DIASTOLE ECONOMIC AND MARKET COMMENT
October 31, 2022

Happy Halloween to those of you who are scared to look at your account balances! And fear not, for last week was a fine one in stock markets, and a middling one in bond markets. For the week, the Dow Jones Industrials rose 5.7%, the Standard & Poor’s 500 rose 3.9%, and the Nasdaq Composite Index was 2.2% higher. The ten-year Treasury Note yielded 4.02%, down from 4.22% last week. (Yields drop as prices rise.)

The surprise of higher stock prices is compounded by the fact that tech stocks took a beating last week. Meta (formerly Facebook), Alphabet (parent company of Google), Amazon, and Microsoft all reported poorer-than-expected earnings and lost almost one trillion dollars off their market caps, combined. But apparently investors were expecting even worse news than that, because stock prices climbed even as these tech stocks lost value. 

The 20 richest tech billionaires have collectively lost about half-a-trillion dollars this year - more than the market capitalization of all but seven S&P 500 companies. Poor them. Ha! Literally! For instance, Mark Zuckerberg of Meta has personally lost $100 billion over the past 13 months and is now worth about $36 billion. Meta is now worth less than Home Depot and can’t even sell you porch lights. (Meta is selling at nine-times trailing earnings, down from 37-times a year ago.) Meta spent $45 billion last year buying back its own stock at $330 per share. It now sells for about $100 per share.

Apple was an exception to the bad-tech news, as it reported stronger-than-expected quarterly profits and Apple shares had their best day in two years. It was not just that Apple sales were resilient, but also that Apple customers seem perfectly willing to pay higher prices for Apple products.

In a different category, General Motors reported an increase of 37% in third-quarter profits as covid-unavailable vehicles finally hit sales lots. People are buying an awful lot of pickup trucks and SUVs.

Late on Thursday, Elon Musk closed the Twitter deal that he had been twittering (and tweeting) about for months. He paid $44 billion for the company, much of which he borrowed, and most of the rest of which came from selling Tesla stock. Twitter stock hit lows of near $32 dollars several times this year, but Musk’s offer was $54.20 per share. The stock is now private and stopped trading as of the close of the deal. Shareholders, please sit back and wait for your overpriced payday to roll in sometime this week. Musk immediately fired top Twitter executives, who are now entitled to $200 million in compensation, and left himself working content moderation over the weekend, when he had to delete his own extremely misguided tweet about the Paul Pelosi home invasion and attack.

Back to GM, which just temporarily suspended all advertising on Twitter. They won’t be the last.

Regular 30-year fixed-rate mortgage rates have risen to 7.16% - the highest since 2001. Mortgage applications are at their lowest point since 1997. Home prices are falling slowly, but supply is tight because people who have really low-rate mortgages are reluctant to lose them by selling. Still, soon might be a good time to buy a house as prices fall further. Interest rates are likely to come down again at some point in the future, and you can refinance then. This is not advice specific to YOU, because I don’t know YOU, but ask your advisor if you think this advice might apply to YOU.

After two quarters of negative growth, the U.S. gross domestic product grew at 2.6% annualized in the third quarter. Consumer spending, the wheels on which this economy rolls, rose at a 1.4% annualized rate in the quarter (June through September). Government spending (the spare tires?) rose at a 2.4% annual pace, led by increased defense spending.

This good news, of course, is bad news since it means that the Federal Reserve will absolutely definitely raise interest rates on Wednesday by another 0.75%, to try to tamp down consumer demand and slow inflation. Hopes for a smaller increase at the December Fed meeting persist - we will know more after Friday’s jobs report for October.

Another railroad union has rejected the tentative labor deal brokered in September. The Brotherhood of Railroad Signalmen voted 60% against the agreement. Half of the unions involved have approved the deal, but the railroads need unanimous consent. They will now have a new negotiation period through November, and a potential strike is averted until December. The railroads have estimated that a strike would cost our economy about two billion dollars per day.

Is this a market bottom? Nobody knows. Fear factors we’re watching: a coming shortage of diesel fuel in the U.S. but a glut of natural gas in Europe. A coming shortage of grains exported from Europe as the Russians halt Ukrainian shipments. A weakening in consumer spending as the savings rate is down from 7.9% a year ago to just 3.1% now. Stay tuned.

For the week ending on October 28th, the S&P 500 closed at 3,901, the Dow at 32,861, and the Nasdaq at 11,102. The yield on the ten-year Treasury was 4.01%. U.S. crude oil cost $87.90 per barrel, N.Y. gold cost $1,644.80 per ounce, and one Euro was worth $1.00.

Elizabeth E. Cook
Partner, Diastole Wealth Management

News and information presented here was gathered from sources believed, but not guaranteed, to be reliable, including (but not limited to) The Wall Street Journal, The New York Times, The Washington Post, USA Today, Forbes, Fortune, Bloomberg, Yahoo Finance, CNBC, CNN, Insider, The Economist, Barron’s, Reuters, and The Associated Press. If you have questions, please call us at 203.458.5220.

Kia America issued a new recall for 72,000 of its 2008-2009 Kia Sportage SUVs due to a risk of engine fire. Kia encourages owners of these vehicles to park them outside and away from homes and buildings because apparently they can spontaneously combust. Kia also says don’t carpool, don’t run errands, don’t use the cigarette lighter, and does Elon Musk want to buy them?
DIASTOLE ECONOMIC AND MARKET COMMENT
November 7, 2022

Life can be cruel. Not only are you feeling ready for bed at four in the afternoon, but you also failed to win billions in the Powerball drawing on Saturday night. But take heart! You have another chance at the Powerball tonight (your odds are roughly one in 292 million - so… good?), you get to vote tomorrow (if you agree with me politically, otherwise please take a long lunch instead), and I promise that your dog will adjust to the time change just as we are ready to institute daylight saving time again in the spring.

Federal Reserve Chairman Jerome Powell spoke on Wednesday after the Fed’s November meeting, and announced another rate hike of 0.75% - which had been completely expected. The Fed funds rate is now 3.75%-4%. Powell’s speech hinted that rates might have to climb to 5% or even higher in order to stifle the demand that the Fed thinks is driving inflation. Of course supply shortages are also contributing to inflation, but the Fed can’t do much about those. Stocks rose briefly on the interest-rate hike because Powell also hinted that future rate hikes might be more moderate. The next Fed Open-Market Committee meeting is in mid-December.

The October jobs number came in better than expected. 200,000 net new jobs were expected, and 261,000 net new jobs were reported. Yay! The unemployment rate, previously 3.5%, rose to 3.6% as more people entered the job market. The Fed is hoping to squash stock markets (they were down for the week), and put people out of work, so that money gets tighter and consumer spending declines. Yay?

So - interest rates higher, unexpected strength in employment, but the unemployment rate rose. If the news seems equivocal, it is. But that is certainly better than nothing but bad news. Of course, any strength in the economy can be seen as pushing the Fed toward another 0.75% hike in December. Employment numbers are good-news-is-bad-news, while UNemployment numbers are bad-news-is-good-news. Mark your scorecards.

Tech-company layoffs are accelerating. First, of course, Elon Musk fired about half of Twitter’s 7,500 employees and announced that Twitter was losing mucho money. Then Twitter called back dozens of former employees and said, oops, we actually need you in order to function, please come back to us. Meta, parent company of Facebook, is beginning layoffs this week. Thousands of the company’s 87,000 workers will be affected. The billions that Meta has spent on creating a metaverse have so far not paid off.

Other companies are still adding workers in this almost-post pandemic environment. In industries that have seen a high quits rate, wages may have to increase in order to attract new applicants. We’re looking at you, teachers, nurses, and other first responders. Wages in October were higher by 3.8% (annualized) which was down from the 4.1% achieved in September. Jerome Powell is smiling on the inside.

In other signs of economic pain, over the past year the percentage of American adults living with friends or family rose from 11% to 18%. First-time homebuyers made up just 26% of all homebuyers in the year ending in June. In 2009 first-time homebuyers were 50% of all homebuyers. The typical age of a first-time homebuyer is now 36, up from 33 last year. New car prices have dropped slightly since July, but remain about 33% higher than before Covid.

Although last week was a tough one in markets, with the Nasdaq Composite Index (big tech, again) down 5.6%, October was a good month for equity prices. The Dow Jones Industrials rose 14% - its best month since 1976 - while the Standard & Poor’s 500 rose 8.0% and the Nasdaq climbed 3.9%. We are still seeing value stocks (typically dividend-paying old-fashioned companies) outperform growth stocks (tech), probably because big tech stocks have a lot of exposure to overseas markets, and the strong dollar hurts the conversion from local currencies back into dollars. Additionally, the strong dollar makes U.S. exports more expensive than imports. 

You would think that would make us an even bigger market for Chinese goods, but, in fact, China’s exports fell 0.3% in October, year over year. Analysts had expected growth of 4.3%. China’s economy is strained by zero-Covid lockdowns, falling consumer demand, and a nationwide property-sector slump. And while Secretary Xi Jinping’s recently-announced third term may delight Communist hard-liners, it is projected to hurt China’s involvement in the global business community.

Keeping things in perspective: U.S. inflation is roughly 8.2% (annualized), based on a commonly-consulted data point, the Consumer Price Index. The inflation rate in the Eurozone is at 10.7%. And the inflation rate in Turkey reached 85.5% after the central bank lowered interest rates again. Turkey’s president Erdogan wants to keep lowering rates from the current level of 10.5% until they reach single digits. Because he is an idiot.

For the week ending on November 4th, the S&P closed at 3,770, the Dow closed at 32,403, and the Nasdaq finished at 10,475. The yield on the ten-year Treasury Note was 4.16%, while the yield on the 30-year Treasury Bond was 4.17%. Meanwhile 30-year mortgage borrowers are paying about 7% on their new loans. U.S. crude oil cost $92.61 per barrel, N.Y. gold cost $1,676.60 per ounce, and one Euro was worth $1.00.

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, The Washington Post, USA Today, Barron’s, The Economist, Forbes, Fortune, Yahoo Finance, Bloomberg, CNN, CNBC, Reuters, and The Associated Press. If you have questions, please call us at 203.458.5220.

Do you ever have one of those dreams where you aren’t prepared to take an exam? Well, it’s a waking nightmare for more than 50 high school students in El Paso, who took the SAT on October 27th, only to learn that their tests flew out of the UPS truck which was transporting them. Students who have to take the test again may miss early-application deadlines as well as wonder for the rest of their lives whether the test that didn’t get graded was perhaps their best performance ever. Better to show up naked for class.
DIASTOLE ECONOMIC AND MARKET COMMENT
November 14, 2022

What a week! The election that keeps giving, a better-than-expected inflation report, a market rally, and a crypto collapse. Hand me the popcorn.

First, the election, or “why can’t they count faster?” As of this morning, the Democrats will retain control of the Senate with one more seat to be determined. The House of Representatives is likely to move to Republican control, although results are still coming in. Investors, in general, like divided government - so that nothing extreme can be accomplished in Washington.

Markets fell on Wednesday, and many blamed the resurgent Democrats, but Sam Bankman-Fried was far more responsible. The now-former Chairman of FTX - a major cryptocurrency exchange - was taken down by Binance (a rival exchange), which first announced that it would sell all of its holdings in FTX’s FTT tokens, causing a run on the exchange. Then, when FTX was facing a major liquidity crisis, Binance swooped in and said, well, I think we’ll bail out FTX. But one day later it decided that FTX was in too much trouble to be helped. Oops. The bottom fell out of FTX, crypto of all kinds dropped in price, and FTX finally filed for bankruptcy on Friday. At the time, it was reported to have held just $900 million in liquid assets, versus $9 billion in liabilities. And THEN there was an unauthorized withdrawal [read: hack] of about $477 million from FTX. Bigger oops. Bankman-Fried is being investigated and keeps having to verify that he hasn’t escaped to South America. His once-massive $30 billion fortune has turned to dust, and people are trying to decide if FTX is more like Lehman Brothers, or more like Enron. But of course, crypto in general is more like tulips or musical chairs. Beware when the music stops.

FTX is a victim of mismanagement, but also of the Fed raising rates. A lot of companies that shouldn’t succeed can keep going when money is cheap, but fall apart when they actually have to pay interest on their loans. The question is, who is next?

In a related story, Bitcoin is now worth about $17,000 apiece, down from a high of $64,000 one year ago. Meanwhile, the high-end most-efficient bitcoin-mining computers available have fallen in price by 77% over this past year. Supply and demand at its most efficient.

Then there was Thursday, The Consumer Price Index (CPI) for October was released, and while still bad, it was much better than expected. Prices in general rose 7.7% annualized, versus expectations of 7.9%. (CPI was 8.2% in September.) Core CPI, which disregards food and energy, rose 6.3%, down from September’s 6.6%. This does not mean that prices are falling - only that they are rising more slowly.

But markets went wild. Investors took the CPI news and extrapolated that it would cause the Federal Reserve to raise rates more slowly in the future. (The Fed is raising rates to stomp on demand and fight inflation.) On Thursday alone, the Standard & Poor’s climbed 5.5%, the Dow Jones Industrials rose 3.7%, and the Nasdaq Composite Index rose 7.4%. The Nasdaq, which has been the most beaten-down index because higher yields weigh heaviest on debt-heavy tech stocks, was the biggest climber as investors, momentarily, returned to growth stocks.

Money also flowed into Treasurys (aka Treasuries), pushing prices higher and yields lower. Investors were quick to think they should lock in yields before the higher yields were no longer available.

For the week, the Nasdaq was up 8.1%, the S&P was up 5.9%, and the Dow rose 4.2%. Perhaps the biggest indicator of investor optimism was Friday’s market results. Instead of profit-taking after Thursday’s big rally, we saw markets up slightly more.

I am not saying that we have bottomed in equity markets. I don’t know that. But the S&P has risen more than 11% in the past month, which means that SOMEONE believes it. If you’re thinking about either getting back into the market, or taking gains or losses in your portfolio, call your advisor.

Hidden somewhere in last week’s positive news was the very good report from Ukraine that Russian forces abandoned the city of Kherson, which they had occupied since the beginning of the war. At first wary that the Russians were trying to trick them, the Ukrainian forces eventually swept into the city without facing Russian counterattacks.

Jeff Bezos and his long-term girlfriend Lauren Sanchez have awarded a $100 million Courage and Civility award to Dolly Parton, for her to use in any charitable way that she sees fit. Already known for her philanthropy, Ms. Parton responded by saying, “I will do my best to do good things with this money.” Awwwww. We love Dolly!

For the week ending on November 11th (Veterans Day), the S&P closed at 3,992, the Dow at 33,747, and the Nasdaq at 11,323. The yield on the ten-year Treasury Note closed on Thursday at 3.829% (the bond market was closed on Friday). New York gold cost $1,769.40 per ounce, U.S. crude oil cost $88.96 per barrel, and one Euro was worth $1.04.

Elizabeth E. Cook
Partner, Diastole Wealth Management

News and information presented here was gathered from sources believed, but not guaranteed, to be reliable, including (but not limited to) Insider, Yahoo Finance, Bloomberg, The New York Times, The Wall Street Journal, The Washington Post, USA Today, CNN, CNBC, The Economist, Barron’s, Fortune, Forbes, Reuters, and The Associated Press. If you have questions, please call us at 203.458.5220.

If you’ve always wanted a 1967 Mustang, but wished it were exorbitantly expensive, your opportunity is here! Charge Cars, an electric-vehicle startup, is making an electric replica of the ’67 Mustang Fastback that will only set you back $450,000. Yay? The car has four motors and will travel 0 to 60 in 3.9 seconds. Deliveries will start next year. Charge Cars was founded in 2016, and this is their first classic-car replica, although it is not expected to be their last. Of course, that will depend on their remaining in business. What could go wrong?

And finally, the National Park Service has warned visitors not to lick the Sonoran desert toad. Which will no doubt give some people the idea to lick the Sonoran desert toad. The toad is known for its toxic secretions, which can cause euphoria and auditory hallucinations WHEN SMOKED, but causes serious illness when ingested. Also, tell your dogs not to lick the toads, as the toxins could be fatal to them. My questions: how do we know this, and WHO DID IT FIRST?
DIASTOLE ECONOMIC AND MARKET COMMENT
November 21, 2022

Just when it looked like the not-yet-started recession might be over, we got good news on consumer spending, which (in the through-the-looking-glass world the Federal Reserve lives in) means bad news for future rate hikes. Normally, good retail sales are a positive economic factor, but the Fed still wants consumers to feel the pain and slow their spending, to bring prices down. We WERE thinking that the Fed would reduce its pace of rate hikes and maybe choose 0.5% (instead of 0.75%) when it next announces interest rates on December 14th, but that is now in doubt.

After a strong beginning last week, due to weaker than expected Producer Prices (remember, weak is good), markets took a tumble when the Wednesday-released retail-sales numbers rose 1.3% for October versus flat numbers for September. For the week, the Dow Jones Industrials fell 0.01%, the Standard & Poor’s 500 lost 0.69%, and the Nasdaq Composite ended 1.57% lower. The news of major layoffs at Amazon, Meta (parent company of Google), and Twitter affected the tech-heavy Nasdaq. All three indices remained positive for November.

Signs of inflation in the economy remain mixed. On the bad side of the ledger are several retail credit cards (including Macy’s, Exxon-Mobil, Wayfair, and others), which increased their maximum annual percentage rate to more than 30%. Yikes. The prices of grains like corn and wheat are still sky-high, although the Russia/Ukraine/Turkey/United Nations agreement to let grain exports leave Ukraine through the Black Sea is still holding, although fragile.

Other food prices are actually deflating. As are existing-home sales, which were lower for the ninth straight month in October.  Existing-home sales fell 28.4% for the twelve months ending in October. Prices of for-sale homes have moderated only slightly, because the supply of homes for sale is still restricted. People with fabulous mortgage rates are reluctant to relocate and have to pay double the rates on their new homes. The current rate on regular 30-year mortgages hovers around 7%.

Gas prices remain elevated by about 14% this year, which is down from the worst of gasoline inflation that we saw a few months ago. But diesel fuel costs 50% more now than in January. A year ago, the gap between gas and diesel was 23 cents per gallon. It now stands at an all-time high of $1.60. The implications for the economy of the excess cost of freight hauling are certainly inflationary.

U.S. clothing stores held 24.1% more inventory in September than in September of 2021, due to the bullwhip effect which led them to believe that Covid-era purchasing trends would continue forever. They didn’t. This inventory will have to be marked down to clear it out, which offers an opportunity to consumers. But several retailers, including Target and Kohl’s reported worse-than-expected quarterly results, pushing stock prices down for many retailers. Target earnings-per-share for the third quarter fell 50% year-over-year.

By contrast, Home Depot and Lowe’s exceeded Wall Street estimates, so apparently we are still fixing up our homes, we’re just doing it in our old clothes. Walmart also reported stronger-than-expected third-quarter sales, as more of us become discount shoppers.

Perhaps it is no surprise that credit-card and mortgages balance increases have resulted in the fastest pace of household debt growth in fifteen years.

U.S. inflation, now estimated at 7-8%, is certainly bad enough, especially as wages, while growing, are not keeping up. But the inflation rate in Great Britain has reached 11.1%, and 100 other countries have inflation rates higher than ours. One outlier is Japan, whose inflation rate is about 3.6% as of the latest reading. That is the highest it has been since 1982. Japan has been fighting deflation for decades, along with a declining population.

In a related story, last Tuesday the world’s population reached eight billion people. The United Nations is counting! We now have three times the population that we had in 1950, and eight times what we had in the early 1800s. Annual population growth peaked in the 1960s at 2%, and has since dropped off to under 1%.  By the end of the 21st century, annual deaths are expected to surpass births, and the world population will decline.

Elizabeth Holmes, the founder of Theranos, who promised to revolutionize blood testing with proprietary lab equipment that required only one drop of blood, was sentenced to more than 11 years in prison for defrauding her investors. You can read more about this fascinating fraud in Bad Blood by John Carreyrou. Worth it!

For the week ending on November 18th, the S&P closed at 3,965, the Dow at 33,745, and the Nasdaq at 11,146. The yield on the ten-year Treasury Note finished at 3.81%. U.S. crude oil cost $80.11 per gallon, N.Y. gold cost $1,754.40 per ounce, and one Euro was worth $1.03. Bitcoin and other crypto currencies remain at low prices as the cryptocurrency exchange FTX enters bankruptcy. John Ray, who formerly oversaw Enron’s liquidation, is the new CEO of FTX. “Never in my career have I seen such a complete failure of corporate controls,” he recently wrote in FTX’s Chapter 11 filing. At market peak, the value of all cryptocurrencies almost reached three trillion dollars. Today they are worth about $830 billion.

Elizabeth E. Cook
Partner, Diastole Wealth Management

News and information presented here was gathered from sources believed, but not guaranteed, to be reliable, including (but not limited to) The Wall Street Journal, The New York Times, The Washington Post, USA Today, Bloomberg, Yahoo Finance, CNN, CNBC, The Economist, Fortune, Barron’s, Reuters, and the Associated Press. If you have questions, please call us at 203.548.5220.

Asahiya, a family-run butcher shop in Takasago City, Japan, is famous for its Kobe beef croquettes. Boxes of frozen beef croquettes are popular. Very popular. Very very popular. In fact, if you order a box, you will have to wait 30 years before receiving your order. Perfect for the holidays - in 2052!