DIASTOLE ECONOMIC AND MARKET COMMENT
November 12, 2018 - Veteran’s Day

Veteran’s Day was yesterday, the 11th day of the 11th month, but it is being observed today.  Thank you to all of the veterans who served their countries in the eternal quest for peace and justice, including our fathers and brothers and mothers and sisters and children (my father was in the Navy and the Air Force).  On such a solemn occasion, we remember all who considered it an honor to fight for the highest ideals of humanity.

There was an important mid-term election last week, and leaders on both sides of the aisle claimed victory.  We will see what difference it all makes when the new electees take their seats in January.

The Federal Reserve Open Market Committee (FOMC) met last week, and to no one’s surprise it kept interest rates unchanged.  We expect the next rate hike at the FOMC mid-December meeting.

Fires are burning out of control in California, which has experienced three years in a row of extreme-drought conditions.  So far 31 people have died, and 228 are still missing.  The Northern-California Camp Fire started on Thursday and spread at a rate of 80 football fields per minute, catching people as they tried to escape.  Strong winds and low humidity are making a hard job even harder for firefighters.

It’s tough to pivot to the markets after that news, but we will try.  Volatility continued last week as weak economic data from China pulled technology and internet shares lower.  Oil prices entered a bear market (down 20% in October) as the expected sanctions against Iran affected fewer Iran-oil buyers than expected, and oil stockpiles around the world grew.  Saudi Arabia and Russia met to discuss production goals, and (as expected) Saudi Arabia proposed cutting its oil production while Russia decided to stay full steam ahead.

But despite all the news and market swings, the Dow Jones Industrial Average finished the week up 2.8%.  For the past two weeks, the Dow is up 5.3%, but that follows a loss of 5.1% in October.

Tobacco companies’ stocks fell after the FDA announced that it will pursue a ban on menthol cigarettes, even though it could take a couple of years before a ban is approved and implemented.  Menthol cigarettes are considered a gateway to traditional cigarettes, because they are less harsh for smokers.  At the same time, Juul decided to pull delicious candy-flavored e-cigarettes from stores because they entice teens to smoke.  The attractive flavors will remain available on the internet.  One fifth of high-school students polled had smoked e-cigarettes in the past month.

While Amazon has not made its announcement, it appears that it has chosen not one, but two locations for its second (and third) headquarters.  Betting on HQ2 now favors Crystal City, Virginia (Washington, D.C. area) and Long Island City, New York (across the East River from Manhattan).  25,000 new jobs are expected in each new location.  And Alphabet (parent company of Google) will add 12,000 new jobs in New York City.

Alibaba (the Amazon - but bigger - of China) reported record sales of $30.8 BILLION on Singles Day (November 11th) this year.  Singles Day is a made-up Alibaba holiday when single people are encouraged to console themselves by buying things.  What we call Monday!  It is the biggest online shopping day of the year.

South-East Asia’s largest-ever shopping mall opened last week in Bangkok, Thailand.  It is as big as 105 soccer pitches (which are themselves bigger than football fields).  150,000 shoppers per day are expected to visit the center, which will use more electricity than some of Thailand’s poor provinces.  According to MasterCard, Bangkok was the world’s most visited city last year.

While we rightly worry about the U.S. annual deficit and overall debt (which stands at about 100% of our gross domestic product (GDP), Japan is in even worse shape.  Its government debt has reached 200% of GDP.  Japan faced decades of recession, which it only recently escaped due to government spending and economic stimulus.  The Bank of Japan is keeping interest rates artificially low to help the government make its interest payments (sound familiar?)  The government now forecasts that it will return to budgetary surplus in 2025, although it has pushed back this date several times in the past.  While the long recession had many causes, the most important of them may have been the strong Japanese yen, which depressed exports.

The Department of Agriculture last week lowered its projections for soybean exports by 160 million bushels  to 1.9 billion bushels for the 2018-2019 marketing year.  China, previously the number-one foreign buyer of American soybeans, is now turning to South America and other regions for its soybean supplies.  Soybean farmers are receiving government subsidies totaling about $3.6 billion to reimburse them for trade lost due to retaliatory tariffs.  That means that instead of selling their soybeans to China, farmers are losing market share while they receive a subsidy, which is paid for by sales of U.S. Treasury bonds (including to China).

The British government under Prime Minister Theresa May is now saying a “hard-Brexit” may be necessary (meaning Britain would leave the Eurozone with no agreement for continuing trade deals nor for the free movement of citizens), while a new poll shows that 54% of Britons wish they could stay in the European Union.

Credit Suisse has announced its rankings of the world’s richest countries.  But a lot depends on how you sort the data.  If you consider total wealth divided by the number of adults (average wealth per grown-up), the U.S. ranks third, after Switzerland and Australia.  But if you look at median wealth per adult (meaning the level at which half the people have more and half have less) the U.S. ranks 18th.  It is another sign of growing income-inequality here in America.  Canada, for instance, ranks 7th by the first metric, and 6th by the second.

For the week ending November 9th, the Standard & Poor’s 500 finished at 2,781, the Dow at 25,989, and the Nasdaq Composite Index at 7,406.  The yield on the ten-year Treasury Note was 3.19%.  Crude oil cost $60.19 per barrel, gold cost $1,207.70 per ounce, and one Euro was worth $1.1336.

Elizabeth E. Cook
Partner

News and information presented here was gathered from sources believed, but not guaranteed, to be reliable, including Bloomberg, the Wall Street Journal, the New York Times, Barron’s, businessinsider.com, The Economist, Reuters, and the Associated Press.  If you have any questions, please call us at 203.458.5220 or reply to this email.  Thank you for your time!
DIASTOLE ECONOMIC AND MARKET COMMENT
November 19, 2018
The Camp Fire in California has been burning for more than ten days, and Cal Fire (the state’s fire protection agency) anticipates it won’t be fully contained for another ten days.  So far at least 77 lives have been lost and hundreds are still missing.  If you want to help, go online to find a list of charities that are actively involved with survivors; the Red Cross is always a good place to start.

The Pacific Gas & Electric Company (called PG&E, but with symbol PCG) has said that it could be responsible for the fire, because it had problems with transmission lines in the area when the fire started.  Furthermore, the utility company has already exhausted its three-billion-dollar revolving line of credit to pay for a fire-related liability.  Worries that PG&E would go bankrupt under the cost of the fire caused the stock price to fall in half last week.  But California’s Public Utilities Commission President Michael Picker said that he couldn’t imagine letting the utility company go under, and instead the Commission would implement a strategy through which the costs of the fire would be passed along to all consumers.  The stock price regained 45% on Friday.

Meanwhile the Woolsey Fire has burned almost 100,000 acres in Los Angeles and Ventura Counties.  Some residents of especially tony neighborhoods have saved their houses with private fire-fighting teams (we’re looking at you, Kim and Kanye).  It turns out that this is not unusual, and that often the private firefighters are paid for by homeowner’s-insurance companies who would rather pay for that service than pay for the loss of a mega-multi-million dollar house.  Extra, extra, extra premiums are charged for policies that pay for private fire-fighting.

As interest rates gradually rise, we are beginning to see the side-effects of more expensive money.  And even though many of those effects can be anticipated, it doesn’t make them any less troublesome.  The International Monetary Fund (IMF) is now warning about the “leveraged-loan” market.  There is about $1.3 TRILLION in below-investment-grade loans held by investors who were attracted by the higher yields paid by the riskier issues.  During the past ten years, as interest rates have been held artificially low by the Federal Reserve Board, investors have accepted risk levels they would previously have avoided, in order to gain more interest income.  The IMF says, “It is not only the sheer volume of debt that is causing concern.  Underwriting standards and credit quality have deteriorated.”

With rising rates, corporations are borrowing less.  And banks which are dependent on those loans, and hope to loan more as rates rise, are instead facing having to lower their borrower standards in order to make their loan quotas.

What happens when rates rise as underwriting standards fall?  Don’t look now, but does housing bubble ring a bell?  There is no reason to think that mortgages are unusually vulnerable right now, but there will no doubt be adjustments in the market as interest rates reach a level at which banks WANT to loan but the best qualified borrowers step back.  And meanwhile, the Federal Housing Administration (FHA) is warning that it may hold inflated home appraisals in both its reverse-mortgage and traditional-mortgage portfolios.  The FHA insures 11% of all single-family residential mortgages in America, and is on the hook for gaps between appraised values and selling prices.  (Mortgage insurance protects the lender, not the buyer.)

Before the Great Recession, China produced 6% of world GDP.  Now it produces 16%.  The Chinese government responded to the financial crisis with a massive stimulus package - as did the U.S.  Now both countries are debt-laden in an era of rising rates.

Washington and Beijing have resumed trade talks.  Currently, the U.S. has a 10% tariff (rising to 25% in January) on $200 billion of Chinese goods, and 25% on another $50 billion in Chinese imports.  China has retaliated with duties on $110 billion of U.S. products.  China has also offered some trade concessions, but the president has said, “It’s not acceptable to me yet.”  The U.S. and other Chinese trade partners are concerned about Chinese trade practices, especially the theft of intellectual property.  The world’s biggest shipping company, AP Moller-Maersk announced a third quarter profit, but said that global container trade was occurring at “a much slower pace of growth”.  It blamed tariffs, and added that the U.S.-Chinese trade war could reduce container trade by up to 2% in 2019.

Levi Strauss & Company is planning to go public in the first quarter of next year!  You probably haven’t given it much thought, but the company has been in the hands of the Strauss family and descendants since Levi himself died in 1902 and left his company to his four nephews.  (Levi’s has a Japanese affiliate that is already publicly traded in Japan.)  The company is expecting to raise about five billion dollars with its initial public offering (IPO).

NASA is building a super-heavy-lift rocket to take astronauts back to the moon.  But it is also saying that if SpaceX (Elon Musk) or Blue Origin (Jeff Bezos) can safely launch their own  heavy-duty rockets, it might stop building.  What is it about billionaires and rockets?

A pearl pendant which once belonged to Marie Antoinette sold for $36 million at Sotheby’s, after having been valued at $2 million.  You will remember that Marie Antoinette smuggled her jewels to her family in Austria before losing her head in the French Revolution.  Her only surviving child, a daughter, reclaimed the jewels in 1796.  This is the first time that they have been for sale.

Pilots at Japan Airlines (JAL) will now be breathalyzed before flying.  Previously, pilots were only tested if they exhibited signs of drunkenness.  19 JAL pilots failed breathalyzers in the past 15 months.  Raise your hand if you thought this was already being done for EVERY SINGLE PILOT before EVERY SINGLE FLIGHT!  Note to self: fly JAL.

A recent poll reported which news hosts we most and least trust.  Most trusted: Lester Holt.  Least trusted: Sean Hannity.  In general, anchors from traditional networks were trusted more than anchors from cable outlets.  But Anderson Cooper appears on both lists!

For the week ending November 16th, the Standard & Poor’s 500 finished at 2,736, the Dow Jones Industrials at 25,413, and the Nasdaq Composite Index at 7,247.  The yield on the ten-year Treasury Note ended the week at 3.11%.  Gold cost $1,220.80 per ounce, Oil was down at $56.83 per barrel, and one Euro was worth $1.1414.

Happy Thanksgiving!  May this week be the beginning of a wonderful holiday season for you and yours.

Elizabeth E. Cook
Partner

News and information presented here was gathered from sources believed, but not guaranteed, to be reliable, including businessinsider.com, The Wall Street Journal, The New York Times, Barron’s, The Economist, Bloomberg, The Associated Press, and Reuters.  If you have any questions, please call us at 203.458.5220 or reply to this email.  Thank you for your time!  (Gobble, gobble!)
DIASTOLE ECONOMIC AND MARKET COMMENT
November 26, 2018

We hope you had a lovely Thanksgiving and avoided Black-Friday-driven shopper-collision-panic collapse.  Is that really a thing?  Maybe.

However, the markets did fall like a chocolate soufflé last week.  Sucking the air out of equities were several factors, including the seventh straight week of oil prices falling, tech stocks reacting to bad news from Apple (which expects to sell fewer iPhones in the coming year) and from Facebook, which remains under heightened scrutiny after doing lots of dumb, wrong things, and third quarter retail sales, which were disappointing.  Also, there are ongoing concerns about our trade wars.

The FAANG stocks contributed to shaky nerves on Wall Street.  Facebook, Apple, Amazon, Netflix, and Google (now part of Alphabet) were all down more than 20% for the week. (Technically a market correction is a loss of 10% while a bear market is 20%.)  Apple, which was worth over $1 trillion in August is now worth about $840 billion.  Amazon, which also toyed with a market cap of $1 trillion, is now at $731 billion.  The overall U.S. markets are very slightly up for the year.

But the good news for the week included those same falling oil prices, which, while not benefitting oil producers (and perhaps discouraging U.S. shale oil drillers from working for awhile) will actually help lots of transportation industries and the U.S. consumer.

The G20 summit opens in Argentina on Friday.  This could set the stage for a confrontation on trade between the U.S. and China, which remain at loggerheads, with tariffs going both ways and hurting both economies.  (The phrase “at loggerheads” implies two parties in an ongoing dispute, but can also refer to loggerhead turtles.  You choose.)  A sideline meeting for President Trump and President Putin is scheduled, and it is expected that the nations present will discuss the Saudi killing of journalist Jamal Khashoggi.

British Prime Minister Theresa May has reached a Brexit agreement with the European Union, but has to get approval from Parliament and doesn’t appear to have the votes to do so.  Conservatives think the agreement keeps England too closely tied to the EU, while liberals believe a revote on the whole thing is growing more possible.  Still undecided is what will happen at the border between England, which is leaving, and Ireland, which is staying.  Will passports be required for the first time?  Does England’s leaving the EU essentially break up the British Empire?

Last week our government issued a federally-mandated every-four-year report on climate change.  Among its findings: heat waves cause more American deaths each year than hurricanes, lightning, tornadoes, earthquakes, and floods combined, and this number is expected to rise.  Continuing extreme temperatures will cost U.S. workers an estimated $160 billion in lost wages by 2090, and will contribute to a growing number of wildfires.  Plus our outmoded and hackable energy grid will grow ever more fragile.

The California Camp Fire is now 100% contained, which does not mean that it has been extinguished, but that a fire-proof perimeter (like dirt trenches) has been established so that it can no longer spread.  Pacific Gas and Electric disclosed that there was a second power-line failure on the morning of November 8th, when the Camp Fire first erupted.  85 people are confirmed dead, while about 250 remain missing.  The fire has burned an area roughly the size of Chicago, and destroyed 14,000 homes, 514 businesses, and 4,265 other buildings.

Polar night has begun in Utqiagvik, Alaska (formerly Barrow).  Every year, the town of 4,000 goes for 65 straight days without a sunrise.  The town sits well above the Arctic Circle.  In the summer, by contrast, the town will have an equal period with no sunsets.  Not sure what that would feel like?  Binge-watch “Northern Exposure”!

Last week ten paintings sold for more than $25 million at auction.  Among them was David Hockney’s Portrait of an Artist (Pool with Two Figures), which sold for $90,312,500 - a record for a living artist.  Hockney originally sold this painting in 1972 for $18,000 (probably half of which went to his dealer) and will not see any of the proceeds of this record sale.

Diastole is proud to announce that we are helping this year’s Toy Closet toy drive to benefit the children at Yale-New Haven Children’s Hospital.  Feel free to stop in, say hi, grab a candy cane, and donate a new, unwrapped toy.  Stuffed toys are not accepted by the hospital because of germ issues, and toys must be no longer than 24 inches.  Children of all ages will be grateful!

For the week ending November 23rd, the Standard & Poor’s 500 Index finished at 2,632, down 3.7% for the week and up .2% for the year.  The Dow Jones Industrials closed at 24,285, down 4.4% for the week but up .3% for the year.  And the Nasdaq Composite Index was at 6,938, down 4.25% for the week and up 1.5% for the year.  The yield on the ten-year Treasury Note finished at 3.04%.  West Texas Intermediate (WTI) crude oil fell to $50.42 per barrel, while gold sold for $1,221.00 per ounce, and one Euro was worth $1.13.

Elizabeth E. Cook
Partner

News and information presented here was gathered from sources believed, but not guaranteed, to be reliable, including The New York Times, The Wall Street Journal, Bloomberg, businessinsider.com, Barron’s, The Economist, Reuters, and The Associated Press.  If you have any questions, please call us at 203.458.5220 or reply to this email.  Thank you for your time during this busy season!
DIASTOLE ECONOMIC AND MARKET COMMENT
December 3, 2018

After the markets fretted through November about rising interest rates and international trade wars, good news was received on both fronts in the past week.

On Wednesday, Federal Reserve Board Chairman Jerome Powell gave a speech in which he called current interest rates near normal, and then expressed that he didn’t want to raise rates too quickly and thereby slow down the economy.  Investors loved it!  The Dow Jones Industrial Average rose by over 600 points that day.

Then, at the G20 Summit in Argentina, President Trump and Chinese President Xi agreed to a trade-war cease-fire of 90 days.  The U.S. will not go ahead with a tariff hike on Chinese goods that was previously scheduled for January 1st, while the Chinese promised to buy more American agricultural products, energy, and industrial output.  The 90-day window will hopefully give the countries time to negotiate an end to the current trade hostilities.

While most consumers love lower oil prices, especially now that we’re in heating season, we must remember that the U.S. is the number-one oil producer in the world, and that low oil prices damage our oil companies, especially the shale-oil producers.  Their breakeven cost of oil is close to the $50 per barrel that we’re now seeing.  West-Texas-Intermediate (WTI) crude is up slightly from last week on the good news of the trade war recess and this Thursday’s meeting of OPEC, at which production goals may be cut.

And speaking of cut, Qatar is leaving OPEC after 60 years.  It says that it is not a major oil producer and wants to focus on its much larger natural gas business, but there is no doubt that Saudi Arabia’s cutting off of Qatar is a factor.

The new NAFTA (now called USMCA) was signed at the G20 by its members: Canada, Mexico, and the U.S.  Now Congress will have to ratify the treaty.  The provisions of the new pact are pretty much the same as the old pact, but with the addition of modern agreements about digital data, intellectual property, worker pay, and some other stuff.

The British Treasury has estimated that a Brexit under the terms that Prime Minister Theresa May has negotiated will reduce British GDP by almost 4% over the next 15 years.  A Brexit with no agreement at all would reduce GDP by 9%.  A majority of the country now favors staying in the European Union, but it remains to be seen if a re-vote will be taken.

It’s been a few months, so with pleasant nostalgia I remind you that we are facing another governmental shutdown on Friday.  Or at least we were, although now it appears that a two-week stopgap measure may be put in place due to the sad passing of President George H. W. Bush and the state funeral that will occupy the government this week.  It was only going to be a partial shutdown of some departments of the federal government, including Homeland Security, and, after all, who wouldn’t rather face a governmental closure on December 21st?

General Motors has announced that it will idle seven factories and lay off (or displace) about 14,000 workers.  Investors are happy that the automaker is upgrading its line of vehicles (more SUVs, fewer sedans), but human beings are worried about all of those newly-unemployed people.  The business gossip mill is whispering that GM may be playing a long game and could reverse some of its decision when it engages with employee unions in contract talks in the spring.

Marriott Hotels has disclosed one of the largest data breaches in history at its Starwood Properties subsidiary.  The personal data of up to 500 million guests was stolen in a hack that dates back to 2014.  But one wonders, did the hack also hoover up the pay-per-view cable television records of lonely business travelers?  Or is that just me?  (Full disclosure: I spent one college summer break as a chambermaid.  The stories I could tell!)

The World Chess Championship of 2018 ended last week, with the world’s top-ranked player retaining his crown.  Norway’s Magnus Carlsen (age 27) won only after three weeks of draws in classical chess when the format switched to faster-paced tiebreakers.  American Fabiano Caruana (26) was the runner up (i.e. loser).  Computer analysis of the games indicated that each player failed to convert on one glimmer of a faint idea of an opportunity during the twelve matches.  No word on how good they are at checkers.

If you are stymied about what to give for holiday presents this year, may I suggest the new Big Mouth Billy Bass singing fish, which is Alexa-compatible?  Just picture everyone on your list watching a fake mounted fish flopping and singing along with Alexa.  Really.  Picture it.

For the week ending November 30th, the Standard & Poor’s 500 finished at 2,760, the Dow at 25,538, and the Nasdaq Composite Index at 7,330.  The yield on the ten-year Treasury Note closed at 2.99%.  West Texas crude oil cost $50.93 per barrel, gold cost $1,220.20 per ounce, and one Euro was worth $1.1320.

Elizabeth E. Cook
Partner

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, Bloomberg, businessinsider.com, Reuters, and The Associated Press.  If you have questions, please call us at 203.458.5220 or reply to this email.  Thank you so much for squeezing us in!