DIASTOLE ECONOMIC AND MARKET COMMENT
June 25, 2018

Did you know that in Chile’s Coquimbo region, now ten years into a serious drought, farmers catch water from the air?  Dense fog rises from from the sea and is carried by a strong breeze up the mountains, and then caught in finely woven nets.  No kidding!  One village in the region harvests over 1800 gallons each day.

General Electric trades today for the last time as a member of the Dow Jones Industrial Average.  Tomorrow it will be replaced by Walgreen Boots Alliance (and who named THAT company, one wonders).  But don’t feel too sorry for GE, which is down over 53% in the last 12 months.  The last ten companies that got booted (hah!) from the Dow rose an average of 6.4% in the following year, while the last ten additions to the Dow fell by 4.6%.

The test operator of the Tesla which killed a pedestrian in Arizona while in autonomous-driving mode said that she was monitoring the self-driving system when the crash happened.  But further investigation has shown that the driver was actually watching “The Voice” on her phone when the accident occurred.  She may face negligent-homicide charges.

Tesla has built about 30,000 Model 3 sedans this year including 6,000 in June so far.  Tesla’s goal was to reach 5,000 cars per week by the end of this month.  Oops.

We have followed the Volkswagen emissions-cheating scandal for months.  Years?  But last week, German officials upped the ante when they arrested the Audi CEO in connection with the scandal.  Audi, Bentley, Bugatti, Lamborghini, and Porsche are all owned by VW.  And if the software scam just seems like the usual corporate malfeasance, we need to look at the other side of the equation.  An MIT study suggests that more Americans die from air pollution than from car crashes.  What?!  Several VW executives have been charged in the U.S., and VW has paid tens of billions of dollars in fines and settlements.

With interest rates slowly rising, U.S. housing is less affordable than at any time in the past ten years.  30-year mortgage rates now top 4.4%, when a year ago they were at 3.8%.  And this change affects not only home buyers but also variable mortgage holders.  As mortgage rates rise, appreciation in home prices slows.  Affordability is worst in California’s Marin County, where the average buyer would need 133% of his income to buy a median-priced home.  In Detroit, only 14% is needed.

And in other home news, UBS is predicting that kitchens may be extinct by 2030.  Apparently more food is being delivered, while less food is being cooked, than ever in history (assuming that there was no GrubHub or Uber Eats in prehistoric times).  Millennials, especially, are glued to their smartphones and apparently love to order in.  The rest of us would love to order in, too, but can’t quite figure out the apps.

The Supreme Court ruled last week that states may require e-tailers to collect sales tax, even if they don’t have a physical location in the state.  The ruling affected Wayfair directly, but other online sellers are also impacted.  Amazon says that it was already moving to collect sales tax in the 45 states that have sales taxes.  Alaska, Delaware, Montana, New Hampshire, and Oregon do not have state sales taxes.  Time to book a moving van!

What would you do if you thought you were trading millions of dollars of securities on a demo software version, only to find out that you were trading for real?  AND you were down more than one million Euros (1.1 million dollars)?  Well, for one French trainee day trader, apparently the answer was, keep trading.  He turned his million-dollar loss into a ten-million-dollar gain, and held positions worth five BILLION dollars.  That was when the brokerage firm, Valbury Capital, decided that they would keep the profit and charge the trader with a contract violation.  Now the trader is suing on the basis that Valbury would have tried to collect from him if he had ended with a loss.

The Dow Jones lost 2% last week while investors worried about the developing U.S. trade war with China, the European Union, Canada and Mexico.  American companies appear to be holding off on worker raises and capital expenditures until the situation grows less murky.

And OPEC nations agreed to increase production by about one million barrels each day, as its two-year agreement to CUT production expires this month.  Increased production will probably reduce prices, which will discourage the U.S. shale-oil producers who are the bane of OPEC’s planning.  This increase was not as much as had been feared, and oil prices have remained stable in the short run, but that may be due to an outage at Canadian oil fields.

For the week ending June 22nd, the Standard & Poor’s 500 finished at 2,754, the Dow Jones at 24,580, and the Nasdaq Composite Index at 7,692.  The yield on the ten-year Treasury Note was 2.90%.  Oil cost $68.58, gold cost $1,267.40, and one Euro was worth $1.1657.

Elizabeth E. Cook
Partner

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

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DIASTOLE ECONOMIC AND MARKET COMMENT
July 2, 2018

Full disclosure: I am not much of a sports fan.  While I find a few sports interesting to play (I’m looking at you, wiffle ball), I find most sports boring to watch.  Except curling!  But LeBron James’ recent move to the Los Angeles Lakers even penetrated my own sports-ignorant consciousness.  $154 million over four years?  Nice work!  That’s like being Jeff Bezos for thirteen hours!  In retrospect, it seems that James was always heading to L.A., where he already has two homes.  Two? 

In other strange facts about the superrich: 83% of the independent shareholders of Facebook believe that Mark Zuckerberg should be fired as chairman of the board.  That seems a little ungrateful to the man who initially stole the idea for the company and then steered it from a 2012 IPO at $38 per share to its current price of $194.  And along the way brought in two billion users.  (There are about 7.6 billion people on the planet.)  Zuckerberg, of course, can neither be fired nor disciplined, since he has carefully retained voting control over Facebook.  Nonetheless, many shareholders blame him for the Cambridge Analytica issues, the Russian bot issues, and the fact that we can no longer answer stupidly enticing quiz questions without hackers going through us to get to our friends.  Don’t expect much to change at Facebook unless the share price suffers, other than its quaint current ad campaign about how NOW the software will take better care of us.

Back to Jeff Bezos.  It was announced last week that Amazon had purchased PillPack, a company that organizes medications and delivers them directly to consumers.  Most of us “pour” our own medications, but PillPack is perfect for those who take many medications or are not quite competent to manage them.  Your pills are presorted into little pill pillows that are marked with when they need to be taken.  Sounds convenient.  But the bigger picture is that Amazon is finally moving into the pharmacy world with a vengeance, and CVS is nervous.  You may remember that Amazon, Berkshire Hathaway and JPMorgan have already announced that they will be exploring a new and better way to provide health care to their own employees.  That made insurance companies nervous.  The status quo always works, until someone builds a better mousetrap.

The Internet of Things is kind of a misnomer.   There are no things on the internet, just lots and lots of advertisements for things.  The things themselves exist in the real world.  And in order to get the things that you ordered from, say, Old Navy, Gudrun Sjoden, and Jerry’s Artarama (to name three completely random e-tailers) you need trucks.  Lots of trucks.  And lots of truck drivers.  But that’s the problem.  Truck drivers are in short supply.  All the talk of self-driving vehicles is driving down the number of people making driving their careers, even though a fully autonomous truck force is a long way off.  The federal regulations on truck drivers is also part of the problem.  Drivers can only work 70 hours in any eight-day period.  They can only work 14 hours at a single stretch.  They can only drive during 11 of that 14 hours.  They also must take a 30-minute break at least every eight hours.  Electronic monitors are required.  This is why truck drivers often work in teams - so that they don’t have to stop for the night.  But parking is also a huge problem.  A driver who is delivering to an urban area may have to drive 60-80 miles out of the way afterward in order to park his rig for his required stoppage.  This adds time to all of his meters, as well as extra gas.  Fuel costs account for about one third of the operating costs of a semi tractor-trailer.  Since the better mousetrap is not yet operable, we still need truck drivers.  Do I hear pay raises coming?

Morgan Stanley is advising Google to give away a smart Home Mini speaker to every U.S. household.  It would cost the company $3.3 billion dollars, but would give it a leg up in the smart speaker market currently dominated by Amazon.  In four years, 70% of American households will have smart speakers.  The speaker itself isn’t the point, but instead what people will rely upon it to do.  Order groceries, play music, answer questions, buy art supplies, you know, the usual.  Amazon has an edge because it is logical that you would use an Amazon Echo to buy from Amazon.  Google’s Home will easily connect to Google searches and YouTube, but that may not be as intuitive.  And if Google offered me (and you and everybody else) a free speaker, I’d give it to a neighbor.  I don’t want one of those damn things listening to me all the time!  And hey, you kids, get off my lawn!

The FDA has approved a cannabis-based drug to treat two forms of epilepsy in children.  The drug is being manufactured without the elements of marijuana that create a high, and will be available in the fall for patients who have not responded to other treatments for controlling seizures.

Canada’s tit-for-tat tariffs went into effect yesterday on $12.6 billion worth of American exports to our maple-delicious neighbor to the north.  At the top of the list are steel and iron, which will have 25% tariffs - exactly matching the tariffs that the Trump administration has placed on Canadian steel and iron.  Imported aluminum will face a 10% surtax (again, exactly matching the one on Canadian aluminum).  Random other tariffs will make ketchup, pizza, and dishwasher detergent more expensive for Canadians to buy.  The justification given by the U.S. for the tariffs on Canadian exports was “national security”.

Tesla apparently managed to produce 5,000 Model 3 sedans during the last week of June (although production was actually completed on Sunday, July 1st).  While most of us thought that the production goal was a sustained one, meaning that Tesla would produce 5,000 Model 3s per week, Elon Musk apparently thought it was a one-off goal, meaning that Tesla would achieve it once.  The company does schedule occasional “burst builds” to see what the maximum capacity of its manufacturing plants is.  These “burst” rates are not considered sustainable. 

Annual earnings of $117,400 for a family of four is now considered low-income in San Francisco.

For the week ending June 29th, the Standard & Poor’s 500 finished at 2,718, while the Dow Jones Industrial Average was 24,271 and the Nasdaq Composite Index was 7,510.  The yield on the ten-year Treasury Note closed slightly lower at 2.86%.  Crude oil cost more at $74.15 per barrel, gold cost $1,251.30 per ounce, and one Euro was worth $1.1675.

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, Bloomberg, The Economist, the Associated Press, businessinsider.com, Reuters, and CNBC.  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
July 9, 2018

The year is half over, Mark Zuckerberg has passed Warren Buffett to become the third richest person in the world ($81.6 billion) and (as of this writing) eight Thai soccer players have been rescued from a flooding cave.  Also, we are waiting to hear the President’s nominee for the vacancy on the Supreme Court, a NATO meeting (we expect geopolitical fireworks) will convene on Wednesday, and Russia is out of the World Cup.  And Wimbledon!

So, it is no wonder if you have been preoccupied.  Here’s what else happened in the past week.

The jobs report for June came in better than expected with 213,000 net new jobs created.  The unemployment rate rose from 3.8% to 4.0% - reflecting the 600,000 people who entered or reentered the job market.  College graduates, anyone?

The U.S. deployed tariffs on Chinese goods on Friday, and was immediately met with retaliatory Chinese tariffs.  $34 billion worth of goods are affected on each side - about 0.1% of GDP for each country.  The U.S. is taxing everything from machinery to electronic parts, while China is targeting American farmers in states which voted for the President.  Trade talks between the nations have broken down, and both sides are threatening additional tariffs.

The Wall Street Journal has reported that the long-touted Saudi Aramco initial public offering (IPO) scheduled originally for this year and then postponed until 2019, is now in doubt again.  The state-run oil company is apparently growing nervous about the financial scrutiny that would accompany the world’s largest IPO.

In technology-can’t-possibly-be-bad-can-it? news, Facebook warned 800,000 users that it had accidentally unblocked people they had already blocked.  Samsung smartphone users reported that their phones were randomly sending private photos to people on their contacts list, and millions of gmail users’ inboxes can be accessed by hundreds of app makers.  If you use email-based apps like travel and shopping services, you may be especially vulnerable.  Over $761 million was stolen from crypto-currency exchanges so far this year, only about 20% of which is traceable.  Lifelock is now officially recommending that you keep your passwords on a yellow legal pad which you hide in your underwear drawer.  (That may not be entirely true.)

Expected to impact unemployment rates 21 years from now: the U.S. fertility rate is its lowest ever for the second year in a row.  The top several reasons couples give for not having (or having more) children are related to financial uncertainty.  In a related story, Social Security is expected to go belly-up 21 years from today.  Remember that it is not just for cracking crabs and picking lettuce that we need robust immigration.

If you owe more than $50,000 in overdue taxes, the federal government will deny you a passport or a passport renewal.  Right now 362,000 Americans are affected.  Current passports are not being revoked for overdue taxes.  Yet.

Volkswagen is opening Rwanda’s first car-assembly plant.  One problem?  Rwandans can’t afford to buy new VWs, which cost 33 times the average annual Rwandan income.  Rwandans who have cars usually buy them old and used.  Solution?  VW is going to put its new vehicles into a ride-hailing car-sharing program beginning in the fall.  Once they are used, the cars will then be sold.

Massachusetts has sued 16 people in connection with America’s opioid crisis, claiming that Purdue, the maker of OxyContin, “created the epidemic and profited from it through a web of illegal deceit.”  63,600 people died from opioid overdoses in 2016.  That is more than died from suicide (about 45,000) or from traffic accidents (about 40,000).

There is more news on the trucker shortage that we discussed last week.  About 75% of all freight in the U.S. is moved by truckers.  We are currently about 7% short (roughly 60,000) of the number of drivers that we need, and the shortfall is even worse in some other countries.  The American shortfall is expected to grow to over 150,000 by 2026.  It is not surprising.  After all, would you begin a career in typewriter repair now?  Still, before autonomous semis take over the industry, costs are expected to rise drastically, and will no doubt be passed along to consumers.

The next Amazon Prime Day is coming on July 16th.  ONE WEEK TO GO!  And instead of just one day, the Prime Day will be 36 hours long.  I hope it’s a really successful business promotion, because sometimes I feel sorry for Jeff Bezos, just sitting around by himself, hoping I need more laundry detergent.

The Centers for Disease Control (CDC) has tips for washing your hands.  For instance, it takes 20 seconds of good sudsing to clean off the germs you got from _______________ (insert your own germ-phobia here; mine is the downtown 1 train).  So, turn off the water while you lather!  Also, sing the alphabet song once or Happy Birthday twice, to make sure that 20 seconds have passed.  And if you’re in a public restroom, beware of the public.  If they’re not singing, steer clear!

For the week ending July 6th, the Standard & Poor’s 500 finished at 2,759, the Dow Jones Industrials at 24,456, and the Nasdaq Composite Index at 7,688.  The yield on the ten-year Treasury closed at 2.82%.  Oil cost $73.80 per barrel, gold cost $1,254.30 per ounce, and one Euro was worth $1.1741.

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, The Economist, Bloomberg, businessinsider.com, CNBC, and Reuters.  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
July 16, 2018

Novak Djokovic won Wimbledon yesterday, and France won the World Cup.  I apologize for being a tennis fan rather than a soccer fan, but at 60, it’s pretty clear which one I can still play.  Also: yay Serena - ranked 183rd in the world after giving birth to a daughter ten months ago, she came back to make the Wimbledon finals at age 36.

Last week was also a good week for the markets.  The Nasdaq Composite Index closed at a new high on Thursday and Friday, up 1.79% for the week.  The Dow Jones Industrial Average was up 2.3% for the week, and the Standard & Poor’s 500 was up 1.5% for the week, although still 2.5% lower than the high it reached in January.

Why are the markets doing so well in the face of tariffs and a trade war with China?  Interesting that you should ask!  The tariffs are not seen as pro-business, but businesses hope that the tariffs will cause the Federal Reserve Board to slow down on interest rate hikes, which they DO see as helpful.  Also, and more importantly, big public corporations are still taking their tax-cut bonanzas and buying back their own shares.  That means fewer shares outstanding, each of which is therefore worth more.

But while stock prices and their indices are rising, wages are not.  Even with full employment, which would normally cause wages to rise (more demand for workers, and less supply available) wages are just keeping pace with inflation.  Why?  Again, thank you for asking.  We believe that automation is increasing, and will continue to increase.  Now it isn’t just autonomous vehicles (one of these days they’ll get it right).  It’s also factory workers, warehouse workers, kitchen workers (yes, a ‘droid made your burger), and robot applications that give advice on a huge variety of topics.

In related news, Rolls Royce is now in development of a flying taxi with a range of up to 500 miles, at speeds of up to 250 mph.  Early prototype images look like a helicopter with wings instead of a rotor (think Jetsons).  Rolls is suggesting that the new flying taxi may hit the skies as early as next decade.  That’s three years away!

Jeff Bezos’ rocket company Blue Origin plans to begin trips to space next year.  Civilians will pay $200,000 - $300,000 per trip, which will take them about 62 miles above Earth, where passengers will experience momentary weightlessness and see the curvature of the planet.  Blue Origin is testing its vertical take-off and landing procedures and will shortly test its capsule escape system.  Richard Branson’s Virgin Galactic has sold about 650 tickets for its own space voyages, at $250,000 per ticket, but has not announced when the flights will start.

Maybe passengers will be able to see the black hole in the middle of the Milky Way.  Or maybe it would be better not to get that close!  But a super telescope in South Africa has just captured an image of the black hole, which we cannot see with the naked eye because it is hiding behind Sagittarius.  Oh, coy black hole!

News for those interested in buying cryptocurrencies: don’t!  So far this year, hackers have stolen about $1 billion worth of cryptocurrencies from exchanges.  Most of that is not recoverable.  And for those buyers who aren’t hacked, only 44% of initial coin offerings exist for more than 120 days.  The rest disappear.  With your money.

The U.S. Justice Department has announced that it will appeal a judge’s approval of the ATT/Time Warner merger.  Maybe they haven’t heard that the deal was finalized last month for $80 billion?

Projections of the International Energy Agency anticipate that the U.S. will become the world’s biggest oil producer sometime next year.  This will put us ahead of Saudi Arabia and Russia, who are currently in the lead.  It is no wonder that OPEC is producing more, in the hopes of causing oil prices to fall, which will drive U.S. shale-oil producers out of the market, at least temporarily.  But it’s not working!  Oil prices have increased this year.

As more Americans invite Alexa into their homes, to spy on them and share their private photos with neighbors, it is expected that voice shopping will increase by 86% per year, over the next few years, to $40 billion a year by 2022 (that’s just four years!). 

Amazon Prime Day starts at 3:00 p.m. today and lasts for 36 hours.  I told you this last so that you didn’t stop reading and start shopping.  Amazon will be chock full of deals on things that you don’t really need.  Have fun!

For the week ending July 13th, the S&P 500 finished at 2,801, the Dow at 25,019, and the Nasdaq at 7,825.  The yield on the ten-year Treasury Note was 2.83%.  Oil cost $71.01 per barrel, gold cost $1,239.60 per ounce, and one Euro was worth $1.1679.

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, businessinsider.com, The Economist, Bloomberg, CNBC, and Reuters.  If you have questions, please call us at 203.458.5220 or reply to this email.  Thanks for playing!