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Doubt cast on International Travel in 2020
Aside from getting in a twitter feud with Axl Rose of Guns ‘n Roses fame, Treasury Secretary Steve Mnuchin made waves a couple of days ago when he was on Maria Bartiromo of Fox Business. The breadth of the interview, which you can watch below, ranged from detailing the PPP and International Travel to Boeing’s miraculous debt issuance. If you’re unfamiliar with the PPP, it’s the Payment Protection Plan that Congress approved on a bipartisan basis to provide small business loans that were de facto grants if 75% of the loan was allocated to wages. This was the bulk of the discussion, but around the 6:03 marker the conversation pivots to International Travel and then segues into Boeing. Both are fascinating.
“Too hard to tell at this point”
This was Mnuchin’s response when Maria directly asked him “Do you think International Travel will be opened up this year.” While throwing shade on the expectation of regular international travel, he did say that travel options for business would be available on a limited basis, but he did not hint at anything positive in terms of international leisure travel being folded back onto the 2020 schedule.
He doubled down on domestic centric policy urging people “it’s a great time for people to explore America.” This certainly doesn’t bode well for hotel and airlines trying to get back to business as usual. At the end of April, air traffic dropped 95% year over year.
This doesn’t really surprise me, nor would it surprise me to see the European Union keep its borders closed through September, or even year end.
Boeing
Mnuchin was also asked about Boeing’s successful $25B debt issuance. This is an interesting thing here folks, and I’ll tell you my thoughts. But…here’s a little insight into the story
Boeing had crazy problems with the 737 Max, a major scandal that, personally, I don’t think we’ve heard the last of when it comes to lawsuits, etc. I mean in Feb they were fighting another scandal regarding debris being found in their fueltanks. But that’s neither here nor there, but does to point to the fact that their problems started pre-Covid.
Cash troubles started to brew in early March when Boeing drew down its entire revolving credit facility. A whopping $13.8B – which really pointed to how bad they thought it was going to get.
Then…the virus hit hard, the market dropped, Boeing’s stock plummeted and they wanted a government bailout. Mnuchin publicly stated that the only way Boeing was getting uncle Sam’s money was via a warrant style deal that would granted the Fed the option to convert any government investment into stock. Boeing pushed back.
Then…Trump said Boeing couldn’t fail AND a big thing happened that allowed Boeing to get this loan: The Fed announced that they would buy ETFs and CLOs
What did this do? It juiced the bond market and opened up the flood gates of banks willing to participate in loans/bond issuance, like the one Boeing received, because the Fed has said they would effectively be buying up those very debt instruments in the ETF/ CLO market. Mnuchin talks about this when he mentions primary and secondary bond markets.
That meant that banks could effectively front run the market. So, to a certain degree, the government could have bailed out Boeing without having to bail out Boeing because the very $25B that was issued could likely get packaged into a CLO or ETF and the government will buy it when it actually starts buying. Yeah, they haven’t bought any yet – just the announcement that they would buy was enough to get banks to lend because they knew in the worst case scenario they wouldn’t be left holding bad debt. You and I will hold that debt if it fails….Sounds like how lending should be done right?
Not only would the US taxpayer end up owning a large tranche of Boeing’s debt, but the banks all made their fees too.
Mnuchin touts this as a great Boeing success story since they didn’t need to tap any government support. Are we supposed to believe that Boeing could have tapped the debt market had the Fed not said they were basically going to backstop bonds?
All of these sleight of hand techniques are exactly how the system is designed to work. Head nod that Fed purchases are coming so banks can hurry up and grease the system because they know if all goes belly up, the Fed will be the buyer of last resort. It’s so damn complicated that the laymen has absolutely no idea how they’re getting screwed, they just know they can’t sleep well and they’re walking funny.
Opinions, reviews, analyses & recommendations are the author’s alone, and have not been reviewed, endorsed or approved by any of these entities.
Chase Sapphire Preferred® Card
Welcome Offer
Earn 60,000 bonus points after you spend $4,000 on purchases in the first 3 months from account opening.
Annual Fee
$95
Points Earned
Transferrable Chase Ultimate Rewards
- 5x on all travel purchased through Chase Travel℠
- 3x on dining, including eligible delivery services for takeout & dining out
- 3x on select streaming services
- 3x on online grocery purchases
- (excluding Target, Walmart and wholesale clubs)
- $50 Annual Chase Travel Hotel Credit via Chase Travel℠
- The begins immediately for new cardmembers and after your account anniversary for existing cardmembers
- 2x on all other travel
- 10% Anniversary Bonus
- Every year you keep the card, your total spend will yield a 10% points bonus. If you spend $10k in a year, you’ll get 1k bonus points
- Chase Sapphire Preferred continues to redeem at 1.25c in the Chase Travel℠ and the slew of other benefits remain in tact including Auto Rental Collision Damage Waiver ( primary ), purchase protections, etc.
- Points are transferrable to 14 Ultimate Rewards partners
- Redeem in Chase Travel℠ for 1.25 cents per point
- No foreign transaction fees
- Suite of Travel and Purchase Coverage
- Auto Rental Collision Damage Waiver is my favorite
- Get complimentary access to DashPass which unlocks $0 delivery fees and lower service fees for a minimum of one year when you activate by December 31, 2027.
- $95 Annual Fee
We keep an up to date spreadsheet that lists the best ever offers: You can find that spreadsheet here.
Historically 80k is a very, very good offer and hit in both 2022 and 2023. In 2021, we saw the offer hit an all time high of 100k. Who knows if that will ever come back.
Main Cast:
Cards that earn flexible points and should be used on the bulk of your purchases.
Supporting Cast:
Cards that earn fixed points in the currency of the airline/hotel and can not be transferred at attractive rates. These cards yield benefits that make it worth keeping, but not necessarily worth putting a lot of your everyday spend on.
The Chase Sapphire Preferred® is exceptional starter card and offers transferrable Ultimate Rewards, and pairs well with other Chase cards.
If you carry this card alongside Chase’s cashback cards like the Chase Freedom Flex® and Chase Freedom Unlimited® or the business versions: Ink Business Cash® , Ink Business Unlimited® you can combine the points into Preferred account and transfer into hotel and airline partners
Annual fee is quite low at $95 a year + you get a 10% anniversary bonus on points + $50 hotel credit in Chase travel.
The responses below are not provided or commissioned by the bank advertiser. Responses have not been reviewed, approved, or otherwise endorsed by the bank advertiser. It is not the bank advertiser's responsibility to ensure all posts and/or questions are answered.