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
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.