Hey Snackers,
Some young people are booking cheap coronavirus flights to live out their jet-setting dreams: it's the "here for a good time, not a long time" philosophy. We advise against it.
After an epic 11-year bull market, we're back in bear market territory — the Dow just closed 20% below its most recent high (set in Feb). We're not in an economic recession yet, but the "b-word" is buzzing. More below.
Bear market puts the "b-word" on everyone's lips: bailouts
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 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.
Pepsi buys Rockstar for almost $4B — it's all about the "functional bevs"
"I might even be a Rockstar"... Hannah Montana said it best, but Pepsi's feeling it — it just bought Rockstar Energy for $3.85B. Russ Weiner founded the canned energy company in '01 (his mom was CFO). Pepsi has distributed Rockstar since '09, but that deal meant it couldn't launch a Mountain Dew-branded energy rival — now that it's acquired Rockstar, its energy ambitions are unlimited. The rest of Big Bev is shifting from sugary sodas too for these reasons...
- Health: Tea, coffee, kombucha, coconut water, and other lower-cal and more natural bevs have skyrocketed in demand.
- Energy: Energy drinks and coffee-flavored anything are increasingly splurgeable commodities (because we're all exhausted).
Or combine the 2 for a winning strategy... For years, Big Bev lagged in the exploding health/energy sector. Lately, it has been upping its "functional drink" game:
- ABInbev's Bud literally launched a hard green tea and hard coconut water brand... this week
- KeurigDrPepper launched "healthy" energy drink Adrenaline Shoc.
- Coke owns a 19% stake in Monster, then eventually launched its own energy drink competitor (Coke Energy) despite Monster's complaints.
Big Bev needs "functional bev"... Something providing more than just sugar/alcohol. With the Rockstar acquisition, Pepsi immediately gets the #3 spot in energy drinks (after Monster and Red Bull). It can also go big on its Mountain Dew line and do energy in-house. Sodas aren't far from energy drinks (caffeine, sugar, unpronounceable chemicals) — maybe Big Bev just has to throw in vitamins, more caffeine, and more extreme names (Coke Energy is the epitome).
What else we’re Snackin’
- Corona: President Trump bans all flights coming from Europe for 30 days, the NBA suspends its season, and Chicago's stock exchange won't open tomorrow
- First: Airport convenience store retailer OTG (Cibo Express, anyone?) will be one of the first to adopt Amazon's cashierless and brilliantly named "Just Walk Out" tech
- Sus: Chinese-owned TikTok will open a 'Transparency Center' (great name) to reassure people that it's not doing anything fishy/authoritarian at all
- Polynesian: Chick-Fil-A dips into retail — the chicken legend will sell its famous sauces at all Target and Walmart stores in Florida
- Musky: Tesla CEO Elon Musk says the new cybertruck gigafactory will be located in the "central USA"
Thursday
- The Weekly Jobless Claims Report
- Earnings expected from Adobe, Oracle, Dollar General, DocuSign, Ulta Beauty, Slack, and Gap
Disclosure: Authors of this Snacks own shares of Amazon and Carnival and options of Peloton.
ID: 1117325