DIASTOLE ECONOMIC AND MARKET COMMENT
September 13, 2021
They say that writing a weekly financial column is like riding a bike: wear a helmet, watch for potholes, and avoid politics. So, after my two weeks of undeserved leisure, I’m back to try this again. Thanks for sticking with me.
Last week markets were down after months of repeated record new highs. The Dow Jones Industrial Average fell by 2.2%, while the Standard & Poor’s 500 dropped 1.7%, and the Nasdaq Composite Index was 1.6% lower. The major precipitating factors were the ongoing rise in Delta-variant Covid infections, plus shockingly bad new employment numbers.
So, starting with Covid…. Currently unvaccinated people are eleven times more likely to die from Covid-19 than vaccinated people, and as of Labor Day, the U.S. had 300 times more Covid infections than last Labor Day. Hospitalizations are up 158% over last year at this time. Current evaluations of the available vaccines indicate that the Moderna shot is 95% effective at preventing hospitalizations, the Pfizer-BioNTech shot is 80% effective, and Johnson & Johnson is 60% effective. We expect to see booster-shot rollouts begin later this month or early next, and there are credible rumors that a vaccine for 5-11 year olds may be available in the same time frame. Currently about half of eligible Americans are fully vaccinated and another 20% or so have received their first shot.
Investors who have been anticipating the end of Covid and the full reopening of the economy have been disappointed that neither has happened yet. Some travel and restaurant stocks are sliding as a result. Fears of the new Lambda and Mu variants are on the horizon; early reports are that these variants now exist in all 50 states, and are susceptible to the current vaccines. But what happens when a new variant develops that is not susceptible?
The bad-jobs numbers are also Covid related. For the month of August, analysts expected new-job creation of 600,000 to 725,000, but only 235,000 people were hired. Currently, the U.S. has about 11 million jobs available, and nine million people looking for work. Problem solved! But no. The jobs that are available are not the jobs for which the unemployed are looking. Many are in retail, restaurants, child care, or housekeeping - the very kinds of jobs that most expose workers to Covid risk. Child care continues to be a problem. Not only is there a shortage of caregivers, but the absence of child care prevents parents from taking jobs.
It remains to be seen if the new school year will free up parents to go back to work, or will see schools have to close again due to infections. In the south, this is already happening. Complicating things for the unemployed is the expiration of extra pandemic jobless benefits. A few states are continuing to pay the benefits, but not most.
All of these factors are a drag on stock markets, but so is the looming debt-ceiling crisis. Treasury Secretary Janet Yellen has already warned the government that it will run out of money some time in October, as it is already scrimping in some areas to make payments in others. It is of critical importance to remember that the debt ceiling (which was reached on August 1st) limits the amount of money that the government can spend on debts incurred in the past. In other words, the government went on a credit-card spending spree, and now won’t pay its bills. The debt ceiling must be raised (as has happened 78 times since 1960) or suspended (as it was during the Trump Administration) in order for the government to issue more Treasury bills so that the current administration can pay the debts of the past one.
Defaulting on federal debt would be disastrous for the credit rating of the U.S., and for the ability of the government to stay open.
We have seen a lot of evidence of climate change recently, from hurricanes, to wildfires, to earthquakes, to floods. We are almost jaded to the inevitable news that this year will be hotter than last year. Like the weather, we talk about it, but don’t do anything about it. Until now! In Iceland, they have just brought online a new facility that pulls carbon dioxide out of the atmosphere and, through a series of processes, turns it into stone in deep underground caverns. Wow! The factory (?) is called Orca (which sounds like the word energy in Icelandic), and can process up to 4,000 metric tons of CO2 each year. In addition to making stone, the CO2 can also be used to carbonate drinks and feed plants. Energy companies can mix it with hydrogen to make fuel. By 2050, we will need to be drawing about a million metric tons out of the atmosphere to achieve carbon-neutral goals - so this small facility is just a beginning, but the company which built it is planning to size-up its design and start building more. Of course, it is expensive to operate, but so is putting out fires.
For the week ending September 10th, the S&P closed at 4,458, the Dow at 34,607, and the Nasdaq at 15,115. The yield on the ten-year Treasury Note finished at 1.33%. U.S. crude oil cost $69.71 per barrel, N.Y. gold cost $1,788.20 per ounce, and one Euro was worth $1.18.
Elizabeth E. Cook
News and information presented here was gathered from sources believed, but not guaranteed, to be reliable, including (but not limited to) The Washington Post (thank you for the Iceland story!), the New York Times, the Wall Street Journal, Yahoo Finance, Bloomberg, Kiplinger, Barron’s, The Economist, Business Insider, Reuters, The Associated Press, CNN, and CNBC. If you have questions, please call us at 203.458.5220 or reply to this email to reach me, Liz Cook.
There is a home in Los Angeles (technically Bel Air) that was expected to list for sale for $500 million, but instead, the owners have now defaulted on $165 million in loans. The mansion has 105,000 square feet, with a master suite of 4,000 square feet, a bowling alley, a 50-seat theater, a moat, and a bunch of other crazy luxurious features. Mortgage rates are still near record lows. Any takers?