DIASTOLE ECONOMIC AND MARKET COMMENT
July 6, 2021

On Sunday, Joey Chestnut won the Nathan’s Famous Fourth of July Hot Dog Eating Contest - again. He ate 76 hotdogs AND buns in ten minutes and set a new world record. Twenty-thousand calories is nothing to this guy! He won $10,000 for his effort AND beat the second-place finisher by 26 dogs. There’s a supply and demand joke in here somewhere, but darned if I can find it. Chestnut also holds the records for overeating glazed doughnuts, shrimp wontons, and Twinkies (121 in six minutes).

The real news from last week was the June jobs number which was released on Friday. 850,000 new jobs were added in the month, greatly exceeding the 583,000 which were added in May. (193,000 of the new jobs were government jobs.) Nonetheless, the unemployment rate rose to 5.9% from 5.8%. That’s because more people are now looking for work. While the employment numbers were great, the country is still more than seven million jobs short of where we were before the pandemic. Of course, it doesn’t count as a job until someone takes it, and there are a lot of help-wanted signs out there. Complicating many peoples’ job searches is the fact that child-care is still very hard to come by, and even schools that went back to in-person learning are on summer vacation now. 

Perhaps for that reason, the number of working women fell about 130,000 from May to June. The labor force participation rate for women was unchanged at 56.2%, but that is down from 57.8% at the beginning of the pandemic. Still, wages continue to grow. In June, wages were 3.6% higher than a year earlier.

OPEC+ met last week and was unable to come to a decision about increasing production. With demand accelerating as we all get back in our cars and actually drive somewhere, the leaders of OPEC were hoping to increase production to meet demand. However, some of the smaller oil-producing countries were opposed, since they are enjoying current price hikes. But if production is not increased, we will see prices rise further, which will entice U.S. frackers back into business. Right now the average price of a gallon of gas in the U.S. is $3.13 - up 44% from a year ago. Brent crude is a light sweet oil (not kidding, that’s how it’s typically described) which is refined mainly in Northeastern Europe. Its price is now 400% higher than the lows it hit in the spring of 2020. But West Texas Intermediate crude (refined in Texas, of course) is even sweeter (more sulphur) and is now infinitely more costly than it was in 2020 when its value went briefly negative.

Markets are near record highs again (still) - driven by new money pouring in. During June, $27.9 billion in net new deposits went into U.S. stocks, mostly from individual investors. As many new brokerage accounts were opened in the first half of 2021 as in all of 2020. Individual (“retail”) investors are now 70% confident that U.S. stocks will continue to rise over the next three months. Professional traders are only about 44% confident. Individuals are searching out more volatile stocks, but despite investor optimism, meme stocks like AMC Entertainment, GameStop, and Dogecoin, have all fallen from recent highs.

The Congressional Budget Office (CBO) last week projected that the U.S. budget deficit would reach $3 trillion in 2021 (fiscal year ends on September 30th), and that the deficit will average $1 trillion each year for the next decade. Our deficit is the amount we spend over what we earn in any given year. Our debt is the total that we owe (all of the deficits rolled together). This projection for 2021 is $130 billion less than the actual deficit we incurred in 2020, but is three times more than the deficit we ran up in 2019. Deficits are funded by selling Treasury debt, and although our Treasuries are yielding very little, they look attractive compared to the sovereign debt of some other countries (we’re looking at you, Germany and Japan) which have a negative yield. Negative yields are tricky things. In practice, it means that you pay more for a bond than you will receive in interest payments and redemption value over the life of the bond. But a negative-yield bond does have a cash flow.

Hollywood mogul David Geffen donated $150 million to the Yale School of Drama in order to make it tuition free for all students. The school is now The David Geffen School of Drama at Yale University. Everyone grab a bus for New Haven!

For the week ending July 2nd, the Standard & Poor’s 500 finished at 4,352, the Dow Jones Industrials at 34,786, and the Nasdaq Composite Index at 14,639. The yield on the ten-year Treasury Note was 1.44%. U.S. crude oil cost $75.16 per barrel, N.Y. gold cost $1,782.60 per ounce, and one Euro was worth $1.1865. Bitcoin was trading just under $34,000.00

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 Reuters, The Associated Press, The Wall Street Journal, The New York Times, USA Today, Bloomberg, Barron’s, The Economist, Business Insider, CNN, CNBC, and Market Watch. Please call us at 203.458.5220 if you have questions, or reply to this email to reach me, Liz Cook.

Fifty years ago, President Richard Nixon took the U.S. off the gold standard. Prior to that, American currency was exchangeable into gold, and world currencies were pegged to each other. In 1955, U.S. gold reserves exceeded dollars held by banks and governments by 160%, but by 1971, our gold reserves were worth only 25% of outstanding dollars. Since the gold standard was abandoned, our currency is backed by the taxing authority of the government, and it fluctuates in value compared to other currencies. In the fifty years since 1971, the price of gold has risen from $40.80 per ounce to about $1,800.00.
DIASTOLE ECONOMIC AND MARKET COMMENT
July 12, 2021

All three major stock market indices closed at record highs on Friday after a choppy week. Bond prices also rose during the week, causing bond yields to fall. Money is flowing into both sectors from savings built up during the pandemic, and some investors are refinancing at current low rates just to buy stock. I can’t help but worry about the enthusiasm.

At the same time, new U.S. Covid-19 cases rose by 47% over the prior week. The Delta strain accounts for more than 50% of new cases.

The Tokyo Olympics are now closed to all visitors, after Japan declared another coronavirus state of emergency. Olympic athletes may be unable to leave their bubbles to watch other sports events and the athletes are being limited on the number of people they can bring to Tokyo. Tennis player Novak Djokovic says he is now on the fence about attending the Olympics because of these restrictions. (But don’t be fooled, after winning Wimbledon yesterday, Djokovic is still on track to win the gold Grand Slam this year, and it’s unlikely that he will give up that chance.)

China just announced that it will reduce reserve requirement ratios on all its banks - creating more liquidity in the markets. While liquidity is good, it is not good that the government is reducing reserve requirements, which is something it does when an economic slowdown is on the horizon. Meanwhile, the Chinese government continues its crackdown on Chinese companies that have gone public in foreign markets. It is increasing regulation and data controls - hurting the foreign buyers of those companies as the stocks fall. Of course China could have prevented the IPOs from happening in the first place, but that would have only hurt Chinese investors.

ByteDance, owner of video app TikTok (and Chinese counterpart Douyin), has now postponed its IPO indefinitely due to the problems it is having meeting the regulatory requirements of both China and the U.S.

The U.S. debt ceiling suspension will expire at the end of July (this month!) and we have seen no proposals to either raise the ceiling or prolong the suspension. The debt ceiling caps the amount that Congress can borrow to pay its debts - NOT how much Congress can spend. If the debt ceiling is not dealt with, the government may shut down because it can’t make payroll.

The latest number of new unemployment claims came in on Thursday at 373,000 versus 350,000 anticipated. Nine million people are out of work, and nine million jobs are available, but there’s a mismatch. Those people don’t necessarily want those jobs. Some people moved away from work and don’t want to go back. Some parents still have no childcare. Some workers are looking for better jobs than they had before. And even though unemployment is just under 6%, which would usually indicate that employers are in the catbird seat, it’s not that simple. Although Congress has not acted on the minimum wage, individual employers are raising what they pay, in order to attract workers. Fast-food chains are paying bonuses to new employees, and, in some cases, paying people just to interview.

Mortgage demand fell last week, for the second week - to levels last seen before the pandemic. This doesn’t mean that the housing market has settled down, rather that there are no houses to buy. House prices and rents are rising, and those who thought they would ride the wave and sell their homes are now stuck with nowhere to move to. No one (an exaggeration) is building starter homes because they can use the lots for bigger houses with bigger profit margins.

And the same people who can’t get into the housing market are stuck with monstrous student loan burdens. Worse yet, people who were laid off and have chosen to go to graduate school may find themselves in jobs that don’t afford them enough pay to repay their student loans. Film school, we’re looking at you. 

If you want a case study in supply and demand, keep an eye on Hunter Biden’s burgeoning painting career. He is about to have a gallery show, and estimates for his per-painting sales now range from $75,000 to $500,000. The paintings are what you might expect from a talented beginner, but certainly not worth the estimates. My guess is that they won’t sell that high. But the real test is what they’ll be worth when the artist’s father is no longer president. 

As we learned this week, Neanderthals carved art into bones. Now THOSE are worth more than half a million dollars!

For the week ending July 9th, the Standard & Poor’s 500 finished at 4,369, the Dow Jones Industrials at 34,870, and the Nasdaq Composite Index at 14,701. The yield on the ten-year Treasury bond closed at 1.37%. U.S. crude oil cost $74.56 per barrel, N.Y. gold cost $1,810.00 per ounce, and one Euro was worth $1.1879.

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 Wall Street Journal, The New York Times, The Washington Post, USA Today, Bloomberg, Yahoo Finance, Business Insider, art critic Jerry Saltz at New York magazine, The Economist, CNN, CNBC, Reuters, and The Associated Press. Please call us at 203.458.5220 if you have questions, or respond to this email to reach me, Liz Cook.

A mining company in Botswana has just unearthed the third-largest diamond in the world. At 1,174 carats (as big as your fist) it looks like a dirty rock, but when polished and cut will be worth millions. The second-largest diamond was found by the same company in 2019. The world’s largest diamond was the Cullinan, discovered in 1905 and then cut into many stones, some of which are now in the British crown jewels. Honestly, if you found one of these in its original state at your house, you’d throw it into the woods just to get it off your driveway.
DIASTOLE ECONOMIC AND MARKET COMMENT
July 19, 2021

Last week stocks fell and bonds rose (causing yields to decline), which is not what’s supposed to happen during inflation. Then again, markets are unpredictable, and there are many cross-currents affecting them. Investors were and are concerned with new data showing that coronavirus cases are rising in all 50 states due to the Delta variant, and that Covid is still killing more Americans than guns, cars, and flu combined.

With Covid resurgent, we are seeing pandemic price moves again: airline, cruise line, and hospitality stocks are sliding, while pharmaceutical and construction companies are rising. But that’s just this morning. If the Delta variant persists or worsens, we are likely to see mask mandates return and maybe even some new lockdowns. In that case, big tech comes back to the fore, and consumer spending, which was robust in June, begins to lessen.

For now, prices are rising for many things, especially new and used cars, which accounted for half of the core Consumer Price Index (CPI) rise between May and June (0.88%). But oil prices are falling. There are two main reasons. First is the obvious idea that people will travel less as the Delta variant surges, and second, OPEC+ just reached an agreement to produce more oil. Production cuts last year reduced available oil by 5.8 million barrels each day. As demand has increased, prices rose. Now OPEC+ has reached an agreement to increase production by 400,000 barrels per day per month until production is back to normal. It remains to be seen whether OPEC+ (23 nations led by Saudi Arabia and, to a lesser extent, Russia ) will get caught wrong-footed if people cut back on travel again.

So, is inflation coming or going? According to Federal Reserve Chairman Jerome Powell, who testified to Congress last week, prices are currently high due to dislocations in supply chains and the difficulties of re-starting the post-pandemic economy. He expects inflation to moderate, and doesn’t think it’s time to tighten up monetary policy. Largely this decision rests on the state of employment in the country. Current unemployment is at 5.9%, but pre-pandemic unemployment was 3.5% - also considered “full employment”.

The Fed continues to buy Treasuries and thus keep yields low. In fact, during a recent period, the Fed bought more Treasuries than the federal government issued. Even when inflation is feared, some investors and countries still must buy Treasuries, so limited supply of Treasury bonds is a factor in falling yields.

There are a couple of worrying signs in stock markets. Americans’ allocations to stocks has reached just under 60% of investible assets. This is barely shy of the all-time high of 61.7%, which was reached during the dot-com bubble of the late ‘90s and early 2000s. It is usually a bad sign for stocks when ordinary investors believe it’s time to jump in. And market breadth has deteriorated to the point at which now only 49% of S&P companies are trading above their 50-day moving average. A few months ago, it was 90%.

As I said earlier, cross-currents. Covid, better or worse. Inflation, higher or lower. 

There was bad news on other fronts last week. We learned that the Amazon rainforest, which has long been touted as the carbon absorber for the world, now produces more carbon itself than it can absorb. This is mainly due to land-clearing and fires. And opioid deaths rose in 2020 by 30%, hitting 93,000 - the highest level ever recorded.

But there was good news, too. Amazon got FCC approval to make a device that remotely monitors your sleep. Using radar. Wait, that’s not good news.

And the Guinness World Record was set for most expensive french fries by Serendipity3 in New York City. The potatoes are blanched in Dom Perignon before being cooked in goose fat, seasoned with truffle salt, tossed in truffle oil and covered in shaved truffles, cheese, and 23k edible gold. If you’re still on the fence, the fries are served with a side of Mornay sauce. Is that good news?

For the week ending July 16th, the Standard & Poor’s 500 finished at 4,327, the Dow Jones Industrials at 34,687, and the Nasdaq Composite Index at 14,427. The yield on the ten-year Treasury Note closed at 1.31% but is lower today. N.Y. gold cost $1,814.50 per ounce, U.S. crude oil cost $71.81 per barrel (also lower today), and one Euro was worth $1.1806.

Elizabeth E. Cook
Partner

News and information presented here was gathered from sources believed to be reliable, including, but not limited to, Yahoo Finance, The Wall Street Journal, Barron’s, The New York Times, The Washington Post, USA Today, Business Insider, The Economist, CNN, CNBC, 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

The storming of the Bastille has remained a symbol of the French revolution for more than 230 years, even though it turned out that there were only seven prisoners kept inside - four forgers, a sexual deviant, and two madmen. The prison itself was torn down starting the next day, July 15th, 1789. But it turns out that you can still see the key to the Bastille at George Washington’s home Mount Vernon. The key was gifted to him by the French in thanks for America’s help with their revolution. Which we owed them because of all the help they gave us in our revolution. It’s nice to have friends.
DIASTOLE ECONOMIC AND MARKET COMMENT
July 26, 2021

Markets plummeted a week ago in the face of bad news about the Covid-19 Delta variant. And that made sense, because Delta is more virulent and more transmissible than original Covid. But by the end of the week, major market indices hit new highs. What? Delta is still surging, and fewer than half of all Americans are fully vaccinated, but stocks are shrugging it off.

Last week we saw government bond yields fall sharply as nervous investors sought safety, but by the end of the week we saw prices move lower and yields higher. Again, what?

As usual, some analysts are calling for clear sailing and soaring equities, while others are calling for an imminent correction. Take your pick. Also as usual, we advocate careful asset allocation and a long-term investment horizon so that you will weather whatever comes.

The pandemic has affected many different parts of our economy, and the government has responded. But many pandemic programs are set to expire in the near future. The eviction moratorium will end this week except for states that have individually extended it. Additional unemployment benefits are due to expire in September. Student loan payment forbearance will end at the end of September. The special ACA enrollment period ends mid-August. The federal 15% increase in food stamps runs out at the end of September. There are still 9.5 million unemployed workers and 9.8 million job openings, and perhaps the ending of some of these benefits will push workers back into jobs, but childcare and eldercare are still problems, as is a genuine fear of infection for public-facing jobs.

Last year, our life expectancy in the U.S. fell by 1.5 years to 77.3 years. This is the biggest drop in life expectancy since World War II. In conjunction with that, we have a population problem. In 2019, only five states reported that deaths exceeded births. In 2020, half of all states reported that. Experts say that our population in 2021 may grow very slightly, or may actually shrink. If we want GDP to keep increasing, and we want to keep social security and medicare coverages as baby boomers retire, we need to add younger workers. Immigration is the easiest way.

And speaking of government payments, the debt-ceiling suspension is STILL due to expire at the end of this week. That means that if it doesn’t take action, Congress will be unable to pay for debts it has already incurred. Janet Yellen, Treasury Secretary, is calling urgently for the ceiling to be raised or suspended again by Monday August 2nd. If it isn’t, money will be juggled to meet immediate needs like payroll, which will work for a couple of months. But even then, non-essential payments will not be made. Remember when the national parks were closed and federal workers furloughed? Republicans who suspended the debt ceiling in the first place (in 2019, during former President Trump’s term) are now digging in their heels about doing it again.

As prices for many commodities continue to rise, it appears that supply is more of the problem than demand. Lumber prices, which increased dramatically over the past year as lumber production was cut and shipping/trucking options were limited, are now rising again due to wildfires in the Pacific Northwest. Some car and truck makers are temporarily shuttering plants due to semiconductor shortages, and Intel’s CEO predicts that semiconductors may be in short supply until 2023. It will take that long for existing and new production facilities to all come on line.

And now, a quick turn to the Olympics. If you were confused, as I was initially, about the “ROC” team, it turns out that the Russian Olympic Committee team is made up of Russian athletes who tested clean for performance enhancing drugs. The rest of the Russian team was banned again from competing due to what is apparently a state-sponsored doping scheme. Also, when we get to track & field, please notice how many runners are wearing pink Nikes. These relatively new and innovative Vaporfly shoes are believed to increase running efficiency by 4%, and may cut five minutes off of an elite runner’s marathon time. Official explanation? There is extra bouncy stuff in the soles.

For the week ending July 23rd, the Standard & Poor’s 500 closed at 4,411, the Dow Jones Industrials at 35,061, and the Nasdaq Composite Index at 14,836. The yield on the ten-year Treasury Note finished at 1.30%. U.S. crude oil cost $72.07 per barrel, N.Y. gold cost $1,801.40 per ounce, and one Euro was worth $1.1722. Bitcoin rallied from recent lows to $33,521 on the news that Amazon was considering taking it as a form of payment.

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

Two ice samples taken from the Tibetan Plateau in China were analyzed by scientists, who found genetic code for 33 viruses in the 14,400 year-old ice. 28 of the 33 viruses were novel, never-before-discovered viruses. My advice to the scientists: DO NOT THAW THEM!