Stimulus Package Providing Aid to Airlines
In the new stimulus bill it is now allowed to the Federal Reserve to buy corporate bonds with the lowest ratings. These policies can potentially expose the Federal Reserve to potential risks as these are assets and companies that many other banks would not invest in. They believe that this system will allow them to be able to save several small business that may not be able to qualify for standard loan options.
The nation continues to take on more debt while interest rates still continue remain small. Per a phone conversation on Bloomberg with James Bullard, St. Louis Fed President talked about the specific rules in place that allow for the fed to be able to take necessary action to be able to create new funding policies and adjust the debt ratios in America by making adjustments to lending policies and procedures.
The kind of bill that was recently passed is a historic bill that is reshaping the infrastructure of how our nation conducts business. Being on top of the event and monitoring how companies are receiving and using the money is a priority for the Federal Reserve.
$58 Billion to Airlines
Airlines with the aid of the Stimulus package recently passed by congress will open the doors to allow them to apply and receive a massive total of $58 Billion of available funds. With $29 billion being in the form of grants and the other $29 in the form of loans. In addition it includes a reprieve from paying three of their largest excise taxes that are included in their operations which are the Prices of the ticket, fuel tax and cargo tax.
The bill has some strict policies in certain behaviors that the company must adhere to if they choose to accept the funds. The airlines that choose to accept funding will not be able to buyback any stocks from the market, there will be limitations that will be placed on executive compensation as well. Half of the funds accepted must go towards the continuation of payment for employees wages, salaries and benefits. The other portion of the of funds would go towards passenger airlines and service companies that support the industry as a whole such as airports.
Certain aspects of the bills were not included such as demanding commitments to cutting emissions for the company, this would have been a significant movement towards adjusting the system and practices used by airlines in day to day operations to enhance the quality of the world overall. Cheering that the bill will be saving hundreds of thousands of jobs, the Association of Flight Attendants -CWA celebrated the passing of the bill as they see its application for aiding struggling professionals around the world.
The Future for Airlines Ahead
The markets has a nice rally last week as hopes for the stimulus bill were high and many businesses saw optimism in the funds that theses companies would be eligible to receive. We ended off the market last week slightly down from our lows although still up for the week as a whole. Part of this reason was due to the time lag that the market would still experience until significant improvements are made.
The root cause of these economic conditions are due to the global pandemic occurring. Its important that we do not forget that the prices of oil have been affected due to COVID-19. It is important to remember that airlines are being hit the hardest as travelling is band due to the airborne virus being easily spread inside of pressurized cabins due to the ventilation systems on board.
With the root cause of the economic downfall being the Coronavirus we need to see some improvement with the conditions of the pandemic before we can see the market fully regain strength towards recovering from these outbreak.
Once airlines receive their funds that will be used to sustain the wages of Americans around the nation. Although if the travel bans are still in place and airlines are still not flying due to virus exposure around the world than paying the employees will not solve the economy immediately. Those employees have bills to pay and homes to support. That is currently the main focus and priority and not using any stimulus funds to go out and travel more.
Airlines have high operating and fixed cost that come with having large fleet and operations facilities. Unless those aircraft start flying again receiving grants and loans will just slow down the sinking. With the market being incredible messy with various elements and variable in play many are staying in the shadows and hiding and protecting their assets in the time of fear.
The S&P 500 Index has been dramatically moving since the 3rd week of February when we first saw the market start the turn downwards towards the bearish momentum. From the start of the curve downwards many investors were looking to find more buy opportunities only to find continuing dropping of prices.
The Trend is your Friend
Many long term investors understand that trading against the trend of a company is a recipe that creates greater exposure to risk and loss moving forward. Currently we can clearly see that the market has been in a downtrend for the majority of the month. Many retail investors switched their perspective on the market from a bullish one to a bearish one over the last few weeks as we consecutively made lower lows and lower highs.
Now as we start the enter a sideways trending pattern identifying the range of this zone is going to be key to determining where the breakout of trend will occur. Now that we have completed a major push down and met some sort of resistance in where price sits, we need to look to see how the next few weeks play out.
With unemployment rates at highs many Americans will need to return to work before we can see stock prices start to regain health. For stock prices to regain health the world will need to regain health and confidence. For that to happen we will all need to continue to practice our physical distancing and remain at home to reduce exposure and contact with other individuals for the time being.
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