DIASTOLE ECONOMIC AND MARKET COMMENT
August 28, 2017

If you’re one of the everybody-but-one who didn’t win the lottery last week, you have our condolences.  The Powerball went 21 consecutive drawings without a winner, but finally Ms.-We-Hate-Her in Chicopee Massachusetts bought a winning ticket, earning the $758 million jackpot.  The first thing she did upon winning?  She called her employer to say she was going to be out sick the next day.  And for the rest of her life.  Sick of winning!  She may now choose between the thirty-year-annuity payout (recommended for those who have needy relatives) or the lump-sum payout, which is estimated to be about $443 million.  Another factor in her decision-making is whether or not the 44 states which sponsor the Powerball are going to be in any shape to make annuity payments over the next 30 years.

Because, hey, governments and budgets.  The federal budget is hitting crunch time SOON, and the debt ceiling must be raised by Congress in order to pay bills that Congress has ALREADY incurred.  In fact, the government ran out of money in March, but kept on going in a massive finagling effort of IOUs and NOT paying some government obligations (like money owed to federal-employee retirement trust funds).

Congress, of course, is still on vacation.  I’m sorry, working from home.  They are not due back until after Labor Day.  Then, mid-September, the House has another week off.  Ahem, meetings with constituents.  Treasury Secretary Steven Mnuchin has been pushing for an end to the debt ceiling crisis for months - of course, because he’s the one who is having to take extraordinary measures to keep the government open - like borrowing from MasterCard to pay Visa.  There are problems with getting the debt-ceiling raised, primarily infighting on the right, and the President’s determination to tie funding for his Mexican-border wall to the debt-ceiling vote.  Many on both sides of the aisle are opposed to a physical wall.

In the meantime, the government is having to pay a higher yield on its Treasury Bills (maturity of one year or less) in order to attract buyers during the debt ceiling crisis.  The yield on the T-Bills maturing in October is now spiking over 1.1% as investors worry how long they’ll have to wait for their payments.  For comparison, the yield on the TEN-YEAR Treasury Note is now just one point higher at around 2.17%. 

Last week’s solar eclipse was apparently mesmerizing in parts of the country, although not here in Connecticut.  For those of you who enjoyed it, we hope you watched safely.  Both President Trump and Elon Musk were observed watching the sun without their eclipse-friendly safety glasses.  And in fact, Google searches for “eyes hurt” apparently jumped right after the event.  Another interesting phenomenon was Netflix’s loss of viewership during the eclipse.  In a tweet, Netflix bemoaned, “Hey, just wondering why 10% of you chose to watch a giant rock cover a giant ball of gas when I HAVE ALWAYS BEEN THERE FOR YOU….  Well played, Moon.”

Almost as ubiquitous as the sun, is Amazon (do I hear packages dropping on my porch?).  And Amazon means to keep it that way.  Its purchase of upscale Whole Foods Markets should be complete on Monday, and Amazon plans to implement immediate price reductions on a bunch of popular items, to woo shoppers into stores.  Apparently cashew butter is a real draw.  In addition, Amazon plans to implement special prices for Prime members, and to use Prime at its checkout points as part of the Whole Foods customer reward program.  If you’re not already a Prime member, congratulations on your soon-to-be futile resistance.

But Amazon hasn’t won the last battle.  Google is teaming up with Walmart to offer voice-activated shopping via its Google Assistant, in direct competition with Amazon’s Alexa.  Google shopping is eliminating its Prime-like cost for free-shipping, and instead letting its vendors set their own limits.  Walmart offers free shipping on orders over $39.  And Google may have the edge in one department.  It will soon be possible to voice-order groceries from Walmart during your drive after work, and pick them up at the storefront before you get home.  But who will put them away?  Whooooo?

In another Walmart story, IBM is proposing that blockchain technology be used in the global food-supply chain.  Apparently the technology can track a product from field to store, pinpoint areas where contamination might affect produce, communicate quickly with all participants in the chain, and do it in seconds, instead of days or weeks.  Walmart, Kroger, Dole, and Nestle are supposed to be on board with the project.  The blockchain technology provides what is in essence a universal receipt that will follow the product everywhere it goes.

Fed Chairman Janet Yellen spoke last week about the need for continuing the financial regulations which were enacted after the 2008 financial crisis.  According to Yellen, it was those regulations (including the Dodd-Frank legislation) which strengthened the U.S. financial system by forcing banks to raise capital and shed riskier assets.  Ms. Yellen’s term as Fed Chair expires in February, and it is widely thought that her recent outspokenness signals that she does not expected to be reappointed by President Trump.  His favorite to replace her is currently Gary Cohn, former Goldman Sachs president and current head of Trump’s National Economic Council.  Cohn, who reportedly considered resigning after the President’s response to the events in Charlottesville, is on the same economic page as the President about reducing regulations which they feel have been a hindrance to bank lending and a drag on the economy.

Samsung announced that it will release its Galaxy Note 8 on September 15th.  Base price for the new smartphone will be $930.  The new Note will have all of the great features of the Note 7 but without the exploding batteries.  It is hoped.

Does it sometimes feel like your day gets away from you?  Perhaps you should employ a new time-management tool.  It turns out that Bill Gates, who co-founded Microsoft in 1975 and is currently worth north of $84 billion, and Elon Musk, who founded PayPal and now divides his time between Tesla and SpaceX, use the same technique to control their time.  They schedule it in five-minute blocks.  Five minutes!  They schedule meetings and down times alike.  Apparently I will never be a billionaire.  I would keep looking at my watch!  Oh, wait.  There’s probably somebody else in charge of keeping the schedule.  Apparently I will never be a billionaire because I don’t think like one.

And speaking of Elon Musk, his Tesla is now the most valuable car-manufacturer in the U.S. and fourth in the world, based on market capitalization.  What’s most amazing is the rise of Tesla in a short time.  In 2013, Tesla was worth $3.9 billion (about 7% of the value of Ford).  Two years later, in 2015, Tesla was worth $26.6 billion (about 45% of the value of Ford).  Today Tesla’s value is $58.7 billion and Ford is worth about 70% of Tesla.  Only Toyota ($166.8 billion) Volkswagen ($76.9 billion) and Daimler ($75.6 billion) are worth more than Tesla.

For the week ending August 25th, stocks were essentially unchanged, with the Standard & Poor’s 500 closing at 2,443, the Dow Jones Industrial Average at 21,813, and the Nasdaq Composite Index at 6,265.  The yield on the ten-year Treasury Note finished at 2.17%.  Crude oil was worth $47.87 per barrel, while gold was worth $1,292.50 per ounce.  One Euro cost $1.1923.

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, Bloomberg, and businessinsider.com.  If you have questions, please call us at 203.458.5220 or reply to this email.  Thank you for your attention.
DIASTOLE ECONOMIC AND MARKET COMMENT
September 11, 2017

In a country focused on hurricanes past, present, and future, we must acknowledge a tsunami of a data breach at Equifax, previously known as a secure credit bureau.   Equifax learned in July (and announced just last Thursday!) that hackers had accessed its computers and stolen the names, social security numbers, and addresses of 143 million Americans.  That’s about half of the country!  (What makes the OTHER half so special?)

In addition, Equifax announced that credit card details were hacked for 209,000 people, and additional documents were taken for 182,000 people.  What happened between Equifax’s learning of the breach on July 29th and announcing the breach on September 7th?  Well, at least three Equifax executives took the opportunity to sell shares worth about two million dollars.  When asked, Equifax said that the executives had “no knowledge that an intrusion had occurred at the time they sold their shares.”  Hmmmm.  Equifax shares fell off a short cliff at the announcement, from a level above $140 per share, to below $120.

In other hurricane news, initial jobless claims jumped to 298,000 last week as the result of Harvey, up from 236,000 the week before.  This is a phenomenon seen after hurricanes Katrina and Sandy, and expected to continue or increase after Irma and then Jose.

The President surprised pretty much everyone by making a deal with Democrats for hurricane relief funds of more than $15 billion (for both Harvey and Irma).  The funding, which would probably have passed through Congress on its own, was tied to a short-term hike in the debt ceiling, and a continuing resolution that keeps the government going until December 15th.  Republicans were hoping for a MUCH longer debt-ceiling extension, or an elimination of the ceiling entirely.  This way, the fight starts again in three months, and Democrats hold some leverage in its resolution at that time.  Rumor also has it that Senate Majority Leader Chuck Schumer has an agreement from President Trump to support DACA legislation when it appears on his desk.

The President also reacted to North Korean saber-rattling last week, by tweeting, “I am allowing Japan & North Korea to buy a substantially increased amount of highly sophisticated military equipment from the United States.”  Worries about international instability have caused investors to run toward “safe harbor” investments like U.S. Treasuries, Swiss francs, Japanese yen  and bitcoin (really?  apparently so).  When money flows into Treasuries, prices rise (more demand, less supply) and yields fall.  The yield on the U.S. ten-year has fallen to 2.05% - its lowest rate since the presidential election.

And speaking of bitcoin, it first rose above $5,000 per bit (per coin?) one week ago.  But now it’s down $800 dollars to $4200.  Why?  Well, the Chinese are messing with digital currencies again - this time banning ICOs or initial coin offerings.  An ICO is an important way that new currencies get funded and started - just as an IPO serves to introduce a new stock to the public.  The Peoples’ Bank of China says that virtual currencies that are “not issued by the monetary authorities… do not have legal status equivalent to money, and can not and should not be circulated as a currency in the market.”  It is possible that this Chinese ruling will be interpreted as intending a ban on all trading and usage of cryptocurrencies in the country.  And since bitcoin is largely traded in China….

Second quarter GDP was revised upward to a 3% annualized level, from 2.6%.  Personal consumption was also revised upward from 2.8% (annualized) to 3.3%.  Personal spending was especially heavy in housing, utilities, prescription drugs, and cellphone services.  Third revisions of these numbers will be released later this month, and it remains to be seen if these levels can be sustained in future quarters, especially given the business and life interruptions caused by the mega storms.

Amazon has announced that it is planning to build a second North American headquarters NOT in Seattle, where it already employs 40,000 out of its 380,000 employees and currently has 6,000 job openings.  Amazon is looking for a city of at least 1,000,000 with an international airport, which will offer MAJOR CONCESSIONS to the company.  Applications from cities are due shortly.  Amazon warns that changes to state and city laws may be required in order to give it the INCENTIVES it is seeking.  Think taxes.  And paying none.  For years to come.

Mark Zuckerberg, fifth richest man in the world and CEO of Facebook, is now trying to restructure Facebook stock to create a non-voting class of shares.  As he (and his wife) try to give away their fortune (which is growing faster than they can donate it) he is looking for a way to give stock away while maintaining majority voting interest.  That will be an interesting trick!  According to some leaked memos, the rumors that Zuckerberg is interested in running for office are true.  He is also changing the structure of his company so that he can remain in charge even if he takes another job for several years.

After four American women reached the semifinals at the U.S. Open (tennis), the tournament was won by unseeded Sloane Stephens, who was visibly shocked by the size of the champion’s check ($3.7 million).  Men’s winner Rafael Nadal is 31, while Ms. Stephens is 24.  Serena Williams (age 35) missed the tournament because she was giving birth to her first child, a daughter.  She will no doubt take two days off and return to the tour.

A new archaeological excavation in British Columbia, Canada, has confirmed what the indigenous Heiltsuk Nation has always maintained: that its ancestors moved to the coast of Canada and survived the Ice Age there.  Artifacts discovered include carved wooden tools and charcoal.  The Heiltsuks were either a sea-going sea-mammal-killing tribe which arrived in Canada by boat, or they walked over the ice bridge from Asia.  The excavation now places civilization in Canada to 13,000 to 14,000 years ago, or thousands of years before the ancient Egyptians built their pyramids.

For the week ending September 8th, the market as a whole was down slightly.  The Standard & Poor’s 500 closed at 2,461, the Dow Jones Industrials at 21,797, and the Nasdaq Composite Index at 6,360.  The yield on the ten-year Treasury was 2.05%.  Crude oil sold for $47.48 per barrel, gold was up at $1,346.00 per ounce, and one Euro cost $1.2024.

Elizabeth E. Cook
Partner

News and information presented here was gathered from sources believed to be reliable, including The Wall Street Journal, The New York Times, Barron’s, The Economist, Bloomberg, and businessinsider.com.  If you have any questions, please call us at 203.458.5220 or reply to this email.  Thank you for your attention.
DIASTOLE ECONOMIC AND MARKET COMMENT
September 18, 2017

If you're used to enjoying a refreshing Minute Maid apple juice with your Happy Meal, I’m sorry to share the bad news that McDonald’s is replacing Minute Maid juice with Honest Tea, which has less than 50% real juice.  Apparently, parents are objecting to the super-sweet 100% juice that McDonald’s used to serve.  Both juices are Coca-Cola products.  If 100% apple juice is a target, can the McNuggets be far behind?  Or <gasp> the Filet o’Fish?  You are warned!

The Federal Reserve Board is not likely to take a stand on the McDonald’s controversy, but will definitely weigh in this week on interest rates and reducing the Fed’s balance sheet.  The Fed meets tomorrow and Wednesday, and will issue a statement on Wednesday at 2 p.m.  Chairperson Janet Yellen is not expected to raise rates this month, but it is still possible.  During the fiscal crisis, the Fed acquired more than $4 trillion in government bonds and mortgages while propping up the economy and providing liquidity to a stalled economy.  Now it’s time to sell those bonds - or more precisely, to reduce the size of the Fed’s inventory by NOT rolling over maturing bonds into new bonds.  Both an interest rate hike AND reducing the bond inventory are signs that the Fed is confident about the strength of the economy.

And meanwhile, the Bank of England, which provides the same services to Great Britain as our Fed does for us, is hinting that it may begin to raise rates in the next few months.  Good economic data for England, especially an increase in consumer consumption of 2.9% year-over-year, is giving even Doves (those who prefer rates low) the idea that it’s time to raise rates.  After the BoE hinted at the hike, the pound rose 2.9% versus the dollar in just two trading sessions.  It is expected that the rate hike will come in November, with further hikes down the road.

In the U.S., the median household income rose in 2016 for the second consecutive year.  Household income was up 3.2% to a record-high $59,039.  The poverty rate fell to 12.7% - the lowest since 2007.  The only demographic which saw a rise in poverty was senior citizens (those aged 65 and older) whose poverty rate ticked up slightly to 3.3%.  That’s a very low rate compared to the population as a whole, but still moving in the wrong direction.

Despite North Korea’s repeated firings of what might be intercontinental-ballistic missiles, and what are definitely hydrogen bombs, the U.S. markets rose last week in their best performance of the year.  Retail sales were reported down slightly, which caused the dollar to fall, which helped large corporations which do business abroad.  In addition, Hurricane Irma, although devastating to islands in the Atlantic, was actually less severe in Florida than forecasters had predicted.

Apple is expecting to create a storm of its own with the new products it unveiled last week.  In addition to the new iPhone 8, there is an iPhone X which celebrates the upcoming ten-year anniversary of the iconic and society-changing device.  The X has a larger screen and uses facial recognition instead of fingerprint-activated Touch ID, but costs $999 (and up) and won’t be available for two months.  There is also an Apple Watch 3 which will allow wearers to use their watch independent of their phone for up to an hour at a time, and also a new charger that can recover a 50% charge in 30 minutes.  Time for Apple nerds to start sleeping on the sidewalk!

On Friday, September 8th, the U.S. national debt passed $20 trillion.  To put that in scary perspective, the gross domestic product OF THE ENTIRE WORLD is about $75 trillion.

President Trump just banned a proposed takeover of U.S. firm Lattice Semiconductor Corp by Chinese-backed Canyon Bridge Capital Partners.  The proposed $1.3 billion deal has been stopped by an executive order which states, in part, that the two firms, “shall take all steps necessary to fully and permanently abandon the proposed transaction.”  Reuters reported last year that Canyon Bridge was partly funded by China’s central government and had links to China’s space program.  (And by space program, read military and spying capabilities.)

For those worried about euphoria in the stock markets, which might signal an upcoming correction, you will be happy to learn that current cash positions within U.S. mutual funds is about 3.2% - or in line with historical levels.  If cash levels start to drop, it could indicate that fund managers are succumbing to the kind of “irrational exuberance” about the markets that causes investors to think that prices will never drop.  That’s usually when prices drop.

And speaking of exuberance, the value of most cryptocurrencies has fallen dramatically over the past week as the news from China has been negative for the cryptos.  First China outlawed initial coin offerings, and then that government signaled that it may close down currency exchanges altogether.  Bitcoin, for one, is largely traded in China, and recently fell more than 20% in value.  Jamie Dimon, head of JPMorgan Chase, has compared the Bitcoin market (read: bubble) with the famous 17th century Dutch market for tulips that rose to a level at which one tulip bulb was worth 12 acres of farmland before the bubble burst and tulip values fell to zero.   Dimon says, “If we had a trader who traded Bitcoin, I’d fire them in a second.  It’s against our rules.”

For the week ending September 15th, the Standard & Poor’s 500 closed at a record high 2,500.  The Dow Jones Industrials closed at 22,268, and the Nasdaq Composite Index finished at 6,448.  The yield on the ten-year government bond ended the week at 2.20%, while crude oil cost $49.89 per barrel.  Gold was worth $1,320.40 per ounce, and the Euro cost $1.1943

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, businessinsider.com, Bloomberg, and The Economist.  If you have questions, please call us a 203.458.5220 or reply to this email.
DIASTOLE ECONOMIC AND MARKET COMMENT
September 25, 2017
The Federal Reserve Board met last week, and Janet Yellen made a Wednesday pronouncement as usual.  She did not raise interest rates, but indicated that the Fed remains on track to raise several more times in the coming months and years.  (Odds of a December hike rose immediately above 60%.)  In addition, the Fed released its plan for reducing the size of its balance sheet, which has grown to above $4.5 trillion through quantitative easing (a program of buying government bonds and mortgages to support the economy and keep money flowing) since the Great Recession.  Beginning next month, the Fed will let $10 billion worth of bonds mature each month without rolling the proceeds into new bonds.  After three months, the Fed will continue to increase the amount they DON’T roll over every quarter until they are NOT rolling $50 billion per month.  At $10 billion per month, it would take 37.5 years to clear the decks.  At $50 billion per month, it would still take nearly eight years, give or take a billion.

So what happens to the money?  Well, the Fed, which “printed money” in order to buy the bonds, will allow the money to leave the money supply.  As money tightens, interest rates are expected to rise naturally, since the same demand will be chasing a smaller supply.  And the Fed will try to accomplish this without either slowing down or heating up our economy.  The President’s choice to lead the Fed when Janet Yellen’s term expires early next year will give us a hint as to the Fed’s future decisions.  Currently (today) Yellen herself is the number one favorite to continue in her position, but things change

Angela Merkel and her Conservative Party have won the German election, as expected.  The Conservatives garnered 32.5% of the vote versus their 41.5% share four years ago.  The far right earned 13.5% of the vote and will have a presence in Parliament for the first time.

Equifax has announced that it had an earlier data breach about which they didn't inform the public.  Apparently before there was a May-July breach, there was a March breach.  In related news, the Justice Department has apparently opened an insider-trading investigation into Equifax executives who sold shares before the public was notified of the problems.  In addition, for awhile, Equifax was sending concerned consumers to a phishing website for help, instead of to a genuine Equifax help site.  If Equifax can’t tell the difference between a scam website and THEIR OWN SITE, we have a little insight into how the hacking happened.

We know that student debt is a terrible burden to student borrowers, but a recent study is showing us that it is a terrible burden to the economy as a whole.  U.S. student debt now totals more than $1.4 TRILLION dollars.  And it is the primary reason non-home-owners give for not buying a home.  In fact, student debt delays home ownership by about seven years, and delays moving-out-of-mom-and-dad’s-house for about two years.  For the good borrowers, who are making their payments on time, median debt is about $41,000, while their annual income is closer to $38,000.

The new iPhones were announced with much fanfare recently, but sales of the iPhone 8 has so far been slow.  Apple is hyping this news as proof that people are waiting for the IPhone X, which arrives in November.  This could be true, as for some reason Apple released news of both phones simultaneously.  It’s as if they said, “Here’s this great car that goes 0 to 60 in three seconds, or you can wait two months and the car will also fly.”

Warren Buffett says that he expects Dow 1,000,000 in 100 years.  We are currently hovering around Dow 22,000.  But 100 years ago, we were at Dow 81, so maybe he has a point.  In order for us to hit his target, the Dow would have to grow at a 3.87% annual rate for the next 100 years.  The rate for the past 100 years?  5.5%.  So once again we find ourselves on Buffett’s team.  Go Warren!

Facebook CEO Mark Zuckerberg was scheduled to testify next week in a Delaware court in a shareholder-brought suit opposing his plan to reclassify Facebook stock as non-voting shares.  His plan was an attempt to allow himself to give away stock to charity while holding on to voting control.  Rumor has it that Zuckerberg is considering a political career, and also planning to donate a huge portion of his fortune to charity, and he wants to keep running the company while he does both.  But Zuckerberg has cancelled the reclassification rather than testify.  Perhaps the optics just aren’t right in a week in which he is also turning over more than 3,000 digital Facebook ads to Congress as part of the Russian election-tampering investigation.  Really, Mark, they PAID IN RUBLES!

Toys”R”Us has declared Chapter 11 bankruptcy but will reorganize and continue to exist, especially abroad.  After taking ongoing hits from Walmart and Amazon, the toy store chain has racked up $5 billion in debt, and its stock price has fallen to 2009 levels.  Additionally, investors, who can’t short the stock because Toys”R”Us went private in 2005, are doing the next best thing and shorting Mattel stock.  Poor Barbie.  It’s not her fault.  Math is hard!

And speaking of Amazon, it’s time for a little algorithm tinkering.  Shoppers who are buying supplies for making slime (ask a tween girl) or other household chemicals are getting recommendations in the “frequently bought together” category that, when combined, create bombs and explosions.  Frequently bought together by whom?!

Liliane Bettencourt, L’Oreal heiress and richest women in the world, recently passed away at the age of 94.  In the wake of the news, Alice Walton of Walmart, worth more than $38 billion, briefly became the world’s richest woman.  But then the will was read, and Bettencourt’s daughter Françoise Bettencourt Meyers inherited and is now worth greater than $42 billion.  L’Oreal stock rose on the speculation that Nestle, which now owns 23% of the company, may increase its stake.  L’Oreal generates annual revenue of $28.5 billion, and owns such brands as Lancome, Ralph Lauren, Giorgio Armani, Maybelline, and Redken.  Meyers becomes the 15th richest person in the world as well as the richest woman.  In order to conceive of the size of her fortune, imagine 42,000 times $1 million.

We are now officially in the 2nd largest bull market since World War II, having just surpassed the prior number two, which was the bull market of 1949 to 1956.  Our current market has gained 270% since its low of March 2009.  But the number one winner remains the bull market of 1990 to 2000, in which the market grew by 417% over 113 months.

For the week ending September 22nd, the Standard & Poor’s 500 Index ended mostly unchanged for the week at 2,502, while the Dow was at 22,349, and the Nasdaq Composite Index at 6,426.  The yield on the ten-year Treasury Note closed at 2.25%.  Oil was worth $50.66 per barrel, gold was worth $1,293.30 per ounce, and one Euro cost $1.1944.

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