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
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