DIASTOLE ECONOMIC AND MARKET COMMENT
February 8, 2021

There were two different jobs numbers last week. The first one told us that 779,000 people filed for new unemployment claims during the prior week. This was slightly less than in recent weeks, but still way above the pre-pandemic high. The second one told us that 49,000 net new jobs had been created in ALL OF JANUARY. Analysts had not been expecting many, but this number still fell short. The unemployment rate fell from 6.7% to 6.3% - not on the strength of new hiring, but because people are falling out of the jobs market.

And because of these disappointing jobs numbers, the markets rose to new highs. Huh? It’s another case of the “bad news equals good news" phenomenon. In other words, with such disappointing employment figures, the need for the entire $1.9 trillion Covid stimulus bill that is being proposed by the Biden Administration becomes more obvious, and passage of the bill becomes more likely.

Janet Yellen, the new Treasury Secretary, has just said that if the whole stimulus bill passes, we are likely to return to full employment within a year. I hope that’s true. But unsaid is the obvious point that we will not return to full employment until we have the Covid-19 pandemic under control, and right now, new variations of the virus are confounding efforts to fight it.

In South Africa, authorities are discontinuing use of the Astra-Zeneca vaccine, because it doesn’t work well against the South African variation. There are also variations from the United Kingdom and Brazil, and scientists are racing to learn if current vaccines will prove effective against them.

The Johnson & Johnson one-shot vaccine, which just received emergency approval for use in the United States, has proven most efficacious against severe cases of Covid, and less useful for mild cases. That is better than the alternative. If we can vaccinate enough people that we reduce the number of hospitalizations and deaths, we will be making real progress in the fight against Covid.

But when will we all be vaccinated? My niece, a social worker, has received two doses. My neighbor, who is 87, will receive her second shot this week. I think I’m on the schedule for sometime in June. Hopefully of this year. Nothing can go back to normal until we’re halfway from third to home.

Last week we talked about trading in GameStop through online platform Robinhood. GameStop is down to $59 per share, after reaching a recent height of $347. Serious, long-term investors are now looking for the “next” GameStop, assuming that they will have the perspicacity to know when to buy and when to sell. It is reported that teenagers are now taking their money to Robinhood, thinking that they’ll benefit from the next bubble. When the fear of missing out (FOMO) trumps a healthy skepticism about stock prices, usually we are near a market top. (Institutional investors watch market data, and if the market is being moved by individuals, they take note and take profits. Historically, individual investors are late to bull markets.)

But there are factors that could continue the current stock rally (everything is up! everything is at a record! Amazon will soon own everything!), like the passage of the stimulus bill mentioned earlier, good news on the results of current vaccines against new strains of Covid, new vaccines coming to market, and continued low interest rates that make stocks more attractive than bonds.

Other things are also happening today. Italy has asked Mario Draghi, former President of the European Central Bank, to form a government and serve as Prime Minister. This is a big step forward for Italy, which sometimes selects a corrupt nitwit as Prime Minister.

Oil prices are higher, based on recovering demand and prior production cuts. Supply and demand in action!

Richard Branson, of Virgin-Galactic fame (Virgin-everything fame) has formed a SPAC (special purpose acquisition company) to buy 23 and Me. A SPAC is designed to complete a corporate purchase and then go public with an initial public offering (IPO), or, if no company is acquired, the investors receive their money back. But each SPAC is slightly different, so ?

In Elon Musk news, Tesla just bought $1.5 billion worth of bitcoin, and has announced that bitcoin will be accepted for Tesla automobile purchases in the near future. At SpaceX, the announcement that civilians would be accepted for SpaceX rocket missions was overshadowed by the weekend’s unmanned SpaceX rocket crash landing. Still, Elon Musk is now the richest guy in the world (we don’t count Vladimir Putin, because who knows…), so, a pretty good week for him.

For the week ending February 5th, the Standard & Poor’s 500 closed at 3,886, the Dow Jones Industrials at 31,148, and the Nasdaq Composite Index at 13,856. The yield on the ten-year Treasury Note finished at 1.19%. U.S. crude oil cost $56.85 per barrel, N.Y. gold cost $1,810.90 per ounce, and one Euro was worth $1.2050.

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 New York Times, The Wall Street Journal, Business Insider, Bloomberg, Yahoo Finance, CNBC, CNN, Barron’s, 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. Email addresses for other Diastole team members are on our website.

So the groundhog saw his shadow last week, and we’ve had nothing but snow since then. I guess he was right? It turns out that Punxsutawney Phil has a 50% track record for predicting the end of winter. Maybe he throws little furry dice while he’s in his Groundhog Ground Hole? And maybe I should challenge him for his strenuous one-day-a-year job? I can throw dice, too!
DIASTOLE ECONOMIC AND MARKET COMMENT
February 16, 2021

Happy Year of the Ox, and happy Mardi Gras! Laissez le bon temps rouler! Unless you live in the half of the country where snow and ice are causing power outages, sub-freezing temperatures, and massive car accidents. Nothing happy about that. Stay warm, Texas.

One year ago on Fat Tuesday there were just 16 known cases of Covid-19 in the U.S. But scientists from Scripps Research Institute have traced nearly 50,000 cases back to one super-spreader individual who attended Mardi Gras festivities. Wear your mask!

The second impeachment trial of former President Trump ended on Saturday with a majority, but not a 2/3 majority, of Senators voting to convict DJT of incitement of insurrection. So acquittal it is. But now markets are turning to what’s next, which is President Biden’s $1.9 trillion Covid relief legislation, called the American Rescue Plan. With extra unemployment payments due to expire in March, and with drafting of the new legislation due to take three weeks or so, there is no time to waste.

Investors are looking forward to the stimulus, which they hope will carry our economy through the coming months when most(?) people will receive their vaccinations. The major equity indices all reached record highs on Friday, as active cases and deaths from Covid are falling. Perhaps we’re doing better because winter is a good time to stay home and isolate. Perhaps because we’ve gotten over the hump created by holiday socializing. Perhaps because doctors are identifying more effective treatments for patients who develop symptoms. In any case, good news is good news.

Oil prices, which have been rising of late due to optimism about the future opening of our society, were supercharged over the weekend due to the horrible winter storm that hit Texas particularly hard. It’s not just that demand spiked because of the cold, but also that oil wells have to be shut down during freezing temperatures because the water that is pumped alongside the oil will freeze and break oil-rig equipment. The spot price of electricity on the Texas power grid rose more than 10,000% yesterday, as 3.8 million households in Texas still had no power.

And speaking of price spikes, let’s talk Bitcoin. On Sunday, Bitcoin briefly reached $50,000 apiece, before settling down slightly to near $49,000. On last week’s episode, we learned that Tesla had purchased a LOT of Bitcoin for its own portfolio. Speculation was that Elon Musk wanted to catch Bitcoin short-sellers in a squeeze (he hates short-sellers), or that he was trying to distract from news about his compensation (he’s super rich) or about China’s questioning of Tesla’s safety record.

Bitcoin acts as a currency, but is backed by nothing. Until August 15, 1971 the U.S. was on the gold standard, meaning that our currency was backed by actual gold. Since then, our currency has fluctuated in value based on market forces. But that doesn’t mean that Bitcoin and dollars are the same. U.S. currency is backed by our government, which has every reason in the world to make sure that trust in our money is absolute. We forget, but our money is really an IOU, passed from hand to hand in exchange for goods and services. Bitcoin, by contrast, is backed by no authority. However, the fact that Tesla is willing to accept Bitcoin in return for automobiles gives Bitcoin a new aura of legitimacy. Of course it remains to be seen how many Bitcoins it will take to buy a Tesla.

Interestingly, Tesla’s new Bitcoin position will not help Tesla’s bottom line. For accounting purposes, Bitcoin is an intangible asset - not cash or an equivalent. That means that a Bitcoin owner must write down the value of her Bitcoin if it falls in price, but cannot write UP the price unless the Bitcoin is sold.

For the week ending on February 12th, the Standard & Poor’s 500 finished at 3,934, the Dow Jones Industrials at 31,458, and the Nasdaq Composite Index at 14,095. The yield on the ten-year Treasury Note closed at 1.20%. U.S. crude cost $59.47 per barrel, N.Y. gold cost $1,821.60 per ounce, and one Euro was worth $1.2120.

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) USA Today, The Wall Street Journal, The New York Times, Business Insider, Bloomberg, Yahoo Finance, CNN, and CNBC. If you have questions, please call us at 203.458.5220, or reply to this email to reach me, Liz Cook.

Remember when the drive to the airport was less worrisome than the flight itself? No more! United Airlines just announced that it will spend one billion dollars to acquire 200 flying taxis from Archer, a California company that is developing electric air taxis. Archer is about to go public through a SPAC (special purpose acquisition company) which values Archer’s IPO at around $3.8 billion. Consumer flights to airports on the air taxis are expected to begin in 2024. Oh, I hope they’re self-driving, too!
DIASTOLE ECONOMIC AND MARKET COMMENT
February 22, 2021

Initial jobless claims came in higher than expected last week, 861,000 versus 773,000 expected, plus an upwardly revised 848,000 for the prior week. Continuing claims were also higher than anticipated. In the bad-news-is-good-news department, these figures are putting pressure on the government to get another stimulus/relief bill passed. And investors hope that the stimulus will sustain our economy until we can vaccinate enough people to reach some sort of normalcy in society.

But big spending has a price, and while the Federal Reserve has been hoping to reach 2% inflation, some are worried that we will get there and keep going. With oil rigs and processing shut down in Texas due to the storm, the price of oil is rising. West Texas Intermediate crude oil is selling roughly 17% above prices we saw a year ago. Bond yields are also climbing, as investors sell bonds to buy into the roaring stock markets. 

Investment gurus are a dime a dozen, which may be why half of them currently think we are headed for a major correction, based on a rotation into small-capitalization stocks and the participation of newcomers in the markets; while the other half is predicting a major boom as cases of Covid-19, and related deaths, are slowing down and we all plan to get back in our RVs and movie theaters soon. Make sure your asset allocation is in place to protect you in case of either outcome.

In Texas, its citizens continue to try to recover from the winter storm that swept across the nation and left Texans without power and water. The power has largely been restored, but about 10 million Texans remain without water. The governor says that 3.5 million bottles of water have been distributed, but if you do the math, you know that it’s not nearly enough.  And, customers who had been paying market rates for their unregulated electricity are now receiving monumental bills as electric prices have spiked. It is likely that Texas will now join the nation’s energy grids, which will allow it to sell excess energy and (more importantly in today’s crisis) buy extra energy when it can’t make enough. Are the failures in Texas due more to market factors or government mismanagement? It depends on your point of view.

Meanwhile in Colorado, a United Airlines Boeing 777 began dropping engine parts as it departed from the Denver Airport and one engine caught fire. After a mayday call, the plane returned to Denver and landed safely, but Boeing has now agreed that many of its 777 aircraft should be grounded until their engines can be inspected. I forget now whether Boeing is the Wells Fargo of aircraft manufacturers, or Wells Fargo is the Boeing of banks.

And speaking of banks, the story of the week may be Citigroup’s mistaken payment of $900 million to Revlon’s creditors when only $8 million was due. A judge (who is bound to be overturned eventually) has recently ruled that the creditors may keep the excess payments, which were not due to be paid for two more years. Oh, and the money came from Citigroup’s own purse, instead of from Revlon which actually owed the money. I may have made mistakes at work before, but at least I am not THAT guy!

For the week ending February 19th, the Standard & Poor’s 500 closed at 3,906, the Dow Jones Industrials at 31,494, and the Nasdaq Composite Index at 13,874. The yield on the ten-year Treasury Note finished at 1.34%. U.S. crude oil cost $59.24 per barrel, N.Y. gold cost $1,775.80 per ounce, and one Euro was worth $1.2120.

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 New York Times, The Wall Street Journal, Barron’s, The Economist, Bloomberg, Yahoo Finance, USA Today, Business Insider, CNN, and CNBC. If you have questions, please call us at 203.458.5220, or reply to this email to reach me, Liz Cook.

Market forces are endlessly fascinating (to me!). So it’s interesting to note that Americans pulled $182 billion out of their houses last year as they refinanced, taking advantage of a housing-price boom and low interest rates. But there is no free lunch. Housing prices have risen so far that many potential purchasers are being priced out. New-built houses are facing materials costs that have doubled in the last year. U.S. lumber prices are up 47% just in the past three weeks.
DIASTOLE ECONOMIC AND MARKET COMMENT
March 1, 2021

Last week Federal Reserve Chairman Jerome Powell testified to Congress and basically said, “Nothing to see here. Move along.” He reiterated the Fed’s commitment to support the economy with low interest rates until we have the pandemic under some sort of control and people back to work.

Nonetheless, worriers began to worry about rising interest rates and inflation. We are not currently in an inflationary environment, but deficit spending can lead to inflation and there is no question but that we are deficit spenders. Last week’s Fed auction of five- and ten-year Treasury Notes met with lackluster demand, which caused prices to fall and rates to rise on those Notes in order to sell them. So, the fear of higher rates led to higher rates.

And what happens to stocks when rates are rising? Well, at the end of last week, the yield on the ten-year Note reached about 1.6% - more or less the same as the dividend yield on the overall Standard & Poor’s 500 Index. If you’re looking for income, which would you rather own? The Treasuries are safer. So money moved that way, causing stock prices to fall, and bond prices to rise, which caused bond yields to fall. So, today, the yield on the ten-year no longer matches the dividend yield of the S&P. (Bond prices and their yields move in opposite directions - when one goes up, the other goes down.)

Another thing rising lately is oil prices, which are up 70% since the presidential election. At first, prices rose based on optimism over the Biden Administration’s prioritizing of vaccine rollout and the subsequent expected opening of our economy. But lately, prices have been rising because of the disruption of Texas oil production and refining due to the recent devastating storm. As wells come back online, we may see oil prices fall, but the market is still factoring in a return to normalcy (Summer? Fall?) and the ensuing return to our cars and our malls.

A recent analysis of the Texas energy markets revealed that, contrary to expectations, Texans paid $28 billion more for electricity over the past 20 years of deregulation than they would have under neighboring states’ regulated prices. So not only was their grid unweatherized, but it also cost them more.

First-time unemployment claims fell last week by over 100,000 to 730,000. This is still above pre-pandemic high levels, but definitely a move in the right direction. Meanwhile, those receiving ongoing Pandemic Assistance (generally because they are ineligible for unemployment, or because their eligibility has expired) remains around 19 million, versus 2.1 million one year ago.

January retail sales bounced back up (10.8% year over year), thanks mostly to stimulus checks that were approved in December. Consumer spending overall rose by 2.4% over the previous January, as an estimated 88% of consumers who received stimulus checks spent them immediately. Household income was also 10% higher.  But mortgage applications fell by 11% as housing prices continued to rise beyond the reach of housing purchasers.

The House of Representatives has approved President Biden’s $1.9 trillion new Covid stimulus plan, which now goes to the Senate. That body is expected to cut the provision which would raise the minimum wage over the next several years to $15 per hour. Other relief provisions may also be in danger.

Over the weekend, Johnson & Johnson received emergency approval for its Covid-19 vaccine, which requires only one shot, and can be kept in normal refrigerators. This vaccine will speed up the total vaccination process for the country, and may be of special value to rural and underserved communities because follow-up shots are not required.

Stocks overall were lower last week, although the major indices rose in February. Overall, stocks are still trading near record highs, responding to vaccine optimism and inflation fears (stocks respond favorably to inflation, while bonds do not). But inflation fears (hopes?) have not hit Europe, where we just saw German banks begin to CHARGE depositors for the pleasure of keeping their money. The European Central Bank first went negative with interest rates in 2014, and the treat that is negative rates is still trickling down. It doesn’t make sense to us in the U.S., and I daresay it doesn’t make much sense in the Eurozone either. FYI, a negative rate on a bond does not mean that the bond-buyer pays the seller, but rather that the principal received when the bond matures is less than the original purchase price.

For the week ending February 26th, the S&P 500 finished at 3,811, the Dow Jones Industrials at 30,932, and the Nasdaq Composite Index at 13,192. The yield on the ten-year Treasury Note closed at 1.44%. U.S. crude oil cost $61.50 per barrel, N.Y. gold cost $1,728.10 per ounce, and one Bitcoin cost $45,260.10. One Euro was worth $1.2074.

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) Business Insider, Bloomberg, CNBC, CNN, Yahoo Finance, The New York Times, The Wall Street Journal, Barron’s, Reuters, and The Associated Press. If you have questions, please call us at 203.458.5220 (800.475.1088) or reply to this email to reach me, Liz Cook.

Elon Musk announced at the end of the year that Tesla had invested $1.5 billion in Bitcoin. His announcement helped Bitcoin move well over $55,000 in recent days, which made Tesla lots of money. More money, in fact, than Tesla made selling cars in all of 2020. That Elon, he’s crazy like a fox!