DIASTOLE ECONOMIC AND MARKET COMMENT
August 27, 2018

Markets are up today on the news that Mexico and the U.S. have reached a preliminary agreement on important areas of the NAFTA renegotiation.  Canada has not been a party to the talks, and must still weigh in.  We love trade agreements, even when we don’t have the details yet.  So much better than trade disagreements!

And the Standard & Poor’s 500, which reached a new high of 2,874 on Friday, is still rising today.  So far.  I can’t make any promises about the afternoon.

And making no promises is what Elon Musk has done.  First he’s taking Tesla private, now he’s not.  He says he’s listening to his shareholders, but in fact his stock fell on the announcement that he was just kidding last week.  Tesla short-sellers have paid a price for the whiplash, which is probably exactly what Musk intended.  He hates short sellers.

The U.S. trade talks with China, which resumed to much fanfare last week, have already adjourned without making progress.  Let the tariff war continue!

Saudi Arabia, which has been floating the idea of an initial public offering of its sovereign oil company Saudi Aramco (or at least 5% of the company, which is still worth many many billions) has now said nope, not gonna.  But then they said, maybe soon.  Or maybe later.  And first we’re going to diversify our holdings out of just oil, and maybe sell a private stake in the company to Russia or China.  You know, in addition to that IPO that probably is coming.  Or not.

Lucy, would you please hold the football for me?

Is this the longest bull market in history?  Apparently yes.  The S&P is up fourfold since it hit bottom at 666 (insert devil joke here) in March of 2009.  That means that the market has been rising steadily for more than 3,453 days without a major correction.  And with 80% of S&P companies beating their earnings expectations for the second quarter, and the tax cuts still helping corporations, we hope this bull keeps raging.

Do you know that 66% of American homes (85 million) have pets?  There are more pets than people in the U.S. (393 million).  We spent $17 billion in veterinary care in 2017, along with more than $1 billion in pet health insurance premiums.  What is the most common pet?  Wait for it… fish!  But if cats were two inches long and lived in little glass houses, we bet there would more of them.

Walmart has filed a patent for a virtual store.  In theory, it would allow an online shopper to roam the aisles of an imaginary big box, look at all of the goods, and impulse shop like crazy.  And so the last bridge falls!  The whole point of Walmart is that you go in needing one thing and come out with 17 items that somehow cost $272.68.  TMI?

And speaking of online shopping, the non-profit organization New Food Economy has analyzed state government data and determined that one third of Amazon employees in Arizona and one tenth in Ohio are on food stamps.  Bernie Sanders is planning to propose legislation that would tax companies when their employees are on government assistance.  What are your thoughts on this?

Maersk, the world’s largest shipping company, is blazing a new sea trail.  It is sending a 3,600-container ship from Vladivostok to St. Petersburg via the Arctic.  For those of you who are geography-challenged, Vladivostok is on the east coast of Siberia, across the Sea of Japan from Sapporo, while St. Petersburg is in Europe, across the Gulf of Finland from Helsinki. In the olden days (like last week) that ship would have had to travel through the Suez Canal, currently backlogged with other ships carrying goods trying to beat tariffs.  But thanks to global warming, the northern route is now navigable.  This is not good news for the planet, although it is certainly good for Maersk.

Russia, on whom we are levering sanctions, is fighting back by selling U.S. Treasury bonds.  In March, Russia owned $96 billion worth of U.S. debt, but by May that figure was down to $14 billion.  What are they doing with the money?  They’re buying gold.  Russia’s gold reserves grew by 26 tons in July to a total of 2,170 tons in reserve.  That’s worth about $86 billion dollars at today’s price.  Gold is a traditional safe-harbor investment, but is it going to rise in value with inflation around the globe (not you, Venezuela) so low?

Have you tried to cross the Brooklyn Bridge lately?  Are you on the Brooklyn Bridge right now?  If you’re lucky, today is NOT a day that infamous Mexican drug lord El Chapo needs to go to court.  He is currently awaiting trial in Manhattan, but the courthouse is in Brooklyn, so every time he has to show up, the police close the bridge completely in order to transport him securely.  You’ll remember the escape he made through his prison bathroom in 2015 - well, officials don’t want him tunneling off the bridge(?).  Expect things to get worse once the trial starts, or perhaps the drug lord will be moved to a Brooklyn prison by then.

Apple CEO Tim Cook earned 560,000 Apple shares on Friday as part of his compensation deal.  That’s more than $120 million.  Just on Friday.  His pay is tied to the performance of Apple stock, which of late has been stellar. 

A 1962 Ferrari 250 GTO just sold for $48.4 million.  That’s a new record for any car sold at auction.  And I don’t want to brag about my personal life or anything, but, hey, lunch is on me!

Oh, and West Virginia’s lower house just impeached the entire Supreme Court of West Virginia for overspending on office decorations and other forms of corruption.  Now the W.V. Senate must vote on whether the justices will all be removed from their jobs.  If they are, governor Jim Justice will name their replacements.  The governor owns the Greenbrier resort and is the state’s richest person.  Just thought it was interesting.

For the week ending August 24th, the S&P 500 finished at 2,874, the Dow Jones Industrials at 25,790, and the Nasdaq Composite Index at 7,945.  The yield on the ten-year U.S. Treasury Note was 2.81%.  Crude oil cost $68.72 per barrel, gold was lower at $1,206.30 (sorry, Russia), and one Euro cost $1.1626.

Elizabeth E. Cook
Partner

News and information presented here was gathered from sources believed, but not guaranteed, to be reliable, including The Economist, The Wall Street Journal, The New York Times, Barron’s, businessinsider.com, Reuters, and CNBC.  If you have questions, please call us at 203.458.5220 or reply to this email.  Thank you for your time and attention!
DIASTOLE ECONOMIC AND MARKET COMMENT
September 4, 2018

No man is an island. Unless you’re a Qatari citizen!  Qatar, which sticks out into the Persian Gulf from Saudi Arabia and has no other land neighbor (check Google maps - it’s fun!) is in a current diplomatic freeze with Saudi Arabia, Bahrain, Egypt and the United Arab Emirates.  Some of this is due to Qatar’s founding of Al-Jazeera, one of the most watched news channels in the Middle East, and one which often criticizes the Saudis.  But lots of this is due to Saudi Arabia’s coveting Qatar’s territory.  Last month, apparently, U.S. Secretary of Defense James Mattis discouraged the Saudis from invading and seizing Qatar, and since we have lots and lots of soldiers in Qatar, the Saudis stood down.  Our largest Mid-East base is in Qatar, because when Saudi Arabia refused to host American troops as they mustered for our invasion of Iraq (the first one), we turned to Qatar, which has been happy to have us ever since.

Got all that?  Well, Saudi Arabia is proceeding now with a plan to dig a 38-mile canal that would effectively cut off Qatar from the mainland and leave it an island.  It is apparently the last part of a plan that follows the Saudis’ cutting of air and land traffic to and from Qatar (last year).  This leaves Qatar relying on Iran (currently under its own sanctions), Turkey, and Oman for supplies (arriving by ship).  What happens when Qatar is further isolated?  Well, one wonders how long it can hold out against pressure from its Big Brother neighbor.  And why does Saudi Arabia care so much?  Qatar has the world’s third largest reserve of natural gas and oil, and the world’s highest per capital income.  Oh, now it makes sense.

And the world’s fastest growing economy is… India!  India posted GDP growth of 8.2% (annualized) for the second quarter, which beat expectations and was also higher than the first quarter, which came in at 7.7%.  China, which you thought would win, grew at an annualized 6.7% rate in the second quarter.  India’s advantage may be that it is NOT a target of President Trump’s trade war.  But it also could be that the Indian rupee is at an all-time low, making Indian goods super affordable to the rest of the world.  The Reserve Bank of India has recently raised its benchmark rate to 6.5%.

In Australia, like everywhere, the Catholic Church is under fire in the wake of numerous abuse scandals.  A government inquiry made 20 recommendations to the Church for reforms, “98%” of which the Church says it will implement.  The reforms NOT being adopted include mandatory reporting of child abuse which is revealed in confessions, and ending mandatory celibacy for priests.

Also in Australia, Qantas (the only word that comes to mind without a U following the Q - oh wait, QATAR!).  Where was I?  Oh yes, Qantas Airlines is “convinced” that its new planes will fly nonstop from Sydney to London in about 20 hours.  This is longer than any other regular scheduled air service.  But that “convinced” has me “concerned”.  Did a snake-oil salesman “cajole” them into this “certainty”?  You know what would be fun?  Being on that first flight.  For you, I mean.  Fun for you.

Ongoing U.S. trade talks with Mexico and Canada (sort of) are ongoing.  But the reworking of classic NAFTA into new NAFTA is facing deadlines.  The announcement last week that the U.S. and Mexico had reached a deal was premature.  We had in fact reached a deal to continue trying to reach a deal.  But the current president of Mexico leaves office on December 1st, and there is real concern that President Trump will try to make good on his threats to sign a new deal that excludes Canada.  The Senate, which has the constitutional authority to approve treaties, may have something to say about that.

Vladimir Putin is proposing to raise retirement ages in Russia.  The retirement age for women jumps from 55 to 60, while men must work to 65.  President Putin explained in a televised speech that pension reforms are necessary because of a shrinking working-age population.  This is a global developed-world problem, as we have often discussed.  Life expectancy in Russia is about 70 years, on average, while in the U.S. it is 78 years.  But Russian men have a 25% chance of dying before age 55 (American men have less than a 10% chance).  The primary culprit of the early deaths?  Vodka.  Not kidding.  Also smoking.  Mostly drinking and smoking.

Continental drift continues.  We tend to think of continents as having moved (in the past) but sitting still now.  Probably because we can’t feel them change.  But actually, they are still scooting along.  For instance, for 40 million years, Africa and Europe have been pile-driving toward one another, pushing up the Alps and Pyrenees along the way.  And in another 50 million years, the two land masses will combine completely, eliminating the Mediterranean and creating a new mountain range as tall as the Himalayas.  Cool!  But sad for beach-goers.  If you stand on the shores of the Mediterranean now and look closely for about a year, you will see a two centimeter shift.  The Americas are shifting, too, but it is uncertain if they are moving westward toward Asia, or eastward toward Europe.  And some scientists say northward.  So, basically, they have no idea.  But Europe and Africa, that’s a done deal.

In desultory news, the U.S., stock markets reached record highs last week.  Kind of like the Everest of equities!  The President announced that he was canceling across-the-board pay increases of 2.1% for federal employees (except military members who will receive 2.8%).  And it turns out that Legos are made from petroleum, and the manufacturing of them releases about one million tons of carbon dioxide into the air each year.  The Lego people are trying to find an alternative material, but the hunt may take years.  Currently, sustainable materials are used for the flexible Legos (like trees) - but they constitute only about one percent of Lego pieces.

For the week ending August 31st, the Standard & Poor’s 500 closed at 2,901, the Dow Jones Industrials at 25,964, and the Nasdaq Composite Index at 8,109.  The yield on the ten-year Treasury Note finished at 2.86%.  Crude oil cost $69.80 per barrel, gold cost $1,200.30 per ounce, and one Euro was worth $1.1605.

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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, Barron’s, The Economist, businessinsider.com, CNBC, CNN, and Wikipedia (but only for historical stuff, because, who knows?).  If you have questions, please call us at 203.458.5220 or reply to this email.  Thank you for reading!
DIASTOLE ECONOMIC AND MARKET COMMENT
September 10, 2018

First of all, Happy New Year!  It is Rosh Hashanah, and we enter the year of 5779 by the Jewish calendar.  Also, Happy New Year!  The Muslim year of 1440 begins tonight.

By the calendar of the Common Era, it is still 2018.

Last week, Amazon briefly became the second company to exceed one trillion dollars in market capitalization, after Apple.  But then it slid backward to just $995 billion.  Losers.  Jeff Bezos remains the richest person in the world - except for Vladimir Putin, who apparently owns all of Russia.

The former Silicon Valley darling Theranos is closing down completely.  The blood-testing company which was founded by Elizabeth Holmes was once (recently) worth $9 billion.  Now Holmes and her second-in-command Sunny Balwani are facing criminal fraud charges with penalties of up to 20 years in prison and a maximum fine of about $2.75 million each.

Another former darling, Facebook, which has undergone extra scrutiny in the past two years, is facing user push back.  Results of a recent Pew Research Center study show that 54% of users have adjusted their privacy settings, 42% of users have taken a Facebook break of several weeks or more, and 26% of users have deleted the Facebook app from their phones.  There are apparently still more than one billion Facebook users, but if these trends continue, Facebook revenue (which comes from selling ads and user data) will be affected.

August was the 95th consecutive month of job growth in the U.S..  201,000 net new jobs were created, and wages in the private sector were higher by 2.9% than a year earlier.  The unemployment rate continued at 3.9% - an 18-year low.

The annual budget deficit (not the debt, which is the total of all we owe, but just what we need to borrow this year to keep everything open) is nearly double what we needed last year.  In 2017, the government borrowed $519 billion, but we are on track to borrow $955 billion this year, and $1.1 trillion next year.  As interest rates rise, our debt will be more expensive to carry (picture yourself with a variable mortgage) and will increase faster.

Normally a bank takes your money, makes mortgage and car loans with it, loses money on some of those loans, and pays you a piddling amount after it takes expenses.  What would you think about a bank that takes your cash deposit, invests it in treasuries instead, and gives you the income from the Treasuries?  It’s lower risk, and potentially higher return for depositors.  Sounds pretty good except for one thing: the Federal Reserve Board just refused to open an account for the bank, which is named TNB USA.  The bank is suing the Fed, alleging that it is favoring big Wall Street banks over a bank that would serve its users.  Proponents of so-called “narrow banks” say that corporate depositors’ money would be safer in Treasuries than in commercial bank short-term portfolios, which often consist of the bonds of other corporations.  Those opposed to the idea say that the “narrow banks” would drain depositors from bigger banks, potentially forcing those banks to make riskier loans.  What they actually may be objecting to is the idea that the current banks might have to pay higher rates of return on deposits in order to keep their customers.

The current administration’s trade wars are having unintended consequences, as trade wars always do.  In an attempt to reduce our trade deficit (what we export minus what we import - often a negative number because we LOVE imports!), we have actually increased our deficit.  In July, our trade deficit rose by 9.6% from June, to a total of $40.1 billion.  The individual deficits that we run with China and the European Union hit record highs in July.  Our deficit with Canada increased by 58%.  This all means that we continue to import with abandon, while our exports have fallen drastically - especially soybeans, which are our largest agricultural export.  China, for one, is now sourcing its soybeans from South America.

You may remember that I like to make fun of WeWork, a company which leases office space, improves it with ping-pong tables and juice bars and then re-leases it in small chunks to start-ups and one-man companies for above-market prices.  For how long is that sustainable? I have asked.  Well, apparently for longer than I thought.  WeWork is now poised to be the number one tenant in Manhattan, surpassing JPMorgan.  In the first half of this year, WeWork grabbed more newly-leased space nationwide than the next nine largest firms combined.  Apparently the ability to rent less square footage with communal amenities is very attractive to millennials.  Color me old and wrong!

There has been a dust storm raging on Mars for three months.  Who cares?  Well, NASA.  The Mars rover Opportunity went into hibernation mode on June 10th to wait out the storm and has yet to wake up.  The rover needs sunlight in order to power its batteries, and sunlight has been in short supply.  Opportunity was launched in June of 2003 and landed in January of 2004, with an expectation that it would last for 90 days.  Fifteen years later, NASA is hoping that the intense storm will clear soon.  If Opportunity doesn’t call within 45 days, the rover’s active mission will end and NASA will move on to passively listening for its wake-up call.  Oh Wall-E, don’t give up!

Did you ever start golfing, get to about the 12th hole and think, “Gee, I wish I had eaten two burgers at the turn”?  Me neither, but nonetheless a golf course in North Dakota is now using drones to deliver fresh food to golfers as they stride the course.  After all, what if the drinks cart doesn’t appear SOON?  You just use an app on your phone and wait for your grilled cheese to arrive like manna from heaven.  The delivery fee is $3, which no doubt pays for brews and nachos when the drone’s shift is over.  (C’mon, who WOULDN’T order just to see it arrive?  Genius!)

For the week ending September 7th, the Standard & Poor’s 500 finished at 2,871, the Dow Jones Industrials at 25,916, and the Nasdaq Composite Index at 7,902.  The yield on the ten-year Treasury Note was 2.94%.  Crude oil cost $67.75 per barrel, gold cost $1,193.60 per ounce, and one Euro was worth $1.1557.

Elizabeth E. Cook
Partner

News and information presented here was gathered from sources believed, but not guaranteed, to be reliable, including Barron’s, The Wall Street Journal, The New York Times, businessinsider.com, Bloomberg, CNN, and CNBC.  If you have any questions, please call us at 203.458.5220 or reply to this email.  Enjoy the new year!
DIASTOLE ECONOMIC AND MARKET COMMENT
September 17, 2018

Markets were up last week on no big financial news.  No news is good news!

But, of course, things did happen.

For instance, the U.S. finally and officially became the world’s number one oil producer, for the first time since 1973.  We’ve been cuspish for awhile, but have finally reached the top, producing about 11 million barrels per day.  Saudi Arabia and Russia trail after us.  Fracking and shale-oil production are the keys to our success, and those efforts are greatest in Texas.  Thank you Texas!  Interestingly, our oil refineries have such capacity that they still require foreign oil in order to stay busy.

There’s a lot of Brexit-related news.  The mayor of London, Sadiq Khan joins a growing number of Brits calling for a second Brexit referendum in the hopes of cancelling the whole thing.  Londoners voted 60% to 40% in opposition to Brexit in the first place.  UBS has chosen to move its European headquarters from London to Frankfurt post-Brexit, while Unilever has decided to end its dual stock listing in London and the Netherlands, and will remain listed in the Netherlands only.  Thus, it drops out of the FTSE 100 index and will no doubt see its stock sold off by FTSE ETFs and Index funds.

And the governor of the Bank of England, Mark Carney, is said to have told cabinet ministers that the chaos of Brexit may cause property prices to fall by as much as 35%.  This could be due to a rise in interest rates (People buy houses based on how much they can afford to pay monthly, so a rise in interest rates usually engenders a drop in purchase prices.), a glut of houses for sale by Europeans leaving Britain to go home, and a rise in unemployment causing mortgage defaults, causing banks to become cautious.  It all sounds bad, and somewhat familiar.

We tend to refer to the current U.S. job market as at full employment.  After all, we have only 3.9% unemployment.  But is it really full employment?  Some analysts don’t think so.  Josh Bivens of the Economic Policy Institute says, “The definition of full employment is low- and moderate-wage workers actually get raises.  We are not at full employment until that happens.”  If you’ve heard that wages are rising, it’s true, but there’s a big but.  If you exclude managers and supervisors (who make up 20% of the workforce), workers actually saw their wages slip slightly during the last year.  Who can we blame for this?  Old people!  The St. Louis Federal Reserve Board has found that “all of the net increase in employment since 2000 - about 17 million jobs - has been among workers aged 55 and older.”  (Full disclosure: that includes me!)  So, older workers, who are more likely to be managers and supervisors, have taken ALL of the new jobs created in the past 18 years.  Labor force participation among 55+ has grown from 32% to 40%, while overall labor force participation has fallen from 67% to 62%.  And this trend started well before the Great Recession.  We may drive really really slowly, but we hang on tightly to our jobs with our skeletal Miss Havisham hands!

Elon Musk’s Space X is set to announce (today!) which absolutely random citizen tourist it will send on a trip around the moon next year.  Boy, I hope it’s somebody who wants to go!

The leaders of Russia and China met last week and held the largest war game exercises since the fall of the Soviet Union.  At least 300,000 soldiers were involved.  President Putin and President Xi have met three times already this year.  They donned aprons and cooked blini together!  And then they met with Japan’s Prime Minister Shinzo Abe, and Putin proposed a Russian/Japanese peace treaty.  Technically, Russia and Japan are still operating under a ceasefire that was signed during the cold war.  What happy campers together: Russia, China, and Japan.  Gee, who’s missing?  Keep your eyes open!

China is also in the news for humanitarian issues.  First of all, up to one million Uighur Muslims have been detained, without charges or trials, in re-education camps.  The Chinese government says that it is helping “those lost in extremist ideas”.  But we know from the past that re-education is an often brutal process of indoctrination.  Also missing is extremely  popular Chinese actress Fan Bingbing, who has starred in X-Men movies as well as Asian films.  The Chinese government says she has been arrested for tax evasion and that the situation is under control.  The actress has not been seen since June.

Tobacco stocks surged after the Federal Drug Administration (FDA) threatened to pull flavored e-cigarettes off the market if the industry does not address the epidemic of e-cigarette use among children and teens.  The e-cigarettes, which are marketed with flavors like gummy bear and cherry, have nicotine in various quantities.  And while adults who are trying to stop smoking may chose diminishing nicotine levels, children are apparently choosing increasing levels as they adjust to the drug.  Why would tobacco stocks rise on this news?  Because if deliciously-flavored e-cigarettes disappear, nicotine addicts may have to go old school.

Jeff Bezos and his wife Mackenzie have pledged two billion dollars to help preschoolers and the homeless in the U.S.  They are planning to establish a national network of free, non-profit, Montessori-type preschools as well as donate to organizations that provide outreach services to the homeless.  Insert your own joke here about Amazon employees being the first to need the help.

All of our best wishes go out to the families suffering from the effects of Hurricane Florence.  No joke.

For the week ending September 14th, the Standard & Poor’s 500 finished at 2,904, up more than one percent for the week.  The Dow Jones Industrial Average was up almost one percent at 26,154, and the Nasdaq was up 1.36% at 8,010.  The yield on the ten-year Treasury Note closed at 3.00%.  Oil cost $68.99 per barrel, gold cost $1,195.00 per ounce, and one Euro was worth $1.1624.

Elizabeth E. Cook
Partner

News and information presented here was gathered from sources believed, but not guaranteed, to be reliable, including The Economist, Barron’s, The Wall Street Journal, The New York Times, businessinsider.com, and CNBC.  If you have questions please call us at 203.458.5220 or reply to this email.  Thank you for reading!