July 5, 2017
“Would I say there will never, ever be another financial crisis?  You know probably that would be going too far, but I do think we’re much safer, and I hope it will not be in our lifetimes, and I don’t believe it will be.”
            Janet Yellen, June 27, 2017
No financial crisis in our lifetime? Stop daring fate!  You might as well wash your car, believing it won’t rain.  Ever.
But despite Ms. Yellen’s crazy talk, the U.S. economy continues to chug along, and there has, in fact, been no financial crisis since the 27th.  I hope she plans to live a long, long life!
The third revision of the first quarter’s GDP came in higher, at 1.4%.  This is a number that was first reported at 0.7%, then changed to 1.2%.  This means that the initial GDP number was 50% lower than the third revision.  Can you imagine if your speedometer were this inaccurate, or (horrors!) your bathroom scale?  Would you trust the final number?  Well, some economists don’t, and prefer to use other metrics to gauge the health of the economy.
So, we look at consumer spending, which rose by 0.1% in May, or 1.4% versus the previous May.  Consumers are responsible for 70% of all domestic spending.  Personal incomes also rose in May, by 0.4%.  But orders for durable goods (think washing machines versus groceries) were down over one percent for the month.  Most analysts think that our economy is still a little sluggish, despite near-full employment.
The first half of the year ended on Friday, and there are interesting differentiations in global markets.  For instance, in the U.S., the Standard & Poor’s 500 and the Dow Industrial Average both rose by 8% in the first half while the Nasdaq Composite Index, which is tech-heavy, was up 14%, based mostly on the FAANG stocks.  (Facebook, Amazon, Apple, Netflix, and Google – not to be confused with FAAMG, which replaces Netflix with Microsoft.)  But some foreign markets did even better, with India up 16%, Hong Kong up 17%, and South Korea up 18%.
Emerging markets are back on the upswing, largely due to the slide of the dollar.  The dollar was at a 14-year high in December, and now is at its low for the past 12 months.  Investors are selling U.S. dollars and buying Canadian dollars and Euros.  So the dollar buys fewer or less of those currencies.  At the same time, the dollar is finding equilibrium with the Japanese yen and the British pound.  This kind of trading lets us know where investors have confidence.  It also reflects interest rates, which are beginning to rise abroad, making dollars less attractive
Many commodities, including gold, are sold worldwide in dollars.  (Commodities are traded widely in emerging market countries, for whom commodities are a major asset – think natural resources.)  They are dollar-denominated.  As the dollar weakens in value versus other currencies, an investor can buy more of dollar-denominated commodities.  This is part of what is pushing gold higher.  The other part is a desire for “safe” assets in the face of political and economic tensions here and abroad.
And speaking of safety, the state of Texas is planning to build a gold depository run by Lone Star Tangible Assets.  If and when they get it up and running, they hope you will deposit your gold with them.  And by you, I mean the University of Texas, which has $861 million in gold bullion stored in a bank vault in Manhattan.  The Texas depository will be the first ever state-regulated gold vault.  90% of the revenue received (think safe deposit box rentals) will go to Lone Star, while the state will receive 10%.  It is not clear at this time if U.T. will agree to move its gold (think heist thriller movie), nor if other depositors will materialize.
Another thing we’re waiting to see materialize are investors in Blue Apron.  The stock, whose IPO was priced last Thursday at $10 per share after having been floated at $15-$17, is now trading closer to $9.  Maybe it was wrong to bank on Americans cooking MORE?  The IPO raised $300 million for APRN, and gave the company a $1.9 billion market valuation.  Rumors are swirling that Blue Apron will need to raise money again in the near future.
Elon Musk has announced that the new Tesla Model 3 will be deliverable beginning on July 28th.  The Model 3 sedan is supposed to be priced at $35,000 but is expected to cost closer to $50,000 once options (think wheels!) are added in. 
In finance-related news, the biggest U.S. banks passed part two of their annual stress tests, allowing them to use excess capital for stock buy-backs, dividend payments, or other creative things (think CEO bonuses!), instead of keeping it all on hand as insurance against financial meltdown.  It was this success that prompted Janet Yellen to make the most irrational prediction of her career (see quote at top).
For the week ending June 30th, the S&P 500 closed at 2,423, the Dow at 21,349, and the Nasdaq at 6,140.  The yield on the ten-year Treasury Note finished higher at 2.3%.   Crude oil cost $46.04 per barrel, gold cost $1,240.70 per ounce, and one Euro was worth $1.1420.
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, Forbes, businessinsider.com, and Bloomberg.  If you have questions about what you’ve read, please call us at 203.458.5220 or reply to this email.  Thank you for your attention.
July 10, 2017
If you’re thinking that parents in other countries don’t face the same challenges that we do, take China as an example.  Following criticism from the Chinese government that children are spending too much time playing video games, internet company Tencent is limiting the amount of time that players can spend on its “Honour of Kings” mobile game.  Players aged 11 and under will get one hour per day, and those 12 – 18 will get two hours a day.  No word yet on how Tencent will know who is playing, nor on how much time 27-year-old bachelors still living in their parents’ basements will get.  “Honour of Kings” is played by 55 million people per day, and you will be delighted to know that its American release is scheduled for this fall.
And speaking of adults living in basements:  Get up!  Get dressed!  There are jobs!  The Bureau of Labor Statistics announced on Friday that 222,000 net new jobs were created in June.  This is much higher than the estimates.  AND wages grew by 0.2% for the month (up 2.5% versus June a year earlier).  The unemployment rate rose slightly from 4.3% in May (which was a 16-year low) to 4.4% in June.  How can we hire more people at the same time that more people are unemployed, you ask?  Well, it’s because more people decided to rejoin the workforce and look for jobs.  This is generally seen as a good sign for the health of the economy, implying as it does that workers are optimistic about getting new positions.  African-American unemployment fell 1.5% from the prior year to 7.1%.  While still significantly higher than the overall unemployment rate, this is the smallest gap on record between the two figures.
Not helping the employment picture is news from Microsoft that it will cut up to 10% of its global sales force.  Microsoft employs 121,000 people worldwide, of whom about 52,000 are in sales.  Layoffs beginning in July (the start of Microsoft’s fiscal year) are normal for the company.  Last year it laid off over 2800 people beginning in July.  Microsoft hopes that reorganizing its sales force will help streamline and increase cloud-computing sales.  The Chief Executive Officer of Microsoft, Satya Nadella, has a 95% approval rating on GlassDoor, which aggregates anonymous employee reviews.
We’ve been hearing a lot lately about the demise of brick-and-mortar retail stores and jobs.  A look at the data shows us that it isn’t that simple.  Over the past 15 years, department stores have lost 448,000 jobs.  But retail overall gained 645,000 jobs.  Are they all in e-commerce?  No!  Warehouse clubs are booming.  (Think Sam’s Club and Costco, among others)  Jobs in warehouse clubs have grown by 841,000 in the past 15 years, while jobs in online retailing are up only 178,000.  One part of the reason is that physical stores require much more manpower to run than online stores, and another part of the reason is that during the Great Recession, consumers flocked to discount outlets and established new shopping habits. 
Uber has finally rolled out its new “tipping allowed” app in 100 major cities, and will soon offer it everywhere.  The app gives passengers a chance to add a tip when they rate their drivers.  At the same time, there is a new “pay for wait” aspect to the app, which charges passengers a penalty fee if they keep their drivers waiting for more than two minutes.  Previously you had up to five minutes to catch your Uber ride as it slowly glided through traffic on a side street not quite conveniently close to where you were standing when you called for it.
And speaking of transportation, have you ordered your Tesla Model 3 sedan yet?  The first Model 3 will roll off the production line on July 28th.  It belongs, no surprise, to Elon Musk, CEO of Tesla.  But other Model 3s will follow, and although they are base-priced at $30,000, it is expected that they will really cost more like $50,000.  The Tesla share price is falling after the Model 3 scored only the second-highest rating in its crash tests, surpassed by Mercedes and Toyota in the large sedan category.   It is also rumored that Tesla may have trouble reaching battery-production goals, which may slow down future car deliveries.  The slip in Tesla stock has dropped Tesla to second in market capitalization among American car manufacturers; GM has regained the lead with a market cap of $51 billion.  Tesla’s market cap is about $47 billion, while Ford is at $43 billion.  But those who are worried that Tesla is overpriced (among them Elon Musk himself) are looking at car-delivery numbers.  In the first half of this year, GM delivered 1.4 million vehicles.  Ford delivered 1.3 million.  Fiat Chrysler delivered one million.  How many did Tesla roll off the line?  47,000.  Volvo has announced that by 2019 all of its cars will be fully electric or hybrid.  Jaguar has confirmed that it will release an electric SUV in 2018 that will be a direct competitor of Tesla’s Model X.  Tesla, plagued with production problems for years, will find itself in a much tighter market in the near future.
John McAfee, developer of McAfee antivirus software, recent libertarian candidate (not nominee) for U.S. President, and one-time person of interest in a murder in Belize, has settled a lawsuit with Intel, who bought McAfee Associates in 2010.  Intel sued McAfee for continuing to use his own name on new products and companies.  According to the terms of the settlement, McAfee will stop using the McAfee name on most future ventures, ceding those rights to Intel.  McAfee is now a venture capitalist, with fingers in many pies, including new software, cellphone apps, natural antibiotics, yoga and legalizing marijuana.
American shale-oil drillers continue to expand their wells to record numbers, despite the recent drop in oil prices.  With interest rates still low, drillers are increasing capacity for the future, and thwarting OPEC’s plan to reduce production and increase prices.
For the week ending July 7th, the Standard & Poor’s 500 closed at 2,425, the Dow Jones Industrials at 21,414, and the Nasdaq Composite Index at 6,153.  The yield on the ten-year Treasury Note was 2.39%.  Oil sold for $44.23 per barrel, gold cost $1,208.60 per ounce, and the Euro was worth $1.1404
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, Reuters, and Wikipedia.  If you have questions, please call us at 203.458.5220 or reply to this email.  Thank you for your attention.
July 17, 2017
American markets are snoozing their way higher during the summer doldrums.  Last week, the Standard & Poor’s 500, the Dow Jones Industrial Average, and the Russell 2000 all closed at record highs.  This was due to several factors, including Fed Chairman Janet Yellen’s testimony to Congress, in which she emphasized that the economy continues to hum along and that future rate hikes, in her opinion, would likely proceed on schedule.  Crude oil also moved slightly higher last week, which makes energy stocks happy and drivers sad.
Also sad last week were big banks.  JPMorgan Chase, Citigroup, Wells Fargo, and PNC Financial all beat Wall Street expectations for second-quarter results, but the stocks slid because the results weren’t ALL good.  For instance, JPMorgan Chase announced a profit up 9% over the same period last year, but had lower trading profits and interest earnings.  Citigroup reported a rise in earnings per share, but its profit fell by 3% year-over-year.  Bank investors are disappointed that bank deregulation and corporate tax cuts have yet to materialize.
And speaking of Janet Yellen, the odds-makers now place at just 20% the chance that President Trump will reappoint her for a second term when her first expires at the end of January 2018.  Chairman Yellen has said she will not step down ahead of time, and even though her odds are low, the odds for any other individual to take her place are lower.  First runner up currently looks to be Gary Cohn, the current National Economic Director.  He is a former President of Goldman Sachs, and might upset conservatives who object to his background as a Democrat and Free-Trader.
The Bank of Canada has followed in our Fed’s footsteps and raised its benchmark interest rate (by 0.25%) to 0.75%.  More rate hikes are predicted for the future.  This move raised the Canadian dollar to a 12-month high versus the U.S. dollar, which has been slipping of late.  The yield on the two-year Treasury in Canada is 1.172%, while the U.S. two-year pays 1.35%.  Some economists worry that the rise in Canada’s rates will puncture their housing and property bubble.  Currently Canadian household debt exceeds Canada’s GDP.  While interest rates have been low, Canadians have increased their mortgage debt and their second-mortgage and home-equity-loan exposure.  A rising interest rate may cause loan-repayment problems, which could lead to deflation in housing prices.  While our own rising interest rates potentially could create the same problem, our housing market has not re-inflated to the same degree since the bubble burst in 2008-2009.  And many homeowners, who stopped payment back then, have gotten back on their feet and are now making catching up.
Last year, China announced three straight quarters of 6.7% (annualized) GDP growth.  This year, they have announced two straight quarters of 6.9% growth.  In fact, they have had ten straight quarters in which their GDP either matched or beat by 0.1% their own predictions.  Hmmmm.  If we saw Chinese gymnasts, judged by Chinese experts, score perfect 10 after perfect 10, might we wonder?  At least a little?  The Economist calls this streak of GDP performance “implausible consistency”.  It’s just a reminder that China has been known to sweeten its economic data, and that just as we should not swallow it whole when it’s good, so should we not panic when it’s less than perfect.  9.9 anyone?
And while we’re abroad, a quick look at Venezuela.  We’ve discussed the Venezuelan bond situation recently, and now we’re looking at the effect that its deteriorating economy and political impasse are having on citizens.  Venezuelans are migrating in record numbers to neighboring countries in search of food, medicine, work, and safety.  In a recent study, 35% of Venezuelan citizens said they hoped to leave in the next three years.  In the 18 – 29 year old age block, that percentage rises to 53%.  5% of the population has already left, and those who remain have been protesting the state of the country for 100 days.  6,000 people leave each day.  Over the past 20 years, Colombia has taken in over a million Venezuelans, and Brazil and Peru are now seeing steady immigration.  While it was originally the wealthy who were leaving, now it is the lower classes.  And all of this exacerbates the problems of a social safety net which is crumbling without the wealthy and the young to pay their taxes.
Per Morgan Stanley, acceptance of bitcoin as a currency for online retail establishments is dropping.  Last year, five of the top 500 e-tailers accepted payment in bitcoin.  This year it has fallen to three of the top 500.  Bitcoin, it seems, is far more likely to be a speculative investment than an actual currency.  And volatility in cryptocurrencies continues as new ones are released and old ones face difficulties.  But, in a vote of confidence, John McAfee, whose cyber-security firm already invests in bitcoin, has announced that it will soon start to mine Ethereum (the currency is called ether).
Google has won its court case in France, and no longer owes $1.3 billion in back taxes for business it conducts in Ireland.  The French court ruled that France was not entitled to taxes on the Irish profits.  Prosecutors are considering an appeal.
And Mercedes-maker Daimler is being accused in Germany of using illegal software to affect emissions tests of its recent diesel automobiles.  Sounds familiar, doesn’t it?  It is uncertain at this time exactly how many vehicles are involved, and where they were sold, but estimates range to over one million cars in Europe and the U.S.   Prosecutors in Stuttgart are considering bringing charges.
For the week ending on Bastille Day, the S&P 500 closed at 2,459, the Dow at 21,637, and the Nasdaq Composite Index at 6,312.  The yield on the ten-year Treasury Note was 2.33%.  Oil cost $46.54 per barrel, gold cost $1,226.60 per ounce, and one Euro was worth $1.1468.
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, Forbes, The Economist, businessinsider.com, and Reuters.  If you have any questions, please call us at 203.458.5220 or reply to this email.  Thank you for your attention.
July 24, 2017

When you think of cutting-edge retailers with high-tech products, I bet the first name that comes to mind is Sears.  Am I right?  Well, maybe it should.  Sears has just announced that it has reached a deal with Amazon to sell Kenmore appliances through the etailer.  Not only that, Sears will also release smart appliances that will sync with your Alexa.  Sears stock, previously presumed to be near dead, rose 10% on the news, while its competitors fell 4% (Home Depot), 5.6% (Lowe’s), and 4.3% (Whirlpool).  But is Alexa going to carry the laundry downstairs?

Elon Musk, of Paypal, Tesla, and SpaceX fame, says that he has received “verbal approval” for Boring Co. (another one of his ventures) to build an underground transportation system that will connect New York to Philadelphia, Baltimore, and Washington, D.C.  The trip from NY to DC is expected to take 29 minutes - or about the same amount of time that it takes to hail a taxi in New York on a rainy day.  The White House will not confirm that the plan is a go, but says that they have had “promising conversations” with Musk.  Right now the fastest way to get to DC from NY is the shuttle flight that takes 75 minutes, but that doesn’t include the delays at the airport.  Musk’s Hyperloop (as he calls it) will pack passengers and cargo into pods which are then sent through vacuum tubes at up to 800 miles per hour.  The same kind of vacuum tubes that the phlebotomist uses to send your blood samples to the lab?  Or the same kind of technology that Willy Wonka used to send Mike Teavee through the air overhead?  Stay tuned!

The dollar continues to fall in value versus other world currencies.  At this point, the dollar has given back all of the gains it realized after the election last November.  But over the last six years, the dollar is still up about 28%, beginning in 2011 when the U.S. economy began to recover from the recession earlier than other nations.  As with most things economic, the story has two sides: buyers and sellers.  When the dollar is weak, other currencies can buy more dollars or more dollar-denominated goods.  So current beneficiaries are companies which sell their products abroad.  Not as happy are American consumers who are used to cheap imports.  Imports are now more expensive because dollars sent abroad buy less.

Exxon Mobil, which last year produced a profit of $7.8 billion, has been fined $2 million by the Treasury Department for violating sanctions against Russia.  Treasury Secretary Steven Mnuchin and the Treasury Department are charging that Exxon Mobil signed eight contracts with Russian government-owned oil company Rosneft in 2014, while sanctions were in place.  Signing on behalf of Rosneft was Igor Sechin, who at the time was blacklisted by the Treasury.  Exxon Mobil’s defense is that they thought they could not make deals with Sechin INDIVIDUALLY, but that he was fine as the head of Rosneft.  Remember that current Secretary of State Rex Tillerson was in charge of Exxon Mobil at that time.  Exxon Mobile is now suing Mnuchin and the Treasury Department to have the fine reversed.  Must make for interesting cabinet meetings!  Currently, Exxon Mobil is doing several deals in Russia, but has billions of dollars of additional deals that it can’t pursue because of sanctions.  And Congress is in the middle of passing additional sanctions on Russia.  It is expected to have a veto-proof majority on the bill, while it is unclear if the president will sign it.

Colorado is celebrating the first $500 million that it has received in revenue from legal marijuana sales.  Since 2014, Colorado has allowed dispensaries to sell medical and recreational marijuana, and the state has collected 2.9% standard sales tax, 15% excise tax on wholesale transactions, and 10% extra tax on retail transactions.  Last year over $1.3 billion dollars worth of cannabis was sold in CO.  Meanwhile, the state is still running a $700 million deficit.

And speaking of debt, global debt (sovereign and household) has reached an all-time high of $217 trillion.  With a T.  This is approximately 327% of global GDP.  You will remember from last week that both Canada and Australia have cumulative debt greater than 100% of their GDPs.  The U.S. is running total debt of about 70-80% of GDP.  Obviously, some countries are doing MUCH worse.  Why do we care?  Well, the word bubble does come to mind.  And when people (and countries) owe money they tend to save rather than spend.  (Okay, maybe not OUR country, but others.)  When they don’t spend, inflation, wages, and business investment all stay low.  Which in some measure may account for why our unemployment rate is around 4.4%, but there doesn’t seem to be much upward pressure on wages, which are growing at only a 2.5% annualized rate.  Normally, a low unemployment rate means that workers are hard to find, and wages must be raised to entice them.  Another factor providing downward pressure on wages is automation.  Employers who are automating, or hiring robots, have found that robots and drones don’t seem to care about wage hikes.

Bank of America Merrill Lynch has just completed a poll of global fund managers and has found that positive sentiment among this group has slipped.  In January, 62% of those polled expected faster global growth over the next 12 months, versus just 38% now.  And in January, 58% expected to see improving profits this year, versus 41% now.  But at the same time, short sellers, who are essentially betting that stock prices will fall, are covering their shorts in record numbers, not because they have grown optimistic, but because they are losing money in the face of a market that continues to climb.  It’s all in who you ask.

For the week ending July 21st, the Standard & Poor’s 500 closed at 2,472, the Dow Jones Industrials at 21,580, and the Nasdaq Composite at 6,387.  The yield on the ten-year Treasury Note finished at 2.24%.  Oil was worth $45.77 per barrel, gold was worth $1,254.30 per ounce, and one Euro cost $1.1665.

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, Bloomberg, and Reuters.  If you have any questions please call us at 203.458.5220 or reply to this email.  Thank you for your attention.