DIASTOLE ECONOMIC AND MARKET COMMENT
March 11, 2019
Markets were down to flattish last week based on a bunch of news. It was announced that Chinese exports fell by 20% in February, feeding worries about slowing global growth. Likewise the declaration by the European Central Bank that it would not raise rates this year. The February jobs report was disappointing, but still positive, and crude oil prices slid in anticipation of a global slowdown (and the resulting lower demand for oil). By contrast, January’s housing starts (which, as the name implies, indicates how many new houses were begun) were strongly higher, and wage gains grew by a higher-than-expected 3.4% (annualized).
We learned last week that the U.S. trade deficit rose by 12.5% in 2018. In general, a trade deficit (more imports than exports) implies that our economy is strong, and that people can afford imported goods. And even though our domestic economy is no longer based on manufacturing, exports of goods and services increased, just not as much as imports.
The federal government deficit (spending minus income) for the first three months of fiscal 2019 (aka the last three months of calendar 2018) rose by 77% over the same period in 2018. The deficit hit $310 billion, implying an annual deficit of at least $1.2 trillion. During the period, tax revenues dropped by 2% while spending increased by 9%. Increased deficit spending will lead to more borrowing, which will ultimately send interest rates higher.
The bull market turned ten on March 6th. Ten years ago, the S&P 500 sank briefly to 666 (insert your own Satan joke here). Since then, $30 trillion has been created in the stock market and the Standard & Poor’s 500 has grown by 300%.
The Federal Reserve Board’s Quantitative Easing program was also launched in March of 2009, startling the markets out of their struggle and beginning the current bull market. The Fed ended QE in October of 2014.
Some of the best stock performers since that day ten years ago include Ulta Beauty, which is up over 9,000%, Exact Sciences (maker of Cologuard tests) which is up over 11,000%, and Sleep Number (maker of beds!) which is higher by almost 23,000%. And even though those results are spectacular, you would have been foolish to put all of your money into any of them at that time. Why? Because it could so easily have turned out to be a loser. Instead of Ulta, you might have chosen Avon, which has lost 85% in the past ten years. And instead of Nexstar Broadcasting (up 25,600%) you might have chosen Frontier Communications, down 97%. It’s all about asset-allocation!
The U.S. is about to become the world’s leader in exporting energy for the first time ever, surpassing Saudi Arabia and Russia. How is this possible? Shale oil and natural gas! Thanks to new drilling techniques (we mean you, fracking) the U.S. has doubled oil production over the past ten years. And if you, like I, worry that the whole country is going to sink as all of the oil is pumped out, remember that in fracking, the oil is drawn out as water is pumped in. Boy, I guess the price of water is going to go crazy!
Have you been to a Blockbuster lately? Neither has anyone else, it turns out. The last Blockbuster store on earth is located in Bend, Oregon, and says it does a brisk business, especially in older movies that the streaming services don’t carry. Of course, it says that. But do you even have a DVD player? Nope.
In the past few days, Elon Musk has gotten into trouble with the SEC for (again) tweeting market-related and misleading info. And he also declared that Tesla would close its physical stores. But then landlords objected and today the decision was (mostly) rescinded, and a price increase of 3% was imposed on Tesla automobiles instead. Tesla employees say company morale is bad.
Last week also marked International Women’s Day on the 8th. In celebration, Adidas has announced that it will match women’s World Cup bonuses to the bonuses men receive. The Economist published its glass-ceiling index, which reveals which countries treat their women equal to men at work. Sweden is number one, while the U.S. is number twenty. The research indicates that the worldwide pay gap remains stuck at 14%, while women hold only 32% of management jobs. Meanwhile, a World Bank report gave six nations perfect scores for achieving gender equality under the law. Sweden and France were top five on both lists.
And finally, if you wanted this job, it’s now too late. Over 100 people have applied to become Sri Lanka’s new hangman. The President of Sri Lanka plans to reinstitute hangings for drug dealers - and 20 current convicts could be in line for this punishment. The prior official hangman quit his job, citing stress, despite the fact that he was never called on to perform his duties. Funny/not funny.
For the week ending March 8th, the S&P 500 finished at 2,743, the Dow Jones Industrials at 25,450, and the Nasdaq Composite Index at 7,408. The yield on the ten-year Treasury Note was lower at 2.63%. U.S. crude oil cost $56.07 per barrel, N.Y. gold cost $1,297.00 per ounce, and one Euro was worth $1.1230.
I am writing to you today from the exclusive Barbie suite at the Hilton Mexico City. (No, I am not, but I wish I were.) The news is the same here, but everything is pink, so it seems better.
Elizabeth E. Cook
News and information presented here was gathered from sources believed, but not guaranteed, to be reliable, including The Economist, Bloomberg, The New York Times, The Wall Street Journal, Barron’s, Business Insider, CNBC, and the Associated Press. If you have questions, please call us at 203.458.5220 or reply to this email. Also, if you receive two copies of this Comment in your inbox today, it is because Nancy is off (Happy Birthday, Nancy!) and I am doing the upload and probably screwing it up. Things will be better next week!