November 26, 2018

We hope you had a lovely Thanksgiving and avoided Black-Friday-driven shopper-collision-panic collapse.  Is that really a thing?  Maybe.

However, the markets did fall like a chocolate soufflé last week.  Sucking the air out of equities were several factors, including the seventh straight week of oil prices falling, tech stocks reacting to bad news from Apple (which expects to sell fewer iPhones in the coming year) and from Facebook, which remains under heightened scrutiny after doing lots of dumb, wrong things, and third quarter retail sales, which were disappointing.  Also, there are ongoing concerns about our trade wars.

The FAANG stocks contributed to shaky nerves on Wall Street.  Facebook, Apple, Amazon, Netflix, and Google (now part of Alphabet) were all down more than 20% for the week. (Technically a market correction is a loss of 10% while a bear market is 20%.)  Apple, which was worth over $1 trillion in August is now worth about $840 billion.  Amazon, which also toyed with a market cap of $1 trillion, is now at $731 billion.  The overall U.S. markets are very slightly up for the year.

But the good news for the week included those same falling oil prices, which, while not benefitting oil producers (and perhaps discouraging U.S. shale oil drillers from working for awhile) will actually help lots of transportation industries and the U.S. consumer.

The G20 summit opens in Argentina on Friday.  This could set the stage for a confrontation on trade between the U.S. and China, which remain at loggerheads, with tariffs going both ways and hurting both economies.  (The phrase “at loggerheads” implies two parties in an ongoing dispute, but can also refer to loggerhead turtles.  You choose.)  A sideline meeting for President Trump and President Putin is scheduled, and it is expected that the nations present will discuss the Saudi killing of journalist Jamal Khashoggi.

British Prime Minister Theresa May has reached a Brexit agreement with the European Union, but has to get approval from Parliament and doesn’t appear to have the votes to do so.  Conservatives think the agreement keeps England too closely tied to the EU, while liberals believe a revote on the whole thing is growing more possible.  Still undecided is what will happen at the border between England, which is leaving, and Ireland, which is staying.  Will passports be required for the first time?  Does England’s leaving the EU essentially break up the British Empire?

Last week our government issued a federally-mandated every-four-year report on climate change.  Among its findings: heat waves cause more American deaths each year than hurricanes, lightning, tornadoes, earthquakes, and floods combined, and this number is expected to rise.  Continuing extreme temperatures will cost U.S. workers an estimated $160 billion in lost wages by 2090, and will contribute to a growing number of wildfires.  Plus our outmoded and hackable energy grid will grow ever more fragile.

The California Camp Fire is now 100% contained, which does not mean that it has been extinguished, but that a fire-proof perimeter (like dirt trenches) has been established so that it can no longer spread.  Pacific Gas and Electric disclosed that there was a second power-line failure on the morning of November 8th, when the Camp Fire first erupted.  85 people are confirmed dead, while about 250 remain missing.  The fire has burned an area roughly the size of Chicago, and destroyed 14,000 homes, 514 businesses, and 4,265 other buildings.

Polar night has begun in Utqiagvik, Alaska (formerly Barrow).  Every year, the town of 4,000 goes for 65 straight days without a sunrise.  The town sits well above the Arctic Circle.  In the summer, by contrast, the town will have an equal period with no sunsets.  Not sure what that would feel like?  Binge-watch “Northern Exposure”!

Last week ten paintings sold for more than $25 million at auction.  Among them was David Hockney’s Portrait of an Artist (Pool with Two Figures), which sold for $90,312,500 - a record for a living artist.  Hockney originally sold this painting in 1972 for $18,000 (probably half of which went to his dealer) and will not see any of the proceeds of this record sale.

Diastole is proud to announce that we are helping this year’s Toy Closet toy drive to benefit the children at Yale-New Haven Children’s Hospital.  Feel free to stop in, say hi, grab a candy cane, and donate a new, unwrapped toy.  Stuffed toys are not accepted by the hospital because of germ issues, and toys must be no longer than 24 inches.  Children of all ages will be grateful!

For the week ending November 23rd, the Standard & Poor’s 500 Index finished at 2,632, down 3.7% for the week and up .2% for the year.  The Dow Jones Industrials closed at 24,285, down 4.4% for the week but up .3% for the year.  And the Nasdaq Composite Index was at 6,938, down 4.25% for the week and up 1.5% for the year.  The yield on the ten-year Treasury Note finished at 3.04%.  West Texas Intermediate (WTI) crude oil fell to $50.42 per barrel, while gold sold for $1,221.00 per ounce, and one Euro was worth $1.13.

Elizabeth E. Cook

News and information presented here was gathered from sources believed, but not guaranteed, to be reliable, including The New York Times, The Wall Street Journal, Bloomberg, businessinsider.com, Barron’s, The Economist, Reuters, and The Associated Press.  If you have any questions, please call us at 203.458.5220 or reply to this email.  Thank you for your time during this busy season!
December 3, 2018

After the markets fretted through November about rising interest rates and international trade wars, good news was received on both fronts in the past week.

On Wednesday, Federal Reserve Board Chairman Jerome Powell gave a speech in which he called current interest rates near normal, and then expressed that he didn’t want to raise rates too quickly and thereby slow down the economy.  Investors loved it!  The Dow Jones Industrial Average rose by over 600 points that day.

Then, at the G20 Summit in Argentina, President Trump and Chinese President Xi agreed to a trade-war cease-fire of 90 days.  The U.S. will not go ahead with a tariff hike on Chinese goods that was previously scheduled for January 1st, while the Chinese promised to buy more American agricultural products, energy, and industrial output.  The 90-day window will hopefully give the countries time to negotiate an end to the current trade hostilities.

While most consumers love lower oil prices, especially now that we’re in heating season, we must remember that the U.S. is the number-one oil producer in the world, and that low oil prices damage our oil companies, especially the shale-oil producers.  Their breakeven cost of oil is close to the $50 per barrel that we’re now seeing.  West-Texas-Intermediate (WTI) crude is up slightly from last week on the good news of the trade war recess and this Thursday’s meeting of OPEC, at which production goals may be cut.

And speaking of cut, Qatar is leaving OPEC after 60 years.  It says that it is not a major oil producer and wants to focus on its much larger natural gas business, but there is no doubt that Saudi Arabia’s cutting off of Qatar is a factor.

The new NAFTA (now called USMCA) was signed at the G20 by its members: Canada, Mexico, and the U.S.  Now Congress will have to ratify the treaty.  The provisions of the new pact are pretty much the same as the old pact, but with the addition of modern agreements about digital data, intellectual property, worker pay, and some other stuff.

The British Treasury has estimated that a Brexit under the terms that Prime Minister Theresa May has negotiated will reduce British GDP by almost 4% over the next 15 years.  A Brexit with no agreement at all would reduce GDP by 9%.  A majority of the country now favors staying in the European Union, but it remains to be seen if a re-vote will be taken.

It’s been a few months, so with pleasant nostalgia I remind you that we are facing another governmental shutdown on Friday.  Or at least we were, although now it appears that a two-week stopgap measure may be put in place due to the sad passing of President George H. W. Bush and the state funeral that will occupy the government this week.  It was only going to be a partial shutdown of some departments of the federal government, including Homeland Security, and, after all, who wouldn’t rather face a governmental closure on December 21st?

General Motors has announced that it will idle seven factories and lay off (or displace) about 14,000 workers.  Investors are happy that the automaker is upgrading its line of vehicles (more SUVs, fewer sedans), but human beings are worried about all of those newly-unemployed people.  The business gossip mill is whispering that GM may be playing a long game and could reverse some of its decision when it engages with employee unions in contract talks in the spring.

Marriott Hotels has disclosed one of the largest data breaches in history at its Starwood Properties subsidiary.  The personal data of up to 500 million guests was stolen in a hack that dates back to 2014.  But one wonders, did the hack also hoover up the pay-per-view cable television records of lonely business travelers?  Or is that just me?  (Full disclosure: I spent one college summer break as a chambermaid.  The stories I could tell!)

The World Chess Championship of 2018 ended last week, with the world’s top-ranked player retaining his crown.  Norway’s Magnus Carlsen (age 27) won only after three weeks of draws in classical chess when the format switched to faster-paced tiebreakers.  American Fabiano Caruana (26) was the runner up (i.e. loser).  Computer analysis of the games indicated that each player failed to convert on one glimmer of a faint idea of an opportunity during the twelve matches.  No word on how good they are at checkers.

If you are stymied about what to give for holiday presents this year, may I suggest the new Big Mouth Billy Bass singing fish, which is Alexa-compatible?  Just picture everyone on your list watching a fake mounted fish flopping and singing along with Alexa.  Really.  Picture it.

For the week ending November 30th, the Standard & Poor’s 500 finished at 2,760, the Dow at 25,538, and the Nasdaq Composite Index at 7,330.  The yield on the ten-year Treasury Note closed at 2.99%.  West Texas crude oil cost $50.93 per barrel, gold cost $1,220.20 per ounce, and one Euro was worth $1.1320.

Elizabeth E. Cook

News and information presented here was gathered from sources believed, but not guaranteed, to be reliable, including The Wall Street Journal, The New York Times, Barron’s, The Economist, Bloomberg, businessinsider.com, Reuters, and The Associated Press.  If you have questions, please call us at 203.458.5220 or reply to this email.  Thank you so much for squeezing us in!
December 10, 2018

Okay, last week was tough.  The broad market indices lost about 4% of their values.  It was a wild ride, with markets happy on Monday (trade-war cease-fire with China!), but sad on Tuesday (Canadians arrest Chinese-firm Huawei’s CFO Meng Wengzhou on a request from the U.S.).  Markets were closed on Wednesday for the funeral of President George H. W. Bush, and then slid at week’s end on mixed messages from the current Administration (Larry Kudlow says things will be great with China, while Peter Navarro says more tariffs will come unless the Chinese behave.)  Everybody needed the weekend!

In the past, the end of a bull market has been marked by small investors who believe that markets can’t fall.  This is the notorious “irrational exuberance” identified by Nobel-Prize-winning economist Robert J. Schiller.  These investors buy at the top while institutional investors are selling out.  (And later sell at the bottom when large investors get back in.)  Is that what we’re seeing?  No.  Nobody is exuberant at all.  But fortunes are often lost by people who think that this time will be just like last time.  No again.  This time will be different.  It always is.

Another possibility is that the bull market could last quite a bit longer, because the economy is strong, even though it shows signs of backing off from the recent aggressive growth that was fueled by tax cuts for corporations and the wealthy.  Positive signals include 98 straight months of net hiring, with wages higher by 3.1% versus last year, along with a 50-year low in unemployment (currently 3.7%).

The energy sector picked up some steam last week as OPEC and its allies agreed to cut production by 1.2 million barrels per day.  Saudi Arabia will cut 500,000 barrels per day, falling to about 10.2 million barrels, while Russia will cut 230,000 barrels to about 11.1 million.  You will notice that the U.S. is not part of the cutting.  That is because American oil production comes from lots and lots of companies and no central governmental decision-making affects them.  Also, President Trump likes cheap oil and wouldn’t cut production even if he could.  Full disclosure: I like cheap oil myself.  But American energy-independence does rely on oil prices that are high enough to encourage increased domestic production.

PayPal announced that it processed more than one billion dollars in mobile payments on Black Friday.  Most of that was me, but probably a little was you.  Its total mobile payment volume was 45% higher than in 2017.  Two interesting things about this: first, billion with a B!  Also, this was just the shopping volume on phones, which is a good reminder that we more and more turn to the computer in our pocket instead of the computer on the overcrowded dining-room table.

As mentioned last week, Congress did approve a stop-gap spending measure to push the partial government shutdown two weeks down the road to December 21st.  This is going to cramp Congress, which is scheduled to go on vacation this coming Friday, the 14th.  Hmmmm.  Stay tuned.

Meanwhile, yields on government bonds are slipping lower.  As more people seek the safety of government bonds, prices are bid up, and yields fall.  (Prices and yields move in opposite directions - let me know if you want me to explain this in excruciating detail.)  Last week we saw a brief inversion of the yield curve, which also scared investors since an inversion is often seen as a recession predictor (although not IMMEDIATELY).  A yield inversion just means that shorter bonds pay more in interest than longer bonds, which is counter-intuitive.  Normally, the longer for which you loan your money, the higher interest rate you receive.  So what does it mean when shorter bonds pay more?  It means that investors are leaving short bonds (selling the bonds creates downward pressure on prices and higher yields) and buying long bonds, which are seen as more attractive.  It can be a reflection of the belief that the economy is slowing down, and long-term interest rates are as good as they are going to get.   However (there’s always another side), if disruption in the bond markets causes the Federal Reserve to slow the pace of future interest rate hikes, this will coddle borrowers everywhere.  On the OTHER other hand, we need interest rates to return to “normal” levels after ten years of artificially-low rates, if only to be able to cut rates again when we get another recession.  Sorry this is so boring!

Forget Elon Musk and his rockets.  Let’s look at Richard Branson and Virgin Galactic, which Branson says will take people into space BEFORE CHRISTMAS (which falls on December 25th this year). Galactic’s rocket-powered plane launches from a mothership and accelerates to 2,300 miles per hour within eight seconds.  If the plane can reach an altitude of 50 miles, pilots and passengers will receive “astronaut” status.  Thus far, peak altitude has been 32.3 miles.  Test pilots are going to take the first few flights, before Branson himself rides along.

Which is the number one top-earning YouTube account?  It belongs to seven-year-old Ryan of Ryan ToysReview.  And last year Ryan’s channel earned 22 million pre-tax dollars for posting his video reviews of toys.  Ryan started in 2015 with the help of his family and now has 17 million followers and a toy deal with Walmart.  Do you have a precocious four-year-old?  Put him to work.  In approximately three years you will be millionaires.

For the week ending December 7th, the Standard & Poor’s 500 closed at 2,633, the Dow Jones Industrial Average at 24,388, and the Nasdaq Composite Index at 6,969.  The yield on the ten-year Treasury bond finished at 2.86%.  West Texas Intermediate Crude sold for $52.61 per barrel, New York gold cost $1,246.80 per ounce, and one Euro was worth $1.1409.

Elizabeth E. Cook

News and information presented here was gathered from sources believed, but not guaranteed, to be reliable, including The Wall Street Journal, The New York Times, Barron’s, The Economist, businessinsider.com, Bloomberg, CNBC, Reuters, and The Associated Press.  If you have questions, please call us at 203.458.5220 or reply to this email.  Thank you so much for reading!
December 17, 2018

On the one hand, markets are down about 10% from this year’s highs and flat for the year.

On the other hand, the U.S. economy is (mostly) chugging along fine.

So, equity markets are skittish.  Let me count the whys.

It started in China, which last week reported slower than expected GDP (gross domestic product) growth and lower-than-expected retail sales.  You wouldn’t think China’s worries would be our worries, but they are.  China provides about 14% of worldwide GDP, and is a huge supplier of parts for our technology companies and an even huger market for our technology products - especially smartphones.  So when China slides, so do our tech companies.  Which makes people nervous.

Then there was the U.S. District Court Judge from Texas who ruled that the individual mandate part of the Affordable Care Act was unconstitutional, and therefore the whole Act had to be thrown out.  Despite the fact that his ruling will be appealed to a higher court, this uncertainty about health care caused market ripples for health care and health insurance stocks.  And then came the Reuters article alleging that Johnson & Johnson has been concealing the fact that its baby powder sometimes contains asbestos.  Trouble for J&J, and more trouble for the health-care sector. 

Sliding oil prices hurt energy-production companies.

The Federal Reserve Board meets this week and is largely expected to raise benchmark rates by one quarter of one percent.  But investors don’t know if this rate hike is already baked into the markets, so they are concerned.

We are facing a partial governmental shutdown on Friday.  The president wants $5 billion for his border wall, despite not having spent the $1.6 billion allocated last year.  Congressional democrats oppose this, and nobody knows whose heels are dug in further.  Additionally, Congress has already adjourned for the holiday.  How many Senators are going to come back to Washington to vote on another stopgap spending bill?  And for those who think a shutdown sounds like a good way to save money, sadly it costs more to shut down and then reopen than to just stay open in the first place.  And for all of those federal workers whose pay will be postponed if the shutdown happens:  Sorry!  Merry Christmas!

The European Central Bank (ECB) announced that it will end its quantitative easing program (QE).  Just as here in the States, the Eurozone had pursued a program of buying its own bonds and mortgages, so as to keep interest rates low and encourage banks to lend money.  The U.S. QE program ended in 2014, and now our Fed is unwinding its enormous portfolio of bonds.  The ECB will have to do the same, and investors are nervous about rates rising.

And, of course, Brexit is a mess.  Prime Minister Theresa May has negotiated an exit strategy that her own Parliament doesn’t support, and so she has kicked its vote down the road to January.  The Eurozone has said it will make no more concessions, and the possibility of either a hard Brexit (where Britain leaves the EU with no deal to soften the landing) or a nationwide re-vote on the whole idea of Brexit, is making people nervous.

But while all that nerve-wracking news was happening, there was also good news about the U.S. economy.  We are seeing robust consumer spending.  Worker pay was higher by almost 3% (annualized) in the third quarter.  November industrial production was strong.  And the Atlanta Fed revised its estimated fourth quarter U.S. GDP from 2.4% to 3.0% (again, annualized).  So that’s all good, but we do have an outsized and growing federal deficit (and debt) that is putting upward pressure on interest rates.  And maybe just as important, if and when we face the next recession, we may need additional government spending to stimulate the economy.  How will we manage that when we’re already spending too much? 

There’s another factor at play in the recent pattern of bad Friday markets.  Whereas in the olden days (I remember them well), news was concentrated on weekdays, and weekends were for relaxing, now the news cycle never stops.  And some investors are reluctant to remain invested over any weekend during which crazy news might pop while they have no way to trade their securities.  Which is pretty much all weekends.

This Friday brings us the Winter Solstice, also known as the shortest day of the year.  Which means that on Saturday, the days will start growing longer.  Yay!  If you are in the Southern hemisphere, it means just the opposite, but why would you care - it’s warm outside! 

In other good news, bullish investors are now only about 21% of all investors, meaning that a large majority of investors are bearish (thinking the markets will fall).  This is the lowest reading of bulls since March of 2016.  And were all of those bears right in 2016?  Well, no.  If they had sold out of the markets, they would have missed the stellar year that was 2017 (and the flat year that is 2018).  Just a reminder that individual investors are often wrong about what is going to happen next.  Nobody knows.

For the week ending December 14th, the Standard & Poor’s 500 finished at 2,599, the Dow Jones Industrial Average at 24,100, and the Nasdaq Composite Index at 6,910.  The yield on the ten-year Treasury Note closed at 2.90%.  West Texas intermediate crude oil (WTI) cost $51.20 per barrel, New York gold cost $1,237.00 per ounce, and one Euro was worth $1.1299.

Elizabeth E. Cook

Our offices will be closed next Monday and Tuesday for the holiday.  Of course we will be monitoring the markets on Monday, which is a shortened trading day, but there will be no Weekly Economic and Market Comment.

News and information presented here was gathered from sources believed, but not guaranteed, to be reliable, including The New York Times, The Wall Street Journal, Barron’s, The Economist, Bloomberg, businessinsider.com, Reuters, and The Associated Press.  If you have questions, please call us at 203.458.5220 or reply to this email.  Thank you for your attention!