That’s a different story.
>The Fed adds to (or subtracts from) the amount of money in the economy by buying (or selling) U.S. Treasury securities and other financial instruments. This is referred to as “open market operations,” since these transactions take place in the open market. (The Fed isn’t allowed to buy securities directly from the U.S. Treasury.)
>The Fed pays for those securities by crediting funds to the reserves that banks are required to hold, either cash in their vaults or deposits at a Reserve bank.
>“So, in that sense, we can think of ‘printing money’ as adding reserves to the banking system,” said David Wheelock, vice president and deputy director of research.
The Fed adds to (or subtracts from) the amount of money in the economy by buying (or selling) U.S. Treasury securities and other financial instruments. This is referred to as “open market operations,” since these transactions take place in the open market. (The Fed isn’t allowed to buy securities directly from the U.S. Treasury.)
The Fed pays for those securities by crediting funds to the reserves that banks are required to hold, either cash in their vaults or deposits at a Reserve bank.
“So, in that sense, we can think of ‘printing money’ as adding reserves to the banking system,” said David Wheelock, vice president and deputy director of research.
The claim was that they "printed" money. They didn't!
Yes, if everybody thinks that good performance should increase the stock prices then the performance matters but this is a self-fulfilling prophecy.
Celebrity CEO smoking weed and being cool should be able to beat any technical indicator IMHO. A large number of people might simply act irrationally just to be a part of a movement.
Maybe the best thing Boeing can do for its the stock price is to install a really cool CEO who is good with memes, close down the factories and concentrate on the brand. Is there anything to compel them to produce planes?
The potential of future dividends, buybacks, or acquisitions differentiate stocks from sportsbetting
> self-fulfilling prophecy. Celebrity CEO...
The exceptions prove the rule. You can and do get irrational stock prices. Not everyone can follow the musk model, and if they did, investors would be back to using the fundamentals to differentiate them. If Boeing really thought they could follow the musk model, they would, but I personally don’t think they are in a good position to do so.
Sometimes you can fake it until you make it, but most often you won’t.
Not every company is on the Musk plan because there is limited pool of cult investors and his success is hard to recreate.
The reason that it's up now is because the Fed printed 6 trillion dollars, and is spending it at the financial markets.
Was the market in March also expecting a 20% death rate on top of that?
So...I've started to view the economy as a distributed voting algorithm where we decide what companies should exist and where people should spend their attention. If the fed is adding 6 trillion votes to the financial markets then won't that mean that we focus more of our attention on solving the problems of companies that either:
A) Are large enough to overcome the regulator hurdles to participate in financial markets.
B) Are explosively-growing enough to get VC funding.
C) Are underpriced enough to get private equity funding.
As a software engineer who's mostly worked for companies in category B, I guess I'm fine with this attention. But given what the pandemic is doing to small business, shouldn't society be preparing to devote more of its attention to companies solving problems like "I want some chicken & rice in Roxbury."?
Dumb money is pouring in, and institutional investors are riding the dead cat bounce.
For Boeing specifically, it's because they fired thousands of workers to cut their costs. And to their credit, they're actually expecting a long slump. Many businesses are still deluding themselves.
[0] https://www.tradingview.com/chart/SPX/JNwcmXqj-S-P-with-and-...
Besides, there are lots of news out there, including the fact that we're seeing stimulus that dwarfs even what was done during the '08-'09 crisis. Case in point, the top story at the WSJ website now is: https://www.wsj.com/articles/federal-reserve-interest-rates-...
Think of stock market swings as the second derivative of the actual information you're seeing.
Behavioural economics has proven unreliable, with results that are (at least) difficult to replicate, and non-predictive.
In 2008 every day brought in bad news, with more and more banks failing, home being foreclosed, bad financial numbers, Congress trying to bailout .... which led to overall bad sentiment and the decline in stock market.
Right now, if I look at the new cycle what do I see: A city wants to open up, layoffs, a state wants to open up, stimulus money, people on the beach, layoffs, more stimulus money, GDP down, virus in works, 20% in NY may have been infected, Remdesivir is working....
So, is it a bad news or optimistic news? It's all mixed in. No one knows how to process medical side and financial side together. On top of that there is a lot of liquidity in the market. So, what happens, it ends up in the stock market thus inflating it.
I think there would be a massive whiplash once we start seeing higher unemployment numbers and the real impact of March-? shutdown and see a massive drop in the stock market.
But who knows??
My bet is on this. A lot of people in the market and on main street are assuming that we'll be able to get up and running again quickly when we have better treatments and later a vaccine, i.e. there is nothing structural weighing down a return.
I'm not so optimistic because tourism and travel are huge markets with impacts on other markets. I also don't believe that the situation from 2018 until the pandemic was sustainable. Problems existed then, but were not exposed. There are leadership failures in different places, but it's hard to account for all of those across government and business right now.
Exactly. Many, most ?, were expecting a correction/recession even without any pandemic in 2019/2020. Now this massive shock is bound to shake everything up. I'm not going to use the D word but recession is a given.
Some of it is the common adage "Don't fight the Fed(eral Reserve Bank)." They are dumping what in any other time would be insane amounts of cash into the markets.
Then, there's hopium. Everyone hoping that there will be some quick way out.
This goes beyond just a few stocks like Amazon overweighting the averages - there are broad run-ups.
this does often happen in bear markets, where there's a first initial fall, then a rise, then the real crash to the ultimate lows.
We certainly have not yet seen the capitulation, evident of bear market bottoms, where the last holdouts finally throw in the towel and sell.
My thought experiment is to consider what would happen if it were magically fixed at midnight tonight. Six weeks ago, it probably would have returned to relatively solid footing. Now, I think significant permanent damage has been done. Six more weeks, likely more damage.
I'd love to see any other thoughts on how this thought experiment might play out
On a global scale GDP is actually negatively correlated with stock market performance.
The obvious problem right now is, supposing you're a 100% sure that things are going to get worse, where do you put your investments if you're a large firm? Sure if you're a HNer go ahead an buy some put options. Bond rates are extremely low right now so that wouldn't be a wise investment especially if stocks, rational or not, keep going up.
Even though everyone knows this will be bad, nobody knows how bad or exactly what it will look like. So it's very hard to price that. It's almost like we were in a terrible accident, and are still walking around like normal because of shock despite missing a limb.
[0]https://twitter.com/calvinfo/status/1254635755671969793