DIASTOLE ECONOMIC AND MARKET COMMENT
October 30, 2017
The butter market is in global upheaval! European butter prices have risen by 50% so far in 2017. The French are desolate. The Chinese, who have developed a taste for French pastry, are jonesing. Dairy cows are unionizing. (Okay, maybe not that, but the rest of it, yes.) Apparently a bad year for feed harvests has cut down on the productivity of cows in Europe, leading to the butter shortage. Even in the states, the price of Land o’ Lakes lightly salted is over $5.50 per pound. At Walmart! Butter-flavor Crisco is not the same! Holiday bakers, start your stockpiles!
Did you know that Amazon now offers to open your front door and put your packages inside if you’re not home? You know who else offers to do that? Criminals! And in more Amazon news, it turns out that if you go to an actual Amazon bookstore, and you are a Prime member, you will get online prices for whatever you buy. If you are NOT a Prime member, you pay full retail. It turns out that Amazon’s physical stores are really just Prime sign-up loss leaders.
Oil prices are still creeping up, and have now reached $53 per barrel. This pleases OPEC oil producers and especially the Saudis, who are still hoping that oil prices skyrocket before they go public with a Saudi Aramco IPO next year.
There was good economic news last week when it was announced that third quarter GDP growth exceeded 3% (annualized). That comes on the heels of the second quarter at 3.1%. As the economy heats up, and as the Fed reduces its balance sheet and the money supply, there will be more demand chasing less supply, and we will see interest rates rise. Which, in fact, they are starting to do. The yield on the ten-year Treasury is inching upward (now over 2.4%).
But at the same time, consumer debt has reached (another) record high. Household debt grew by $500 billion in the second quarter to $12.84 trillion. What happens to all of that debt as interest rates rise? Well, if it’s credit card debt or variable mortgages, the interest rate rises on that debt too, and it takes more money to make the payments each month. If it is at all possible, convert your variable debt to fixed-rate debt now, or pay down the principle owed. We have lived through mortgage rates over 14%, and credit card rates over 30%, and it’s not pretty.
And income inequality is also growing. Ray Dalio, founder of Bridgewater Associates, an institutional investment management firm, recently shared a chart that shows that the top 0.1% of American households hold the same amount of wealth as the bottom 90%. This wealth gap is similar to that of 1935 - 1940, when we saw a similar rise in populism.
Have you been to Chipotle lately? Instead of serving e coli, they have a new topping for their food: queso! If you want melted cheese sauce on your burrito bowl, and I do, it’s time for a road trip to Chipotle. Unfortunately, the queso is not getting the best of reviews, and Chipotle reported disappointing third-quarter earnings and a stock-price drop of 12%. And jokes and diseases aside, Chipotle is delicious, and we need more of them - like maybe right next door to Diastole in Guilford, Connecticut.
This holiday shopping season is expected to be the first in which online shopping exceeds shopping in “real” stores. That means more deliveries and possible visits from clever criminals in Amazon delivery outfits. With our packages and groceries coming to our doors, will we all buy delivery lockers to receive our abundance? Or maybe just put a fridge on the porch? (Because some people were way ahead of us on THAT idea.)
In more MORE Amazon news, the huge company is filing the paperwork to become a licensed pharmaceutical wholesaler. Would you order your prescriptions from Amazon? Maybe yes, if the price were right and they were Prime eligible. A lot of people are betting on that, and as a result, pharmacy company stocks are falling, and CVS has announced it may bid for Aetna Insurance, in an attempt to vertically integrate the company. CVS stock fell on the news, but Aetna stock rose from about $160 to almost $180. The buyout price is expected to be near $200 per share.
Jeff Bezos, CEO of, you guessed it, Amazon, made more than $6 billion (himself, personally) on Friday, when Amazon reported stellar earnings and revenue numbers and the stock jumped more than 8%. He now takes over as the richest person in the world, with a personal net worth of more than $90 billion. Poor Bill Gates fell to second, with a piddly $88 billion.
If you’re thinking of owning Bitcoin but think it isn’t risky enough, take heart! The Chicago Board of Options Exchange is considering selling Bitcoin futures. That would give you, basically, the ability to bet on the future of Bitcoin prices. The CBOE is partnering with the Winklevoss twins (of stolen-Facebook fame), who have been trying unsuccessfully to get a Bitcoin ETF approved by the SEC. Their firm is named Gemini (cute! twins!).
And have you put in your pre-order for an iPhone X yet? What are you waiting for? The pre-order period is open, the phone is expected to be released on Friday, November 3rd, and delivery estimates range from “no, no kidding, you’ll have it Friday,” to five weeks. The phone costs about $1,000 for 64 GB or $1150 for 128 GB. I have only one question, does it come with extra lives for Cookie Jam?
For the week ending October 27th, the Standard & Poor’s 500 closed at 2,581, the Dow Jones Industrials at 23,434, and the Nasdaq Composite Index at 6,701. The yield on the ten-year Treasury Note finished at 2.42%, while crude oil cost $53.90 per barrel, and gold cost $1,268.50 per ounce. The Euro was weaker at $1.1596.
Elizabeth E. Cook
News and information presented here was gathered from sources believed, but not guaranteed, to be reliable, including The Wall Street Journal, The New York Times, Barron’s, The Economist, businessinsider.com, the Associate Press, and Reuters. If you have questions, please call us at 203.458.5220 or reply to this email. Thank you for your attention!