DIASTOLE ECONOMIC AND MARKET COMMENT
September 23, 2019

The markets were surprisingly quiet last week, given that the week started off with the attacks on two Saudi Arabian oil facilities and the Federal Reserve followed through on an anticipated interest-rate cut on Wednesday.  For the week, the S&P 500 was down one-half percent, yet the index remains within one percent of its all-time high set one year ago.  In fact, the S&P 500 has been in a sideways trading pattern for the past 20 months.

Immediately after the Saudi attacks, oil prices spiked 10% to more than $61 per barrel.  Saudi Arabia responded quickly to restore much of the lost oil production within 48 hours and is targeting to reach normal output at the larger Abqaiq facility by the end of the month.  This news calmed the oil markets and by week’s end oil prices had dropped to $58. 

Meanwhile, on Thursday the U.S. imposed sanctions on Iran’s central bank in retaliation for Iran’s suspected involvement in the attacks on the Saudi oil facilities. The sanctions are intended to limit Iran’s ability to move foreign currency reserves to terrorist organizations in the Middle East that are destabilizing the region.

The stock market’s response was also muted to the Fed rate cut of one-quarter percent. The target range for the federal funds rate is now set at 1.75% to 2.00%.  The rate cut is intended to stimulate a slowing economy, making it cheaper for Americans to borrow money.

However, the Fed Board of Governors was divided on whether the economy needed the rate cut and the Fed is providing no clear direction on additional rate cuts this year. Five Fed Board members did not support this rate cut, five supported this rate cut but see no need for future cuts this year, and seven are projecting another cut by the end of the year. Investors do not like the lack of clarity about the Fed’s next move, which could contribute to increased market volatility in the months ahead.

Regarding its economic assessment, the Fed indicated that consumer spending is “rising at a strong pace” while “business fixed investment and exports have weakened,” in part due to the on-going trade dispute with China.

Mortgage rates in the U.S. have reached a nearly three-year low in recent weeks. The average rate on a 30-year, fixed-rate mortgage for a typical borrower has dipped as low as 3.56%.  The cost of home mortgages tends to follow the yield on the ten-year Treasury Note which has been falling over the past year as investors have sought protection in bonds amid concerns of a global economic slowdown and trade tensions.  The lower mortgage rates have predictably spurred refinancing activity, which was up 169% in the first week of September compared to the same period a year ago. 

In international news, Israel held elections last week and Prime Minister Benjamin Netanyahu appears to be out of the job.  Netanyahu has been Prime Minister for the past 13 years, the longest serving PM in the country’s history.  The next Prime Minister will likely be Benny Gantz, provided he can form a coalition government. He is the former head of the Israeli Defense Forces.  Gantz leads the centrist Blue and White Party.  Netanyahu leads the more conservative Likud Party.

Apple introduced the iPhone 11 on Friday to great fanfare at Apple stores around the world.  CEO Tim Cook was at the Apple store in Manhattan to greet customers as the store reopened after a two-year renovation.  The basic model iPhone 11 sells for $699.  New features that customers are most excited about include a triple-camera system, including telephoto and wide-angle lenses, and longer battery life.  More than 700 million iPhones have been sold over the past 12 years since it launched in 2007!

The long-awaited release of the Downton Abbey movie did not disappoint its fans, scoring a 96% audience score on Rotten Tomatoes. The movie opened over the weekend and led the box office with $31 million in U.S. sales.  In the story line, King George V and Queen Mary pay a dinner visit to the Crawleys’ estate as part of their 1927 Yorkshire tour, setting both the upstairs and downstairs of the house into a royal tizzy. 

For the week ending September 20th, the S&P finished at 2,992, the Dow Jones Industrials closed at 26,935, and the Nasdaq at 8,118. The yield on the ten-year Treasury Note was 1.74%, U.S. crude oil cost $58.18 per barrel, while N.Y. gold cost $1,502 per ounce and one Euro was worth $1.10.

Ted Reagle
Financial Adviser

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, Barrons, Business Insider, The Economist, and CNBC.  If you have any questions, please call us at 203.458.5220 or reply to this email.
DIASTOLE ECONOMIC AND MARKET COMMENT
September 30, 2019

Markets were somewhat down last week as all eyes were on Washington.  Speaker of the House Nancy Pelosi announced that the House of Representatives would open an Impeachment Inquiry into President Trump’s interactions with Ukraine.  The markets stopped to watch.

But other things happened too.  The Federal Reserve Board is having trouble with its overnight markets.  Probably you haven’t thought too much about overnight lending, but it’s big business.  Let’s say you’re a huge corporation and you’re expecting a big receivable, but the mail is late and you need to make payroll.  You can borrow on the overnight “repo” market by selling Treasury Bills for the night and buying them back in the morning.  The problem is that the company buying the Bills is probably borrowing the money, and all of this borrowing is driving up short-term interest rates.  For example, one night last week the overnight borrowing rate hit 10%.  Meanwhile, ten-year Treasuries are paying about 1.6%.  Yikes!

So the Fed has been pushing money into the overnight markets to try to equalize supply and demand, which brings rates down.  And where does it get the funds to do that?  From interest on the Treasury debt that it owns.

But as our federal deficit and debt grow, the Treasury is issuing more debt to fund the shortfalls.  Ultimately, in order to attract more buyers (who are essentially loaning money to the government) interest rates will need to rise.  And what happens if we can’t make all of the interest payments?  Yikes again!

GDP growth in the second quarter of this year has been finalized at 2% annualized.  That is versus the 3.1% annualized rate achieved in the first quarter.  Growth seems to be slowing around the globe, and central banks are lowering rates in the hopes of keeping the longest economic expansion in recent history limping along.  But this helps borrowers and hurts savers, and is that really the message we want to send?

U.S. income inequality grew to a record high in 2018, even as median household income rose to almost $62,000.  Three individuals; Jeff Bezos, Bill Gates, and Warren Buffett, now own as much wealth as the bottom 50% of American households.  But that was probably before the Bezos divorce.

The Senate passed a spending bill on Thursday to keep the government open past the end of the fiscal year, which is today!  The stopgap bill will keep things humming through November 21st to avoid a partial government shutdown.  Satisfied with their work, Senators headed for the exits for a well-deserved two-week recess.  Because, man, that was some heavy lifting!

CVS is the latest drugstore chain to stop selling Zantac over findings that impurities in the drug can cause cancer.  Which is enough to cause heartburn!

McDonald’s is going to start a trial of a Beyond Meat burger in Canada.  Meanwhile the Burger King down the street from me is already selling the Impossible Burger.  One problem with the ersatz burgers?  The plant-based material used to make them costs three times the price of regular ground beef.  We already know that the fake burgers are not healthier, but will they also end up more expensive?  Caveat here: there are lots of other good reasons to eat them.

The U.S. and Japan reached a trade deal last week that covers $40 billion worth of digital trade and $7 billion of American agricultural exports to Japan.  The automobile trade was not addressed and remains a sore subject for both governments.

The average American family now spends more than $20,000 per year for health insurance.  Health-care premiums and deductibles are rising faster than either wages or other prices.  The average deductible for a single policy-holder is $1,396 this year, versus $533 just ten years ago.

The American farmer bailout is intended to help those farmers who are being hurt by the trade-war tariffs.  This program is already twice as expensive as the automaker bailout of 2009, which cost taxpayers $12 billion.  The automakers repaid their loans with interest, which the farmers are not expected to do, since their lost sales cannot be recouped.  (Oh yes, some crops are being stored, but an oversupply doesn’t help either.)

The Thomas Cook travel company declared bankruptcy last week, stranding about 600,000 tourists on vacation.  The British government has announced that it will cost 100 million pounds to bring home the 150,000 British citizens who are among the stranded.

Airbnb announced that it will go public with an initial public offering (IPO) next year.  Meanwhile, Peloton just launched their IPO (shares fell afterward) and WeWork is postponing theirs because their company revenue model is based on unicorns and rainbows.

Finally, Florida is looking to hire about 50 new python hunters.  The hunters will be paid by the python, with extra cash for bigger snakes and snake eggs.  The pythons are native to Burma, and were apparently flushed down the toilet in Florida as babies (?).  Pythons are typically six to 10 feet long and can climb!

For the week ending September 27th, the Standard & Poor’s 500 finished at 2,961, the Dow Jones Industrials at 26,820, and the Nasdaq Composite Index at 7,939.  The yield on the ten-year Treasury closed at 1.69%.  U.S. crude cost $55.91 per barrel, NY. gold cost $1,499.10 per ounce, and one Euro was worth $1.094.

Elizabeth E. Cook
Partner

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, Bloomberg, Business Insider, The Economist, Reuters, The Associated Press, and CNBC.  If you have any questions, please call us at 203.458.5220 or reply to this email.  Happy Jewish New Year!
DIASTOLE ECONOMIC AND MARKET COMMENT
October 7, 2019

One thing that happened last week is that the ISM manufacturing index for September was announced at 47.8, versus 49.1 in August.  This is the lowest reading since 2009.  Remember 2009?  It sucked.  So - manufacturing is slowing.  And then activity in the services sector also slowed.  FYI, the services sector provides two thirds of the country’s economic output.  Stocks moved down and then up on the bad news.  Down makes sense, but up?  Well, doesn’t this mean that the Fed will HAVE to cut rates again at its October meeting?  And doesn’t everyone love lower rates?  (Answer: no!  Savers and lenders (who are really the same) hate lower rates.  Borrowers love them.)

Then markets rose on Friday because we got the September jobs report.  136,000 net new jobs were created (less than expected), and the unemployment rate fell to 3.5% (lowest level in 50 years).  Average new jobs created this year is 160,000, versus 223,000 per month in 2018.  So - job growth continues, but at a slower rate.  And wages were flat for the month, remaining higher by 2.9% year over year.

The Federal Reserve Board meets on October 29-30, just in time for a ghoulish interest-rate decision.  You’ll recognize me when I trick-or-treat at your house because I’ll be dressed as the yield curve.

Chinese and U.S. trade negotiators will meet again this week to try to work out our trade differences.  Yay!  But the Chinese are saying they are going to take a tougher stance in the negotiations.  Boo, hiss.  In other tariff news, The U.S. has just imposed a 10% extra tax on large aircraft manufactured in France, Germany, Spain, and the U.K.  Really this new tariff is aimed at Airbus, which competes directly with America’s Boeing, but receives substantial government subsidies which Boeing does not enjoy.

Additional tariffs of 25% on European wine and cheese are also being imposed as an adjunct to the airplane war.  I’m not much of a drinker, but that cheese tax is going to hurt.  Also the tax on Scotch whiskey (guess I AM a drinker after all).  We may be developing a two-front trade war.  Europe imports U.S. aircraft, machinery, oil, medical instruments, pharmaceuticals and agricultural products.  And tourists!

48,000 General Motors UAW members have been on strike for three weeks, demanding better pay and benefits, plus more job security.  (Who doesn’t want those things?)  Management has returned to a previously rejected proposal in its negotiations, and union members are not pleased.  GM stock has fallen more than 23% since highs reached in 2017.

WeWork has demoted its CEO, postponed its IPO (initial public offering), and is now going to lay off up to 25% of its workforce, in the hopes of becoming profitable (hahaha, just kidding), I mean acceptable to investors.  But who will make the smoothies?  Former Chairman Adam Neumann has a personal line of credit of about $500 million from major banks, which is collateralized by WeWork shares that he owns.  With the non-existent public offering tanking, what are his shares actually worth?

Admit it, you’ve giggled inside at the idea that Amazon would use drones to deliver to your house.  You can just picture the crashing and breaking as boxes drop.  Or maybe that’s just me.  But it turns out that UPS has beat Amazon and gotten approval for a “nationwide drone network”, meaning that it can operate delivery drones anywhere in the country.  I would really like to see a drone delivery at my house, but maybe I should just order stuffed animals and quilts for awhile until UPS gets the kinks sorted out?

uBiome is changing from Chapter 11 bankruptcy (reorganization) to Chapter 7 bankruptcy, which means the show is over.  uBiome once convinced venture capitalists to invest based on a valuation of $600 million.  But the company, which promised to find out everything that’s wrong with you by analyzing your poop, is going the way of Theranos, which promised the same thing about your blood, and was based on fraud.  Is it wrong to make a liquidation joke here?

California has passed a law that allows college athletes to profit from their athletic careers.  For the first time, elite college athletes could hire agents and make endorsement deals.  Non-elite athletes could, too, but nobody would want them.  Governor Gavin Newsom said it was only fair for athletes to share in the vast profits they make for their colleges, while the NCAA had hoped that the governor would veto the bill and allow it to make changes slowly.

Japan raised its sales tax.  Prime Minister Abe Shinzo (I read that he prefers his last name to come first, as is the custom in Japan, but he can tell me if I’m wrong), has previously postponed the change, but now is enacting a 2% hike in the consumption tax to a rate of 10%.  The last time the government raised this tax (from 5% to 8%) was 2014, and it hit consumers hard.  Current Japanese economic growth is flat, and exports are falling (make that a three-front trade war).  The government is trying to eliminate its annual budget deficit by 2025.

For the week ending October 4th, the Standard & Poor’s 500 finished at 2,952, the Dow Jones Industrials at 26,573, and the Nasdaq Composite Index at 7,982.  The yield on the ten-year Treasury Note closed the week at 1.53%.  U.S. crude oil cost $52.81 per barrel, N.Y. gold cost $1,506.20 per ounce, and one Euro was worth $1.0982.

Elizabeth E. Cook
Partner

News and information presented here was gathered from sources believed, but not guaranteed, to be reliable, including Barron’s, The Wall Street Journal, Bloomberg, The New York Times, The Economist, CNBC, Reuters, Business Insider, and The Associated Press.  If you have questions, please call us at 203.458.5220 or reply to this email.  Doctors from Harvard, Oxford, and Johns Hopkins are sharing this year’s Nobel Prize in Medicine.  We don’t know what for, because we can’t read their handwriting.
DIASTOLE ECONOMIC AND MARKET COMMENT
October 14, 2019

There is a difference of opinion about whether “phase one” of a trade agreement between the U.S. and China has been reached.  The Trump Administration says yes, but the Chinese say not so fast.  Nonetheless, additional tariffs that were set to go into effect tomorrow on Chinese goods have been tabled, and the markets reacted favorably to this news last week, whether it proves true or not.  We certainly hope progress is being made.

The Federal Reserve Board announced on Friday that it is going to begin buying Treasury bills this month, and for at least the next seven months.  But it assures us that this is not to be considered Quantitative Easing (QE).  QE, you will remember, is when the Fed buys Treasury BONDS to increase the money supply and keep interest rates low.  Oh.  This time the Fed is trying to reduce interest rates in the overnight markets for repos (repurchase agreements).  A shortness of liquidity is driving overnight rates higher than long-term rates, which is backward and upside-down.

Meanwhile, the Fed will meet this month on the 29th and 30th to decide about cutting interest rates again.  I hope the members of the Federal Open Market Committee (FOMC) have the spine not to do it.  Rates are already unnaturally low, and savers need to be rewarded too.

In that vein, Nobel-Prize-Winning economist Robert Shiller, who correctly predicted the dotcom and housing bubbles, is now warning of a bubble in bonds.  It is because bond prices are so high that bond yields are so low, and as more investors get market-shy and move money into bonds, prices will go even higher and yields will drop lower.  But Shiller points out that rates this low are unsustainable.

The average American household paid 28% in federal taxes last year.  Meanwhile, billionaires paid at a rate of 23%.  Huh?

AND, during the past 30 years, the top one percent of Americans has gained $21 trillion in wealth, while the bottom 50% lost $900 billion.

AND total national student debt has surpassed $1.5 trillion, as tuitions continue to outpace earnings.  More than three million senior citizens are still paying off their student loans.  Two main reasons why adults aged 20-45 say they are not having children is student debt and global warming.

We have all paid into the Ponzi schemes that are Social Security and Medicare, and just when we can see retirement at the end of the tunnel, people are having fewer children?  In fact, not enough children to keep our population from shrinking?  Yikes!  Who’s going to pay for my early-bird dinners?  (This is my monthly plug for more immigrants.  They work, they pay taxes, they will support me in my old age.)

The United Nations says that the U.S. is its largest delinquent nation in the world.  Right now we owe the UN $381 million in back payments as well as $674 million for this year.  The UN man be unable to make its payroll unless they collect more money.  64 countries out of 193 are behind in their payments.

In today’s news update on social-media dysfunction, Twitter has announced that it “inadvertently” used people’s email addresses and phone numbers to facilitate targeted advertising.  Perhaps we should all “inadvertently” delete the app.

An invasive species of “snakehead” fish has been found in Georgia.  The pictures are scary and worth Googling.  It can survive on land because it can breathe.  Authorities in Georgia are ordering people to kill it if they find it, but what if dinosaurs had killed us when we were just emerging from the primordial ooze?  Just kidding!  Their arms were too short!

The last woolly mammoths died out 4,000 years ago.  The pyramids were built about 4,500 years ago.  You do the math.

For the week ending October 11th, the Standard & Poor’s 500 closed at 2,970, the Dow Jones Industrials at 26,816, and the Nasdaq Composite Index at 8,057.  The yield on the ten-year Treasury Note was slightly higher at 1.73%.  U.S. crude oil cost $54.70 per barrel, N.Y. gold cost $1,482.70 per ounce, and one Euro was worth $1.1039.

Elizabeth E. Cook
Partner

News and information presented here was gathered from sources believed, but not guaranteed, to be reliable, including Reuters, Business Insider, The New York Times, The Wall Street Journal, Barron’s, The Associated Press, The Washington Post, and CNBC.  If you have questions, please call us at 203.458.5220 or reply to this email.  Happy Canadian Thanksgiving! and Happy Indigenous Peoples’ Day!  I’m quick to jump off the Columbus Day bandwagon for several good reasons: he didn’t discover America, he never stepped foot in what is now the United States, he mistreated the native Americans who were already here, and his name wasn’t really Christopher Columbus.  Moving on!