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– Mark Twain
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A few weeks ago, The Wall Street Journal reported that Southwest Airlines was potentially looking to ink a new deal with Airbus, ending a 50-year relationship with Boeing.
Following the grounding of a large portion of their fleet and many partner companies deciding to move away from Boeing altogether, this news was yet another huge hit to the Boeing Company this year. On Monday morning, in what was a massive turn of events, Southwest announced they had signed an impressive deal to receive a whole new fleet of 737 Max 7 airplanes. Southwest has long followed a cost leadership strategy and the fleet-wide move to the smaller 737 Max 7 models is yet another step towards increased efficiency in training, maintenance, and consistent pricing.
This is the largest purchase Boeing has received since November, when U.S. regulators lifted the 20-month flight ban imposed on Boeing aircraft in 2019. The order consisted of 349 MAX 7 firm orders and an additional 270 Max 7 options from 2021 through 2031.
On top of Southwest’s current order, United Airlines announced they would purchase 25 additional 737 MAX jets and Ryanair has agreed to buy 75 new 737 MAX jets.
Stan Deal, Boeing’s CEO who was appointed in 2019 to navigate the company’s way out of the 737 crisis, has surpassed all expectations of how quickly (or if at all) Boeing would return to the forefront of major commercial airline suppliers.
Looking ahead, we predict continued growth for Boeing. With COVID-19 vaccine administration picking up pace, commercial air travel is rapidly approaching pre-pandemic levels. We will continue to see other airlines push for new plane purchases as travel demand continues to grow – especially after many airlines had portions of their fleets grounded and un-serviced for months.
Here’s what happened:
When a single entity (like Archegos) owns a substantial amount of stock in a single company, the SEC requires that entity to adhere to strict reporting and disclosure guidelines. To avoid these requirements, Hwang chose to buy and sell a type of derivative called Total Return Swaps (or, equity swaps).
Now, because of the very low disclosure requirements for entities owning the Swaps, the investment banks that partner in these deals are unaware of the other holdings of the firm.
Hwang, through Archegos, was leveraged over $30 billion in Total Return Swap holdings of eight blue chip companies. The fund only had $10 billion under management.
So, when one of the companies in which Archegos held a huge position, ViacomCBS, rapidly began to tank last week – the partner banks began issuing Margin Calls. And Archegos was unable to pay.
All of these major investment banks now needed to sell off other Swap positions that they held with Archegos to cover the huge losses the banks were taking on as Viacom fell and Hwang faulted on the payments.
The liquidation event resulted in over $33 billion worth of assets being sold off and an estimated $10 billion in losses for the partnered investment banks. All because one man, who plead guilty to insider trading and wire fraud charges back in 2014, chose to risk more than triple what he could lose.
Microsoft has been contracted to provide more than 120,000 of their HoloLens augmented reality headsets to the training and mission preparedness units of the US Army.
The announcement resulted in Microsoft’s share price increasing by 1.7% by the end of the trading day this past Wednesday.
This deal comes less than two years after a $10.5B contract between Microsoft and the Pentagon for a new cloud computing software.
What this means for the future of $MSFT…
While tech sector stocks tend to pull back in times of economic downturn, defense companies are usually considered safe long-term investments, even in times of economic uncertainty. So should a market correction or revenue decline occur that would negatively impact Microsoft’s share price, this recent induction into the ranks of defense contractor may act as a solid mitigator of any substantial loss of value.
Overall, we did incur some losses but also some wins.
The S&P500 hit a new all-time high of $4,020.63, indicators are pointing at more upside to come.