DIASTOLE ECONOMIC AND MARKET COMMENT
January 4, 2021

Happy New Year! I did not stay up late enough to see the Times-Square ball drop and squash the life out of 2020, but I happily imagined it.

And yet…. Markets finished the week and the year higher. Bitcoin hit a new record - despite the facts that no one knows who creates it, no one can quite trust who stores it, and if it all disappeared overnight, Warren Buffett would not be surprised. (Mr. Buffett has called it “rat poison squared” because its value is based on - nothing.)

Why do stocks continue to run higher when worldwide covid cases exceed 83 million (20 million in the U.S.), and covid deaths are more than 1.8 million (350,000 in the U.S.)?

The biggest reason may be central banks. In 12 developed countries, including the U.S., the central banks increased money supply by $14 trillion last year. That’s a lot of new money floating around, available to borrow at record low interest rates. It’s no wonder that Americans borrowed $722 billion against their stock portfolios through November - a record high.

The market rally is also drawing in new investors, who help to push stocks even higher. In 2020, ten million new brokerage accounts were opened - also a record.

And consumer spending has propelled the rally even during the crisis. As Bloomberg Opinion pointed out last month, “Because of social distancing, we went from doing things to having things.”

Initial jobless claims remain near 800,000 per week, while continuing jobless claims are over five million each week (maybe twice as many if you include the special pandemic relief funds).

Clearly the millions of unemployed are not the same millions who have decided that now is the time to invest in the stock market, but both groups are having a major impact on the economy - along with local quarantine rules, a weaker dollar (which makes imports cheaper for us), and the speed at which vaccines are being rolled out.

We need roughly 80% of Americans to be vaccinated in order to achieve herd immunity (scientists have been quietly raising this number lately). Can we achieve that before homelessness and hunger overtake our working classes?

Forbes now counts more than 2,000 people on its billionaires’ list, 25 of whom are worth more than 50 billion.  The 500 richest people combined are now worth $7.6 trillion. Jeff Bezos and Elon Musk are at the top of the heap. Have they made their fortunes legitimately? Yes. Have they had help? Also yes. Where would a delivery company and a car company be without the roads that we all pay to build, and the workers that we all pay to educate? You will remember that Bezos and Bill Gates live in Washington (no state taxes) and Musk is moving Tesla to Texas (no state taxes). Soon they will all move to Connecticut! (I jest, of course.)

For the week ending Thursday, December 31st, the Standard & Poor’s 500 finished at 3,756, the Dow Jones Industrials at 30,606, and the Nasdaq Composite Index at 12,888. The first two are record highs. The yield on the ten-year Treasury Note closed at 0.93%. U.S. crude oil cost $48.52 per barrel, N.Y. gold cost $1,893.10 per ounce, and one Euro was worth $1.2216.

Elizabeth E. Cook
Partner

News and information presented here was gathered from sources believed, but not guaranteed, to be accurate, including (but not limited to) Bloomberg, The Wall Street Journal, Barron’s, The New York Times, Yahoo Finance, Business Insider, CNN, CNBC, The Washington Post, Reuters, and The Associated Press. If you have questions, please call us at 203.458.5220 or reply to this email to reach me, Liz Cook. Email addresses for the rest of the Diastole team are on our website: www.dwinvest.com.

To end, a couple of hopeful stories:

First, the presidential election in November had the highest voter turnout (by percentage) of any election in more than a century.

And second, after years in which the final two months saw a stock market rally of 10% or more (like 2020) the S&P has been positive for the following year every time since World War II.
DIASTOLE ECONOMIC AND MARKET COMMENT
January 11, 2021

All three major equity indices reached new highs last week.

Markets clearly ignored a lot of bad news, but it was the kind of bad news that will cause the Federal Reserve to keep interest rates low, and encourage Congress to address new stimulus after it reconvenes in Democratic control. In other words, it was bad news is good news, again.

Interest rates rose last week, as bond prices dropped. Rates fell for over two years, and just recently turned slightly upward again. This is a cautionary sign for the markets, as equities have been enjoying record low interest rates for years, and borrowing significantly because of them. It is also a sign that U.S. deficits are starting to concern investors and that yields must rise in order to attract buyers to government bonds.

Lower interest rates have also been fueling home sales, and house prices rose in October by 7.9% year over year. With more people qualifying for mortgages, and more people bidding on houses, it is no wonder that house prices are up. House prices are 25% higher now than they were at the height of the housing bubble pre-Great Recession.

The dollar continues its decline, as international investors sell dollars. The recent political upheaval, which led to a violent uprising in Washington, D.C., is disturbing to other countries and their citizens. The dollar was already sliding because of the American mismanagement of the coronavirus pandemic. Currencies that benefit when the dollar falls are those that seem safer, like the Japanese Yen and the German Deutsche Mark. There are benefits to having a weak currency - mostly that our exports are cheaper and more attractive to foreign buyers.

Also rising are Covid-19 cases and deaths, opioid deaths, and job losses. For the month of December, private payrolls fell by 140,000. Those were all jobs lost by women. Men gained 16,000 jobs for the month. This was the first drop in payrolls since April. The unemployment rate was unchanged at 6.7%. New unemployment claims were 787,000 last week, a slight dip, while continuing claims were 5.1 million. (Continuing claim numbers do not include those receiving special Pandemic Unemployment Assistance.) At least four million Americans have been unemployed for more than six months.

Elon Musk has passed, well, everyone, to become the world’s richest person. His net worth is currently about $190 billion. Jeff Bezos, the richest person for the past three years, is now number two, with a net worth of about $187 billion. Musk’s 20% share of Tesla, as well as the stock option packages he receives whenever he hits a major milestone in stock price, are enriching him daily. Tesla is now the fifth largest company by market capitalization, having just surpassed $800 billion in value. Tesla has thus dethroned Facebook, and is overshadowed in size by only Alphabet (Google), Amazon, Microsoft, and Apple. It is worth more than the next three biggest automakers combined. But does it deserve to be?

The U.S. population is more than 330 million people, but our birth rate is now at its lowest level in 35 years. Some analysts say we are at an all-time low. A recent study by a Wellesley College economist shows that for every one percentage point increase in the unemployment rate, births fall by one percent. The only solution to a falling birth rate is rising immigration, since we need young workers paying into Social Security and Medicare to support retirees. The U.S. is still the number one destination for immigrants, and the World Bank predicts that by 2050 there will be 143 million additional climate migrants in the world.

For the week ending January 8th, the Standard & Poor’s 500 closed at 3,824, the Dow Jones Industrials at 31,097, and the Nasdaq Composite Index at 13,201. The yield on the ten-year Treasury Note was higher at 1.13%. U.S. crude oil was also higher at $52.24 per barrel, while N.Y. gold cost $1,834.10 per ounce. One Euro was worth $1.2220, and one Bitcoin was worth $40, 675.80. Bitcoin is down significantly today.

Elizabeth E. Cook
Partner

News and information presented here was gathered from sources believed, but not guaranteed, to be reliable, including (but not limited to) The Wall Street Journal, The New York Times, The Washington Post, Barron’s, Business Insider, Yahoo Finance, CNN, CNBC, Bloomberg, Reuters, and The Associated Press. If you have any questions, please call us at 203.458.5220 or reply to this email to reach me, Liz Cook.

Apologies for the lack of jokes this week, but things are serious. In fact, Covid-19 has become the fifth deadliest U.S. catastrophe, after the 1918 pandemic, heart disease, cancer, and World War II. We are now seeing more Covid deaths each day than the deaths that resulted from the 9/11 attacks.
DIASTOLE ECONOMIC AND MARKET COMMENT - CORRECTION
January 12, 2021

Yesterday I referred to the relative safety of the German Deutsche Mark. Of course, it's not so safe anymore, since it's been replaced by the Euro. A typical example of my overreaching to make a point. Sorry for the error! I remain a dummkopf.

See you next week,
Liz Cook
DIASTOLE ECONOMIC AND MARKET COMMENT
January 19, 2021

Two weeks ago, the Capitol building was stormed by anti-democratic-vote insurgents. Last week, the President was impeached for fomenting an insurrection. Tomorrow, a new administration will be sworn in. “May you live in interesting times.”

Markets were down slightly last week, based on a combination of weakening economic data (jobless claims higher, retail sales lower), flaws in the vaccine roll-out, and the threat of political violence.

And meanwhile, Covid. By the time you read this, 400,000 Americans, and two million people globally, will have died from the coronavirus. Americans are roughly 4-5% of the world’s population, but 20% of the Covid deaths. Compare this to the 1918 influenza (675,000 Americans dead, and 50 million worldwide) in which Americans accounted for 1.3% of total deaths.

As the pandemic continues, enthusiasm for a quick end via the vaccine is waning. People are still locked at home, or working in precarious conditions, while hospitals fill with others who celebrated the December holidays outside their bubbles. In Connecticut, even people who are in the 1a group (come on down!) are waiting weeks for their first-shot appointments. Although 1b is technically open, it is rolling out slowly. And Connecticut is considered a model in vaccine delivery.

President-elect Biden unveiled his $1.9 trillion coronavirus plan last week. It includes $1,400 payments to most households (which, when added to the $600 already approved last month, will total $2,000). There will also be additional unemployment benefits, aid to states, and $160 billion for vaccine programs.

The opposition to this plan is complaining of too much government spending, and the resultant rise in the federal deficit. Interestingly, Treasury-Secretary-to-be Janet Yellen, who was opposed to big government spending before Donald Trump became president, is now in favor of “extraordinary fiscal support”. Of course, times are quite different these days, with desperate citizens out of work and out of benefits. Even with an eviction moratorium, the rent due continues to pile up.

Of course, the deficit is rising. The deficit for the month of December hit a record $144 billion. Revenues were higher by 3%, but spending grew by 40%. The monthly deficit for December 2019 (pre-pandemic) was $13 billion. And when our deficit (and debt) grows, so does our need to fund it by selling government bonds to investors. Our treasury auctions grow larger in size the more debt we need to offset. As we’ve been saying for awhile, interest rates will have to rise to attract more investors - and now they are. The yield on the ten-year Note reached 1.11% last week, up from 0.54% in March.

With the vaccine-rollout problems, quarantine stocks like Zoom, Amazon, Peloton, etc., are still profiting from pandemic conditions, while the hospitality industry, including restaurants, hotels, and theaters, is still suffering.

Let’s talk about bitcoin. It has risen in value by about 1,000% since the beginning of 2019, and recently has been trading right around $40,000 per bitcoin. At the end of 2015 it was worth about $327. The group of analysts, bankers, and normal people who say bitcoin is in a bubble now is growing. Bitcoin has no inherent value, is not backed by a sovereign government, and is “mined” by computers, using up huge amounts of electricity in order to solve difficult problems using blockchain technology. It was created by the mysterious Satoshi Nakamoto (presumably a pseudonym) - maybe in his basement. And while he is a billionaire now, we continue to hear stories about bitcoin investors who lose whole fortunes because of hackers or forgotten passwords. If you think it is worth owning, you must also remember the children’s game of hot potato. You don’t want to be the one holding the potato when the music stops.

From potatoes to hot dogs - Oscar Mayer is currently hiring drivers for its Wienermobile for the next year. A team of drivers (called Hotdoggers) will drive across the country in the 27-foot hot-dog-shaped vehicle, stopping at 200 or more events. The original Wienermobile was created in 1936 by Carl Mayer himself. These days four of them are cross-crossing the country. A college degree is required.

For the week ending January 15th, the Standard & Poor’s 500 finished at 3,768, the Dow Jones Industrials at 30,814, and the Nasdaq Composite Index at 12,998. The yield on the ten-year Treasury Note closed higher at 1.11%. U.S. crude oil cost $52.36 per barrel, N.Y. gold cost $1,829.30 per ounce, and one Euro was worth $1.2080.

Elizabeth E. Cook
Partner

News and information presented here was gathered from sources believed, but not guaranteed, to be reliable, including (but not limited to) Barron’s, The Wall Street Journal, The New York Times, The Washington Post, USA Today, Business Insider, Bloomberg, CNBC, CNN, The Economist, Reuters, and The Associated Press. If you have questions, please call us at 203.458.5220, or reply to this email to reach me, Liz Cook.

Frustrated by, well, everything? You might want to call Just Scream!, a hotline that lets you share your screams. As it says on the Just Scream website: step one, call 1-561-567-8431; step two, wait for the beep and scream. Creator Chris Gollmar is an elementary school teacher who likes to work on participatory art projects. The website will be open to new screams until Thursday, but you’ll be able to listen to the screams on the website even after that.
DIASTOLE ECONOMIC AND MARKET COMMENT
January 25, 2021

Markets hit record highs last week. It hardly counts as news anymore, since it happens so frequently. The good news pushing stocks was the emphasis on new stimulus proposed by the Biden Administration.  Stocks love stimulus! The rally last week was once again led by big tech, which is benefitting from the unfortunate upsurge in Covid-19 cases and deaths in the U.S. When the virus seemed conquerable, we saw a switch in market leadership back to manufacturing stocks, but with the recent bad news (new more virulent and more transmissible strains are already here), pandemic stocks are back in front. The New York Times is suggesting that covid precautions should continue through summer, as herd immunity won’t be reached until 75-85% of Americans are vaccinated.

So - stimulus good, coronavirus bad.

But it’s not that simple. The Work From Home (WFH) situation has encouraged people to leave cities (where they rent apartments) to the suburbs where they can buy homes. Single-family home prices are higher than they’ve been since 2006. And so is the level of new single-family homes being built. A lot of that is also due to low mortgage rates. However, there are two sides to everything. My contractor (I’m hoping to get a garage built this year) just told me that the price of plywood has doubled since the beginning of the pandemic.

At the same time, the number of people who are still taking forbearance on their mortgage loans has leveled off. For several months it was improving, but now it’s stuck again. And the level of weekly new unemployment claims is stagnant around 900,000. December was the worst month for net job losses since April.

And stimulus money, unfortunately, is money we need to spend but don’t have. So we borrow it. As of the end of 2020, total U.S. government debt was more than 100% of gross domestic product (GDP). Increased borrowing is causing interest rates to rise slightly. The Federal Reserve will no doubt do all it can to keep rates low for the foreseeable future, but market forces also apply.

It’s been one year since we heard the first inkling about the coronavirus in China, and had our first death in the U.S. Since then, foreign business investment in the U.S. has fallen by 49%, while it rose by 4% in China. China thus overtakes America as the primary recipient of foreign investment in the world.

You may not have been lucky enough to win last week’s super lotteries (PowerBall at $730 million and MegaMillions at $1 billion) but maybe you can count your blessings anyway. Lottery winners are more likely to go bankrupt within 3-5 years of their win than people who didn’t win. The problem is lack of financial literacy. Winners spend their principle, invest in risky startups, and trust their friends to repay them. But as Jim Cramer recently pointed out, the biggest risk to large portfolios is inflation.

Cramer advised putting 5% into bitcoin. That’s not exactly risk-averse, but it is considered an inflation-hedge by some. Bitcoin has fallen recently from its record high of $41,000 to around $34,000. That was due in large part to Janet Yellen testifying that bitcoin and other cryptocurrencies should be more carefully overseen (read: regulated). Yellen is rightly concerned that cryptocurrencies are being used by criminals of all kinds so that their transactions are untraceable. Law-abiding citizens don’t need untraceable currencies.

If you’re worried about markets at these levels, talk to your financial advisor and look at your allocations. Raising some cash might help you sleep better at night.

For the week ending January 22nd, the Standard & Poor’s 500 finished at 3,841, the Dow Jones Industrial Average at 30,996, and the Nasdaq Composite Index at 13,543. The yield on the ten-year Treasury Note closed at 1.10%. U.S. crude oil cost $52.27 per barrel, N.Y. gold cost $1,855.70 per ounce, and one Euro was worth $1.2175.

Elizabeth E. Cook
Partner

News and information presented here was gathered from sources believed, but not guaranteed, to be reliable, including (but not limited to) CNBC, Reuters, The Associated Press, The Wall Street Journal, Business Insider, The New York Times, The Washington Post, USA Today, Barron’s, Bloomberg, CNN, and The Economist. If you have questions, please call us at 203.458.5220 or reply to this email to reach me, Liz Cook

We all know that electric cars and hybrids are the future of automobiles. But you may not know that cobalt is needed to make the batteries for these cars. The car batteries account for about 40% of the cost of an electric vehicle. Cobalt is mined in the Democratic Republic of the Congo, and China controls the majority of the Congo’s output of cobalt. This year alone, the cost of cobalt is higher by 20% (currently $18/lb.), although off the high of $43/lb. reached in 2018. Because the economics don’t work well for anyone other than China, U.S. manufacturers believe they can make a cobalt-free battery within a couple of years, and efforts to recycle cobalt are also picking up. But what about artists? Cobalt blue, while highly toxic, is a stable and gorgeous pigment, and substitutes will not do!