The Market Bull – January 21, 2020
Between Trump’s impeachment trial, the latest deadly flu virus from China rapidly spanning the globe and a restart of North Korea’s nuclear and missile programs it would seem that there is plenty of stuff to worry about going around. With recession calls multiplying along with dire market predictions as a result one would be forgiven for thinking the sky is falling. That said while there are always things to worry about and keep a close watch on. At this time, I view a recession in the next 6-months as highly unlikely absent some sort of unforeseen exogenous shock.
Boeing’s 737 Max nightmare goes from bad to worse after the company looks to borrow an additional 10 billion to solve its cash flow problems following plunging order shipments related to the 737 Max fiasco. Aside from the now well documented engineering, managerial and corporate culture debacle that led to 2, 737 Max crashes and nearly 350 fatalities. Boeing is well on its way to becoming the poster child of how not to run a company as instead of investing 43 billion in new design and engineering work to remain competitive as the global leader in aircraft production like it should have. It instead squandered 43 billion over the last 6-years on share buybacks.
Short sighted doesn’t even begin to describe this as no company will remain competitive for long if it doesn’t invest in itself, something the current fiasco illustrates in spades. No wonder the CEO was fired. Worse the company now has a negative net worth and is looking to line up an additional 10 billion Dollar loan on top of the 9.5 billion credit line it took in October of 2019 to paper over its cash flow problems as aircraft orders and deliveries plunged in the wake of the crisis. This story also serves to illustrate the dark side of share buybacks. While they enrich the company’s executives in the short run and cover up declining earnings and revenues. It doesn’t take long for the company to literally cut its own throat as it loses its competitive advantage through a lack of research, development and other forms of capital investment, critical to the company’s long-term success. With no end currently in sight to this self-inflicted debacle and Boeing falling further and further behind its competition as its negative net worth goes ever deeper into the red, one wonders just what the ultimate outcome will be.
Standard and Poors 500 Index closed at: 3,320.79 down 8.83
NASDAQ finished the day: 9,370.81 down 18.14
Gold ended trading at: $1,556.50 down $1.40