DIASTOLE ECONOMIC AND MARKET COMMENT
July 8, 2019
We’re back to good news is bad news. A strong showing in jobs (224,000 created in June) caused markets to fall slightly from record highs last week, as investors feared this would keep the Federal Reserve Board from lowering interest rates. 160,000 jobs were predicted. May was a disappointing month in jobs, with 75,000 new jobs created - now revised downward to 72,000. But the markets liked the bad jobs report and disliked the good jobs report. Another factor which hits the markets quarterly is the blackout period that public companies face, which keeps them from doing important things like stock buybacks in the couple of weeks before they announce earnings. More on this later.
The unemployment rate edged upward to 3.7% in June, and wages grew by 3.1% (annualized), just shy of the 3.2% expected. It seems that our economic recovery, while tepid by previous standards, has exceeded all duration expectations with its slow and steady growth. Ten years and counting, and the memory of the pain caused by the Great Recession is fading. But we shouldn’t forget how the bubble burst, and the economy stopped dead, and only government spending and reduced interest rates got us going again. A recession will come, and we must have ballast to throw overboard when it happens.
Personal spending continues to fuel this recovery. In the second quarter of 2019 (April through June), personal consumption rose 3.7% annualized, versus a drop in business spending on equipment by 4.4%. Business spending on structures fell by 4.6% year over year. One place where business spending doesn’t seem to be falling is in stock buybacks. Goldman Sachs expects S&P companies’ buybacks to equal $940 billion this year. This means that fewer shares of stock are outstanding, but demand for stocks keeps growing as people fund their retirement accounts and some enjoy lower taxes. Therefore, prices rise. A new stasis will be reached at some point, although the corporate tax cuts enacted late in 2017 keep on giving.
Like Lucy with the football, Saudi Arabia is once more dangling the idea of an initial public offering of Saudi Aramco, the state-owned (and world’s biggest) oil company. We first heard about the potential IPO in 2016, but it was postponed several times, probably because oil prices were falling. In April, Aramco held its first international bond sale and raised $12 billion. In June of 2008, oil prices exceeded $160 per barrel, but have since been sliding because of a combination of slowing demand and growing supply. On Friday, U.S. oil cost $57.51.
Israel, which is surrounded by Middle Eastern oil-producing nations, has never struck much oil itself. But now it has found an abundance of offshore natural gas - so much that the whole country could run for a year on 1% of the reserves. The country is gas rich! But… cheap gas is already available from the U.S., Australia, Qatar, and Russia, and this increase in supply will make gas even cheaper. Is it worth it to build the necessary pipelines?
Women’s sports dominated the news last week as, first, 15-year-old Coco Gauff beat Venus Williams at Wimbledon. Coco continues into week two of the tournament. And then, the U.S. women’s national soccer team dominated in World Cup play and won the whole shebang. Equal pay is the team’s rallying cry, since the women soccer players earn MUCH less than the men. The grand slam tennis tournaments have instituted equal pay, but in lower echelon events there is a great disparity. Winners like the ones we’ve just watched bring attention to the problem, and hopefully the solution. It reminds me of a sign posted in my local lumberyard about women’s college basketball: “UConn, where men are men and women are champions.”
And speaking of college, student debt in America now exceeds $1.5 trillion dollars. There are more than three million senior citizens who are still paying on their student loans. (OMG, I think I’m one of them! 3,000,001!) (It’s not that I’m irresponsible, I was already 56 when I got my Master’s.) And due to repayment provisions that allow a borrower to repay less than the ongoing interest on his loans, there are 101 people in the U.S. whose student-loan indebtedness now exceeds one million dollars. According to a survey last year, student debt is the reason 13% of childless Americans decided not to have children.
Amazon turned 25 last week. And because it’s now a grownup, a U.S. court has ruled that Amazon can be held responsible for defective products that are sold on its site. As with all new industries (think robber barons), innovation and massive wealth come first, and regulation comes later.
Southern California wobbled with two major earthquakes at the end of last week, a 6.4 and a 7.1. Neither was “the big one”. Aftershocks continue, and there is a 10% chance that another quake of 7.0 on the Richter scale will hit this week. Thankfully, no fatalities were reported. My sister, who lives in Long Beach, is fine, thank you for asking. Also last week, the temperature in Anchorage, Alaska, reached 90 degrees, beating the record of 77 which was set 20 years ago. In a related story, there is apparently a simple answer to the problem of the 300 billion extra tons of carbon that humans have added to Earth’s atmosphere - plant trees! Researchers say there is enough suitable land available to increase our forests by one third. Trees naturally remove carbon from the air and store it in leaves and below ground.
Things worth Googling: did a guy driving a hearse really think he was entitled to travel in the carpool lane?
For the week ending July 5th, the Standard & Poor’s 500 finished at 2,990, the Dow Jones Industrials at 26,922, and the Nasdaq Composite Index at 8,161. The yield on the ten-year Treasury Note closed at 2.04%. U.S. crude oil cost $57.51 per barrel, N.Y. gold cost $1,396.70 per ounce, and one Euro was worth $1.1225.
Elizabeth E. Cook
News and information presented here was gathered from sources believed, but not guaranteed, to be reliable, including CNBC, The New York Times, Barron’s, Business Insider, Bloomberg, The Wall Street Journal, Reuters, and The Associated Press. Did you know that Walmart is now selling a complete line of sex toys? I will not tell you how I learned this.