Congress Hard at Work Amid Coronavirus Shutdowns

It is eerily quiet today on Capitol Hill. With each passing day there are fewer and fewer reporters and staffers present. Press galleries that typically are overflowing with reporters by 10 am are almost vacant. I’d say only 5% to 10% of the normal number of reporters are here.

Senate Republicans and the administration are busy crafting the “phase three” coronavirus bill. While phases one and two focused primarily (though not exclusively) on health care matters, the third bill will focus on economic stimulus. What that will look like is tough to say. Senate Republicans are taking the lead on this one, as opposed to phase two, which House Dems and Treasury Secretary Steve Mnuchin crafted. Senate Majority Leader Mitch McConnell (R-KY) has shut out Democrats during this process, saying that is the most efficient way to get a bill done. That may end up biting him later, as Senate Minority Leader Chuck Schumer (D-NY) definitely has some ideas on what he wants included. Continue reading “Congress Hard at Work Amid Coronavirus Shutdowns”

Internet Networks Are Being Tested By a Surge of Traffic

A massive work-from-home experiment is now underway because of the threat of the coronavirus.

“Traffic towards video conferencing, streaming services and news, e-commerce websites has surged,” says Louis Poinsignon of Cloudflare, a San Francisco-based web infrastructure company, in a March 17 blog post. “We’ve seen growth in traffic from residential broadband networks, and a slowing of traffic from businesses and universities.”

That includes my new work-from-home routine, which is like that of many other Americans. Yesterday I joined a video conference, made an internet phone call, watched online video, surfed the web and sent scores of emails and other messages. My wife also used our network to do an array of similar tasks.

Travel bans, restrictions on public gatherings, business closures and quarantines are keeping more and more people at their homes 24/7. That means more video streaming, gaming and social media posting during all hours of the day. After Italy’s lockdown, the country saw its daily traffic soar 20% to 40%, according to Cloudflare.

The prolonged surge of web traffic around the clock is perhaps unprecedented for home broadband networks, which usually see traffic spike during evening hours when folks get home from work and scroll through Instagram or stream Netflix.

Internet providers are assuring customers that their networks can handle the higher-than-usual demands. Verizon recently said in a statement that they “stand ready for increases in data traffic” and highlighted an increase in network investment this year. T-Mobile got special approval from the Federal Communications Commission to tap additional airwaves to boost wireless capacity, though that bandwidth only works on newer smartphones. Other providers have issued similar notes of confidence.

Wireless and wired networks should be fine under the new traffic demands, says Roger Entner, the founder and lead analyst of Recon Analytics. “The networks are designed around busy hours at night” or whenever people are watching Netflix, Entner says. During the day, that capacity is still there. “Video is really the driver for data consumption” and video services can be downgraded in quality if there’s congestion. Plus, a lot of at-home office work doesn’t require streaming HD or 4K video.

The challenge could come with videoconferencing software or other online tools, says Entner. “The bottleneck comes together on Zoom or WebEx.” The root cause is not the internet providers themselves, but rather how the different online tools have set up their content delivery systems. But even then, it might only mean a video meeting sees downgraded video quality. Or perhaps workers have to switch to audio, which uses a sliver of the bandwidth that HD video does.

Expect some major online tools to roll out small changes to keep services running smoothly. Microsoft 365, the online suite of tools that includes email, spreadsheets and video meetings, told users it may change video resolution; the frequency with which it checks that a user is there; and how quickly it shows another party is typing a message. The update is to “accommodate new growth and demand during unprecedented times.” That minimizes some background data usage that Microsoft doesn’t absolutely need, says Entner.

The critical importance of consumer internet and cellular service at this time puts a magnifying glass on any hiccups in service. Expect regulators and lawmakers to watch service reliability and resilience closely. Telemedicine and 911 are especially critical.

“The Internet was built to cope with an ever changing environment,” Cloudflare’s Poinsignon notes. “In fact, it was literally created, tested, debugged and designed to deal with changing load patterns.”

To monitor your internet speeds, visit Speedtest.net or Fast.com. You’ll find out your download and upload speeds, plus the latency.

The End of a Brutal Week for the Oil Market

Investors may heave a sigh of relief when this wild week finally comes to a close. Yesterday, the Dow Jones Industrial average plunged 10%, its biggest one-day percentage loss since 1987. Oil traders might not be impressed, given that West Texas Intermediate crude futures fell roughly 25% on Monday alone, with additional big drops over the course of the week.

It’s amazing to think that, just two months ago, WTI was trading at about $63 per barrel. It fell into the $50s as the coronavirus starting to crimp oil demand in China; the $40s when the disease started hampering travel in other countries; and the $30s after OPEC and Russia failed to agree on an oil production cut, which led Saudi Arabia to announce that it was going to flood the market with cheap crude. Russia, unfazed, announced that its economy could withstand years of low prices. The Saudis then threatened additional production hikes.

So how much more pain can oil producers expect? It’s not often that I get a chance to quote the Fourth Century chronicler Bishop Ambrose of Milan, but this occasion feels apt. Writing about the plague of barbarian invaders who were in the process of bringing about the end of the Roman Empire, the Bishop wrote: “The Huns fell upon the Alans, the Alans upon the Goths and Taifali, the Goths and Taifali upon the Romans, and this is not yet the end.”

“This is not yet the end” is how I see the situation for the beleaguered oil market. WTI currently trades near $32 per barrel. Maybe that’s the bottom, but do you really think the worst of the coronavirus health scare is over? Or that the economic impacts have been fully felt yet? I wouldn’t bet on it.

After all, WTI traded as low as $26 per barrel in 2016, a time when there was no global pandemic and no looming recession, and no oil price war between Russia and Saudi Arabia.

Whatever happens next with oil prices is largely in the hands of Russian President Vladimir Putin and Saudi Crown Prince Mohammed bin Salman, the Kingdom’s de facto ruler, says Stephen Schork, editor of the Schork Report energy investing newsletter. He believes Russia refused to cut output because of U.S. sanctions imposed on its oil industry last year, which ate into the country’s share of the global oil market while U.S. producers filled the gap. Perhaps Russia decided that it had nothing to gain from further production cuts that would only boost oil prices for its rivals in Texas and North Dakota. And then perhaps the Saudi crown prince mistakenly believed he could bully Moscow into cooperating anyway, a miscalculation that led to the present price war.

How negotiations between the Saudis and the Russians play out from here is anybody’s guess. But what’s certain is that oil demand is going to continue to suffer as the coronavirus limits air travel and disrupts freight shipping. In the U.S. alone, jet fuel consumption is down 5% so far this year compared with the same period a year ago, according to Energy Department data. Meanwhile, U.S. oil output remains near a record high, and the next two biggest producers, Russia and Saudi Arabia, are vowing production hikes.

Another certainty: Drivers in the U.S. are going to be paying less at the pump. The national average price of regular unleaded stands at $2.30 per gallon according to AAA. That’s off 13 cents from a month ago. Later this spring, the national average is likely to slip below $2: A nice savings for all the folks taking road trips instead of flying.

Coronavirus Crisis Hits the Capitol

The coronavirus crisis has absolutely dominated discussion and action in Congress this week. Lawmakers typically have a one-track mind, focusing solely on one major issue at a time before zooming on to the next. But Capitol Hill’s laser-focus on the coronavirus this week has been at a different level, as barely anything else was discussed by lawmakers and the press corps. Other issues in the past 15 or so years have come close to the sense of urgency felt at the Capitol, such as the impeachment trial of President Trump earlier this year, the confirmation hearing of Supreme Court Justice Brett Kavanaugh in 2018, the government shutdown in 2013 and various Obamacare debates. But those didn’t have the immediate life-or-death component that the coronavirus does. Only Congress’ response to the financial crisis in the fall of 2008 can compare.

That’s not to say there’s a sense of panic on Capitol Hill. There isn’t – at least not yet. But the urgency of the situation seems to have sobered up lawmakers a bit. They know this is one issue they can’t botch, though there are no guarantees they won’t botch it. But they understand there are no do-overs this time. Continue reading “Coronavirus Crisis Hits the Capitol”

Congress Goes Slow on Coronavirus Response

An economic stimulus program from Congress definitely won’t be ready for a few weeks, despite hopes in financial markets for some sort of government aid to cushion the blow of the worsening coronavirus pandemic. Congress is on recess next week. And they haven’t even started to draft a stimulus package, as there are so many moving parts and Republicans still haven’t gotten clear marching orders from the White House. Continue reading “Congress Goes Slow on Coronavirus Response”

Oil Prices Collapse on Coronavirus, Saudi Production Plans

Is it too soon to dub today Black Monday for oil markets? Crude prices are crashing on the news that Saudi Arabia plans to cut the price of oil it exports and boost its production after Russia refused to coordinate with OPEC on a production cut. Given the decline in oil demand caused by the coronavirus (more on that below), a production cut would seem appropriate. Instead, Saudi Arabia is openly threatening to flood the market. The result has been one of the worst single-day price drops in history.

As I type, benchmark West Texas Intermediate crude is down about 17% on the day, near $34 per barrel. As recently as early January, WTI traded at $63. Since then, the combination of coronavirus-related travel disruptions and the Saudi-Russia price war has absolutely hammered crude. And it’s entirely possible that the worst is yet to come.

We don’t yet know how much extra production the Saudis will provide, or if Russia will cry uncle and agree to production cuts. So there is certain to be tremendous volatility in prices in coming days. But the economic fundamentals for the oil market look bleak. The International Energy Agency is now projecting a drop in worldwide oil consumption this year, something that hasn’t happened since the dark days of the Great Recession in 2009. That forecast, issued today, marks a sharp turnaround from just one month ago, when the IEA was predicting a modest increase in global demand.

I’ll be back soon with additional analysis and forecasts on this fast-moving situation. But I’ll repeat what I wrote a week ago, when WTI was rallying on talk of an OPEC production cut and an anticipated move by the Federal Reserve to slash interest rates: “I think it’s too soon to sound the all-clear for the oil market.” (At the time, my warning that prices could drop to $40 seemed grim. Now it sounds almost quaint.)

WTI fell as low as $26 per barrel in 2016 because of an earlier supply glut. And back then, there was no global pandemic hampering travel. So a price in the mid-$20s now doesn’t strike me as far-fetched. Even if things don’t get that bad, the oil industry is in for serious pain. And drivers can expect gasoline prices, which were already declining, to drop sharply in the next few days.

 

How the T-Mobile/Sprint Merger Changes the Wireless Landscape

Key forecasts:

  • T-Mobile/Sprint will take the lead in nationwide 5G
  • Expect stiff price competition, but only in the near term
  • Deals on new 5G business offerings will be plentiful
  • Availability of 5G home internet service will proliferate
  • Dish will struggle to build a fourth wireless giant from scratch

Now that the T-Mobile and Sprint deal has cleared its final legal hurdle, Verizon and AT&T are about to face a much bigger foe. The merged company will create a cellular powerhouse with more than 100 million wireless subscribers, making it the second-largest nationwide carrier, behind Verizon. For years, T-Mobile rapidly gained customers by dropping prices and cultivating a rebellious brand, though those price cuts have levelled off in the past year or so. Meanwhile, Sprint has struggled financially, and the merger bails it out of its decline. Continue reading “How the T-Mobile/Sprint Merger Changes the Wireless Landscape”

Congress Confronts Coronavirus, Wrestles With Domestic Surveillance

Few things can bring hyperpartisan Capitol Hill together, but a potential pandemic is definitely one of them. Lawmakers yesterday responded with surprising speed – at least for them – and reached consensus on an $8.3 billion emergency coronavirus funding package. The House approved the bill with an overwhelming 415-2 vote, with the Senate easily passing the measure by a tally of 96-1. The package includes money for state and local health agencies, vaccine and treatment development, and loans for affected small businesses. The funding total is more than triple the amount initially requested by President Trump, who will sign the bill as soon as it reaches his deck.

The eventual cost of combating the virus likely will be higher, as the last thing lawmakers want is for constituents to accuse them of not doing everything possible to keep the public safe. Continue reading “Congress Confronts Coronavirus, Wrestles With Domestic Surveillance”

Can Oil Keep Rallying After Last Week’s Plunge?

Is the worst over for the oil market? Last week, crude oil prices plummeted in tandem with the stock market on fears of the spreading coronavirus outbreak. After trading near $53 per barrel in mid-February, benchmark West Texas Intermediate dropped as low as $43 last week as virus cases multiplied around the world. Talk of travel bans, canceled conferences and consumers too scared to fly prompted traders to sell crude futures at seemingly any price. But WTI rebounded at the end of the week and has shot higher to start this week. It recently traded near $47 per barrel on hopes that OPEC and Russia will support prices by significantly cutting their production.

A big production cut would help balance the market. And the Federal Reserve’s decision today to cut its benchmark interest rate by half a percentage point could also buoy oil prices. Meanwhile, civil war in Libya is crimping that country’s exports, and energy companies are drilling fewer new wells in the U.S.

But despite all those developments, I think it’s too soon to sound the all-clear for the oil market. After talking with economists and commodities analysts in recent days, the impression I’ve gotten is that no one knows how much of an economic impact the coronavirus is going to have. China’s oil-guzzling economy has clearly taken a huge hit, but the damage outside of China is still an unknown. Cases are popping up in the U.S., but it’s not yet a full-blown epidemic.

Beyond the actual public health impact, we also don’t yet know how severe the public’s psychological reaction may be. Will workers stay home from their jobs if an outbreak occurs in their city? Will consumers shy away from malls and restaurants if they fear getting infected?

Maybe all of this will blow over soon. Maybe any coronavirus cases in the U.S. will end up no worse than the typical seasonal flu. Maybe consumers and companies will mostly go about their business as usual.

But you have to be a pretty staunch optimist to invest according to that scenario. Financial markets were clearly unprepared for the widening scale of the virus, which lead to last week’s dizzying drop when it became apparent that coronavirus would not be confined to China. Now, economists are cutting their forecasts for global economic growth this year. (My colleagues at The Kiplinger Letter think that global GDP growth could be cut in half and that a worst-case virus scenario could tip the U.S. economy into recession.) Weaker economic activity means weaker global demand for oil, and historically, OPEC has not always been able to agree on big oil output cuts to balance drops in demand.

One market forecaster I check in with regularly, Stephen Schork of the energy investing newsletter The Schork Report, mentioned $41 per barrel as a likely floor for oil prices if the coronavirus threat worsens. That would represent more than a 10% drop from where prices are right now.

I expect significant volatility to dominate the market in the coming days, with plenty of sharp moves up and down depending on the headlines of the day. It’s easy to imagine WTI rallying back to $50, or sinking close to $40.

For consumers, the upshot of all this turbulence will probably be cheaper gas prices, at least in the short term. The national average price of regular unleaded is down to $2.42 per gallon, according to travel website AAA. A week ago it was $2.47. Given that it it’ll take a few more days for last week’s plunge in oil prices to filter through to the retail level, I expect gas prices to dip at least a few more cents in coming days. Diesel prices are down too as global freight shipping suffers.

So wait a bit to fill up your gas tank if you can. And be cautious if you’re eyeing any oil-related stocks to buy.