DIASTOLE ECONOMIC AND MARKET COMMENT
March 29, 2021
I have been aground many times in my life, and usually just the bow of my boat is stuck, since boats generally move in a forward direction. The best way to get free is to climb out of the boat, walk through the shallow water to the bow, and push the boat backward off the sandbank. A rising tide helps. Also a friendly boat with a tow rope. And apparently that’s what’s happening after the Suez-Canal-stuck ship Ever Given was freed early this morning from the bank where her stern had gotten stuck and is now only mired in her bow. But instead of the Captain rolling up his pants and pushing with all of his might, the Egyptians are pulling the ship with tugboats. Smart.
The Ever Given is about as tall (long) as the Empire State Building, and holds 20,000 containers, which as of yet have not been offloaded to make the ship lighter. More than 150 other ships are waiting for their chance to get through the Canal, each of which will pay $500,000 for the privilege, and take on usually two Suez pilots to steer. Given the treachery of transiting the Canal, especially when the wind is blowing, as it was on Tuesday, it’s actually surprising that this has not happened more often.
The Canal is 120 miles long, and 30% of all of the world’s shipping container volume passes through it EVERY DAY - or at least every normal day. While the Ever Given has been stuck, global commerce has lost about $400 million per hour. PER HOUR! Ships in waiting have been reluctant to take the longer route around the horn of Africa, because it is dangerous, more expensive, and prone to piracy. Maybe I should have led with the pirates.
As Pulitzer-Prize-winner Thomas Friedman says, “The World Is Flat”. So events in the Middle East affect businesses everywhere. As do events in America. As of the weekend, mega hedge fund Archegos Capital has defaulted on margin calls, and is liquidating its positions. Markets in the U.S. and China are down today on the sales pressure, and bank stocks around the world are lower not only because they had loaned money to Archegos, which is now not paying, but also because they had invested in it. Oops.
We are seeing a continuation of the market transition to value outperformance from growth outperformance. Growth stocks did unusually well during the first year of the pandemic as we all hunkered down with our food deliveries and bought everything from Amazon. Now the world is reopening (perhaps a little too early, but still), interest rates are beginning to rise, which hits debt-heavy growth stocks harder, and value is looking better and better. Picture driving to the movies: you’ll need gas, and a cute new outfit, and actual movie theaters.
So, the Russell 1000 Value Index is up more than 10% this year so far, while the Russell 1000 Growth Index is flat. Meanwhile, the Dow Jones Industrial Average (value-heavy) closed at a new high on Friday, as did the Standard & Poor’s 500 (which is broad-based). The Nasdaq Composite Index, which heavily tracks small-to-mid and tech companies is off the high it reached in early February.
A year ago, one bitcoin was worth less than $6,000. Today it is worth $58,000. We will see as days unfold whether bitcoin was a pandemic play or whether its value will continue to rise. In the meantime, Elon Musk has said that Tesla is open now to bitcoin payments, with a caveat. Tesla will not give change! If you pay for a $90,000 Tesla with two bitcoins, you just overpaid! Musk says that Tesla will not exchange the bitcoins that it receives for dollars or any other sovereign currency. Instead it will build its cryptocurrency position. Also note that when you exchange your bitcoin for a car, you have essentially sold it, and therefore owe taxes on the gain you have realized, which may be massive.
In a related story, the Wall Street Journal and the IRS claim that the richest Americans are underreporting their income by more than 20%. Easy ways to cheat the government? Offshore accounts and cryptocurrencies. Don’t do this!
Last week saw the best new unemployment claim figure in a year. 684,000 workers filed for new benefits. It’s a huge amount, but less than was expected, and also less than the pre-pandemic record of 695,000. That’s good news, but there was also some less-than-good news. Consumer spending fell by 1% in February versus January, and personal income was lower by 7%. You’ll remember that January numbers were good because of the stimulus checks that were received.
Have you received a vaccine yet? If yes, then head to Krispy Kreme for your free daily glazed doughnut! Free doughnut every day this year with a vaccine card! But before you head out, you might also plan to buy yourself a Pepsi. Pepsi has teamed up with Just Born Quality Confections (maker of Peeps - do you see where this is going?) to create the new flavor Pepsi x Peeps. That’s right, it’s marshmallow-flavored Pepsi, the “ideal accessory and thirst quencher for springtime”!
For the week ending March 19th, the Standard & Poor’s 500 finished at 3,974, the Dow at 33,072, and the Nasdaq at 13,138. The yield on the ten-year Treasury Note closed at 1.67%, down from 1.7% earlier this month. U.S. crude oil cost $60.97 per barrel, while U.S. average gasoline was costlier by 30% than at this time last year. N.Y. gold cost $1,732.20 per ounce, and one Euro was worth $1.1796.
Elizabeth E. Cook
News and information presented here were gathered from sources believed, but not guaranteed, to be reliable, including (but not limited to) The Wall Street Journal, The New York Times, USA Today, Barron’s, The Economist, Bloomberg, CNBC, CNN, 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
Studies tracking the mystery of American obesity found that Americans’ weight actually dropped during the 1970s, but in the next 20 years Americans gained an average of 20 pounds. And now add in the Covid fifteen, and we’re all just weeble-wobbling around in our lives. What changed in the 1980s? A major public-health emphasis on quitting smoking. Clear correlation is not causation, but it makes sense. I’m not encouraging smoking, of course, but maybe a return to those cute bubble-gum cigarettes? (Thanks to Stephen Helfer’s letter to the WSJ for this insight. Except the part about bubble gum.)