DIASTOLE ECONOMIC AND MARKET COMMENT
October 30, 2017

The butter market is in global upheaval!  European butter prices have risen by 50% so far in 2017.  The French are desolate.  The Chinese, who have developed a taste for French pastry, are jonesing.  Dairy cows are unionizing.  (Okay, maybe not that, but the rest of it, yes.)  Apparently a bad year for feed harvests has cut down on the productivity of cows in Europe, leading to the butter shortage.  Even in the states, the price of Land o’ Lakes lightly salted is over $5.50 per pound.  At Walmart!  Butter-flavor Crisco is not the same!  Holiday bakers, start your stockpiles!

Did you know that Amazon now offers to open your front door and put your packages inside if you’re not home?  You know who else offers to do that?  Criminals!  And in more Amazon news, it turns out that if you go to an actual Amazon bookstore, and you are a Prime member, you will get online prices for whatever you buy.  If you are NOT a Prime member, you pay full retail.  It turns out that Amazon’s physical stores are really just Prime sign-up loss leaders.

Oil prices are still creeping up, and have now reached $53 per barrel.  This pleases OPEC oil producers and especially the Saudis, who are still hoping that oil prices skyrocket before they go public with a Saudi Aramco IPO next year.

There was good economic news last week when it was announced that third quarter GDP growth exceeded 3% (annualized).  That comes on the heels of the second quarter at 3.1%.  As the economy heats up, and as the Fed reduces its balance sheet and the money supply, there will be more demand chasing less supply, and we will see interest rates rise.  Which, in fact, they are starting to do.  The yield on the ten-year Treasury is inching upward (now over 2.4%).

But at the same time, consumer debt has reached (another) record high.  Household debt grew by $500 billion in the second quarter to $12.84 trillion.  What happens to all of that debt as interest rates rise?  Well, if it’s credit card debt or variable mortgages, the interest rate rises on that debt too, and it takes more money to make the payments each month.  If it is at all possible, convert your variable debt to fixed-rate debt now, or pay down the principle owed.  We have lived through mortgage rates over 14%, and credit card rates over 30%, and it’s not pretty.

And income inequality is also growing.  Ray Dalio, founder of Bridgewater Associates, an institutional investment management firm, recently shared a chart that shows that the top 0.1% of American households hold the same amount of wealth as the bottom 90%.  This wealth gap is similar to that of 1935 - 1940, when we saw a similar rise in populism.

Have you been to Chipotle lately?  Instead of serving e coli, they have a new topping for their food: queso!  If you want melted cheese sauce on your burrito bowl, and I do, it’s time for a road trip to Chipotle.  Unfortunately, the queso is not getting the best of reviews, and Chipotle reported disappointing third-quarter earnings and a stock-price drop of 12%.  And jokes and diseases aside, Chipotle is delicious, and we need more of them - like maybe right next door to Diastole in Guilford, Connecticut.

This holiday shopping season is expected to be the first in which online shopping exceeds shopping in “real” stores.  That means more deliveries and possible visits from clever criminals in Amazon delivery outfits.  With our packages and groceries coming to our doors, will we all buy delivery lockers to receive our abundance?  Or maybe just put a fridge on the porch?  (Because some people were way ahead of us on THAT idea.)

In more MORE Amazon news, the huge company is filing the paperwork to become a licensed pharmaceutical wholesaler.  Would you order your prescriptions from Amazon?  Maybe yes, if the price were right and they were Prime eligible.  A lot of people are betting on that, and as a result, pharmacy company stocks are falling, and CVS has announced it may bid for Aetna Insurance, in an attempt to vertically integrate the company.  CVS stock fell on the news, but Aetna stock rose from about $160 to almost $180.  The buyout price is expected to be near $200 per share.

Jeff Bezos, CEO of, you guessed it, Amazon, made more than $6 billion (himself, personally) on Friday, when Amazon reported stellar earnings and revenue numbers and the stock jumped more than 8%.  He now takes over as the richest person in the world, with a personal net worth of more than $90 billion.  Poor Bill Gates fell to second, with a piddly $88 billion.

If you’re thinking of owning Bitcoin but think it isn’t risky enough, take heart!  The Chicago Board of Options Exchange is considering selling Bitcoin futures.  That would give you, basically, the ability to bet on the future of Bitcoin prices.  The CBOE is partnering with the Winklevoss twins (of stolen-Facebook fame), who have been trying unsuccessfully to get a Bitcoin ETF approved by the SEC.  Their firm is named Gemini (cute! twins!).

And have you put in your pre-order for an iPhone X yet?  What are you waiting for?  The pre-order period is open, the phone is expected to be released on Friday, November 3rd, and delivery estimates range from “no, no kidding, you’ll have it Friday,” to five weeks.  The phone costs about $1,000 for 64 GB or $1150 for 128 GB.  I have only one question, does it come with extra lives for Cookie Jam?

For the week ending October 27th, the Standard & Poor’s 500 closed at 2,581, the Dow Jones Industrials at 23,434, and the Nasdaq Composite Index at 6,701.  The yield on the ten-year Treasury Note finished at 2.42%, while crude oil cost $53.90 per barrel, and gold cost $1,268.50 per ounce.  The Euro was weaker at $1.1596.

Elizabeth E. Cook
Partner

News and information presented here was gathered from sources believed, but not guaranteed, to be reliable, including The Wall Street Journal, The New York Times, Barron’s, The Economist, businessinsider.com, the Associate Press, 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
November 6, 2017
 
 
The long-anticipated roll-out of the Republican tax reform plan, a 429-page document called the "Tax Cut and Jobs Act" is the big news of the past week.  The initial version of the plan highlights $1.5 trillion in tax reductions (which could increase the deficit) over the next ten years.  The editorial page of The Wall Street Journal called the proposal "Half a Tax Plan," arguing that the legislation addresses in a meaningful way corporate tax reform, but makes the tax code even worse than it is now for individual taxpayers.
 
Approximately $1 trillion of the tax breaks will go to businesses by reducing the corporate income tax rate from 35% to 20%; lowering the tax on repatriation to the U.S. of foreign-earned corporate profits; and reducing the tax on pass-through business income for S-Corps and LLCs.  The remaining $500 billion in tax breaks will go to individuals through lower income tax rates and restricting the estate tax to individuals with more than $10 million in assets.
 
The House Ways and Means Committee is scheduled to begin "marking-up" the bill this week with a goal is to have the legislation through the House by Thanksgiving. The Senate Finance Committee will lead a similar process in parallel with the intention to have a final bill passed by the end of December.
 
All three major U.S. stock indexes closed last week at record highs - again. On Thursday, stock prices responded positively to a strong October jobs report. More than 261,000 jobs were added in the month, the largest monthly gain in more than a year and the 84th straight month of increased employment.  The unemployment rate is down to 4.1%, its lowest level in 17 years.  The jobs news reinforces the general expectation that the Fed will increase interest rates again in December.
 
On Friday, Apple reported its strongest quarterly earnings in two years with sales growth in all of its product groups in all regions of the world.  Tim Cook acknowledged that the company is "running on all cylinders".  Quarterly revenue increased 12% to $52 billion and earnings increased 19% to nearly $11 billion. Apple stock price is now up 50% over the past year.
 
Apple also signaled strong guidance for the upcoming quarter, projecting revenues in the $84 to $87 billion range, significantly higher than the previous quarterly record of $78 billion.  The new Apple iPhone X launched on Friday. Apple says that advance orders for the iPhone X are "strong", but did not provide specific figures regarding how many orders have been taken.
 
Tesla stock, at $300 per share, is also up 50% for the year. However, it is not trending in the same direction as Apple.  Shares fell 5% last week when Tesla's reported larger than expected losses of $626 million and manufactured significantly fewer of its new Model 3 car than anticipated.
 
President Trump chose Jerome Powell to be the next Chairman of the Federal Reserve Board when the term of current Chair, Janet Yellen, expires early next year.  Five years ago, Powell was appointed to the seven-member Fed Board of Governors by President Obama, after a long career in the public sector at the Treasury Department and in the private sector as a lawyer and financier. 
 
Powell is perceived as pragmatic and low-key and his views on monetary and regulatory policy have been aligned with Yellen's.  With the stock market at an all-time high and unemployment and inflation both low, a continuation of current Fed policy is likely one reason that Powell is an appealing choice for President Trump.  Pundits point out that Powell has never been tested in a financial crisis, so how he would respond is uncertain, and he has never managed a large bureaucracy before, such as the Federal Reserve.
 
While we are on the topic of central banks, the Bank of England raised interest rates last week for the first time in a decade. U.K. rates increased from 0.25% to 0.5%. For reference the current U.S. Fed rate is 1.25% and likely to increase to 1.5% in December.  The Bank of England acted in response to increasing inflation, which recently hit 3%.
 
The futures price for a barrel of U.S. crude oil finished last week at $55.66, a two year high.  Oil prices have increased 15% over the past two months, which is quite a turnaround from earlier in 2017 when oil prices plunged 20% between February and June.  The price increase is in response to strengthening global economic activity. For the first time in more than a decade, economies around the world are expanding simultaneously. In the U.S. demand for gasoline is at a record level.
 
Last week President Trump embarked on a 13-day Asian trip to Japan, South Korea, China, Vietnam and the Philippines.  It will be the longest presidential trip through Asia since 1991. Trump's priorities for the trip are to encourage North Korea's neighbors to exert more pressure on the isolated nation, and secondly to advance his agenda for "fair and reciprocal" trade in the Indo-Pacific region.
 
In the category "did I really hear that?", Papa John's is blaming poor pizza sales on the NFL. Papa John's complains that pizza sales have not met expectations because fewer people are now watching NFL football games.  NFL viewership on TV is down 15% over the past two years and Papa John's relies heavily on TV advertising to attract pizza lovers.
 
Finally, on Veterans Day this week please remember to appreciate your family and friends who served in the Armed Forces.  In particular, the intention of Veterans Day is to honor living veterans who served our country during war and peacetime.  Veterans Day is celebrated on November 11th to commemorate the conclusion of World War I. Hostilities ceased at 11:00 on the eleventh day of the eleventh month in 1918.  Originally called Armistice Day to commemorate veterans who served in the Great War, the holiday was officially changed to Veterans Day in 1954 to honor all veterans.
 
For the week ending November 3rd, the Standard & Poor's 500 closed at 2,588, the Dow Jones Industrials at 23,539, and the Nasdaq Composite Index at 6,764.  The yield on the ten-year Treasury Note finished at 2.34%, while crude oil cost $ $55.66 per barrel, and gold cost $1,267 per ounce. The Euro was largely unchanged last week at $1.16.

Ted Reagle
Financial Adviser

News and Information presented here was gathered from sources believed, but not guaranteed, to be reliable, including The Wall Street Journal, Barron's, The Economist, businessinsider.com, and Bloomberg. 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
November 13, 2017

After an eight-week boomlet on top of our already-aging bull market, stocks finally took a break last week and ended slightly lower.  This was largely due to Congressional shenanigans.  After the House of Representatives released their tax-cut bill, the Senate released a different version, which postpones corporate tax cuts until 2019.  Both versions of the bill cut the top corporate rate from 35% to 20%.  It is unclear at this point what that will do for corporations, which, on average, pay only 19% now.  What IS clear is that corporations see it as a win, and investors are not happy that it may be delayed.  The two versions, if approved, will go to a joint committee to work out the differences.

Hasbro has made a takeover offer for rival Mattel.  They are the two largest toy makers in the U.S., and both have suffered as a result of the Toys R Us bankruptcy.  Mattel has a market capitalization of $5 billion, while Hasbro is worth $11 billion.  A merger would bring together Mattel’s American Girl and Barbie franchises with Hasbro’s G.I. Joe, Nerf, and movie tie-ins for Frozen and Star Wars.  It will be the first time Barbie and G.I. Joe have been together since Joe came to hang out in my Barbie Dream House in 1968.

Saudi King Salman’s son, the crown prince Muhammad bin Salman, is taking unusual measures to consolidate his power.  Last week scores of people were arrested in an anti-corruption sweep which just happened to scoop up many of MbS’s rivals for power.  The detainees include ten other princes and dozens of current and former ministers.  Many are being detained in the Riyadh Ritz-Carlton.  King Salman’s government says that more than $100 billion has been embezzled from the kingdom and that the sweep was necessary.  The King is denouncing reports that he is going to step down in favor of the Crown Prince, who enjoys wide support among citizens under the age of 30 (70% of the population).  They believe that he will help modernize the kingdom.  Saudi Arabia sits on 266 billion barrels of oil and is the second largest producer of oil in the world, after Russia.  Oil prices rose on the news of the political purge, since MbS supports the current production cuts which put upward pressure on oil prices.

Alibaba, which is China’s Amazon and eBay all rolled together, held its annual mega-sale on November 11th.  Called “Double Eleven”, the day is remarkable not only for online sales, but also for pageantry and spectacle.  This year’s special guests were Nicole Kidman and tennis great Maria Sharapova.  There were fireworks!  Merchandise worth more than $25 billion was bought/sold, and 777 million parcels were shipped.  This is bigger than our Black Friday and Cyber Monday combined.  You too can buy from alibaba.com, although I imagine the shipping charges might be prohibitive.

Sir James Dyson, of vacuum cleaner fame, has announced that he is getting ready to put an electric car into production.  The decision on where to manufacture the car has not yet been made, but his current products come from Malaysia and Singapore.  The Dyson car will have unspecified “driverless elements” - we can only hope they include hand dryers.

And speaking of electric cars, a large group of carmakers is expected to begin selling wireless-charging electric cars soon.  Let me repeat that: WIRELESS CHARGING!  The technology is the first step in making cars that will charge while they drive.  Let me repeat that: WIRELESS CHARGING WHILE YOU DRIVE.  Time to buy a Dyson!

The Vatican has finally decided to end its long-profitable cigarette business.  No, not a typo.  For decades, the Vatican, which is a sovereign nation, has benefitted from selling cigarettes at prices well below those of Italy, which heavily taxes cigarettes.  The Vatican has been running duty-free shops and supermarkets stocked with cigs.  But that practice will end sometime next year.  As a Vatican spokesperson said, “no profit can be legitimate if it puts lives at risk.”

We have recently discussed new quantum-computer technology, in which the movement of atomic particles fuels data processing.  One caveat: the quantum machines must be supercooled to a temperature 250 times colder than deep space.  Not exactly laptop compatible.  But IBM is addressing the issue, and also the problems of how to train a workforce and what about people who would rather share, by allowing access to its quantum computers via the cloud.  That way you can pay to use the incredible processing power without having to own it.  (Insert your own prostitute joke here?)

If you don’t already know, it’s time you did: Twitter is allowing almost all users to tweet up to 280 characters at a time - or double the previous limit.  This is not a move encouraging pithiness.  The only users who don’t get the expanded capacity are those who tweet in Korean, Chinese, and Japanese.  Why?  Their languages are already so efficient that they don’t need the extra space.

A Qatar Airways flight recently had to make an emergency landing in India during a flight from Qatar to Bali.  An Iranian woman apparently used her sleeping husband’s finger to unlock his phone, and discovered he was having an affair.  The flight team could not control her attempt to beat him soundly, put down the plane and ejected wife, husband, and child before getting back on track.  Charges were not filed.

UPDATE:  The butter situation in France is growing more dire.  A butter scarcity has hit all of Europe after a bad harvest (less dairy-cow feed), but most places are coping by raising the price of butter.  In France, the price of butter is government-mandated and can’t be raised until the next negotiations in February.  Butter is hard to find!  Croissants are dry and tasteless!  Sacre bleu!

For the week ending November 10th, the Standard & Poor’s 500 closed at 2,582, the Dow Jones Industrials at 23,422, and the Nasdaq Composite Index at 6,750.  The yield on the ten-year Treasury Note finished at 2.40%.  Oil cost $56.74 per barrel, gold cost $1,272.40 per ounce, and the Euro was worth $1.1663.

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, and Reuters.  If you have any questions, please call us at 203.458.5220 or reply to this email.  Special thanks to Ted Reagle, who wrote last week’s column.
DIASTOLE ECONOMIC AND MARKET COMMENT
November 20, 2017

Feeling good about your health and the future?  You might want to consider investing in Danish energy company Orsted’s 1,000 year bond.  The bond will pay 2.25% for at least its first seven years, but doesn’t mature until the year 3017.  Odds are that somewhere along the line the bond will be called and refinanced, but what if it isn’t?  Four hundred generations of your heirs will pass before the lucky great great great… grandchild inherits the principal.  Stocking stuffer!

And in Norway, Europe’s largest oil producer, the government is getting ready to divest itself of nearly $40 billion in energy stocks. Fearing that oil has topped out, Norway wants to diversify its sovereign portfolio away from a dependence on oil.  This could be a major setback to the Saudia Arabian Aramco initial public offering, which is due next year.  The Saudis have surely expected Norway would be a major buyer of its stock shares, and have now lost that avenue.  Furthermore, if Norway begins selling oil-company shares, downward pressure on oil stocks may affect the price that Aramco can compel for its newly-issued shares.  Maybe China’s offer to buy the whole offering in a private deal is looking better.  Both Denmark and Norway are investing major assets in offshore wind farms.

The Food and Drug Administration has approved the first digital pill for use in the U.S.  The pill, called Abilify MyCite, is a version of the drug Abilify, which is used to treat schizophrenia, bipolar disorder, and depression.  The digital version embeds a sensor the size of a grain of sand in the actual pill, and the sensor communicates via Bluetooth to any authorized person (like a doctor or family member), who can then tell if the patient has taken the medication.  The sensor is activated by contact with stomach acid.  The patient can withdraw permission for sharing of the data at any time, but may still feel like a guinea pig/ID-chipped dog.

And speaking of technology, which we always are, two methods for defeating the iPhone X facial-recognition software have already been discovered.  The first involves making a mask of your face and fine-tuning it for hours until the phone thinks it’s you.  The second is to have your child, who looks just like you, pick up your phone.  Yup, that works, too.  Maybe we should go back to fingerprints or passcodes.

Remember when Amazon Key - the service which allows Amazon delivery people to open your door and put your packages inside - was announced all the way back in October?  Well, it’s already been hacked.  The all-important camera, which allowed you to see the delivery person and make sure that he was not robbing you, is apparently quite easily hacked by anyone within wi-fi range of your home.  That would enable a tech-savvy delivery courier to make sure you were seeing a closed front door, while he was actually taking all of your stuff.

But if you had the new Tesla Roadster, which will do 0 to 60 in 1.9 seconds and 0 to 100 in 4.2 seconds, you could track down that fake deliveryman and make a citizen’s arrest.  The car, which was unveiled in a surprise announcement on Thursday, will be the world’s fastest production car.  It will have a 620-mile battery range, roughly twice that of a normal Tesla, and will cost between $200,000 and $250,000.  It will also come with its own test track so that you can push it to the limit.  (Okay, maybe that last part is not true, but honestly, how will you ever prove how fast your car is?).  The deposit for the car is $50,000, so only serious buyers need apply.

The Tesla tractor-trailor was also revealed on Thursday.  It looks like a spaceship, has a 500-mile battery range, and includes self-driving features.  Walmart has ordered 15.  Big trucking companies say that the battery range is still too small, but are interested in the Tesla truck for smaller runs, say between ports or terminals and warehouses.  Production is supposed to begin in two years, and the truck, according to Elon Musk, will be expensive.

Walmart continues to avoid the retail apocalypse, and now offers free two-day shipping with no annual membership fee.  Take that, Amazon!  Walmart increased its e-commerce gross merchandise volume by 54% in the third quarter, and the stock price rose to record highs.  The number of shares being held short (meaning that the owners are betting the price will go down) fell by 18% in the most recent month.  See you in line at 6 p.m. on Thursday!

For the week ending November 17th, the Standard & Poor’s 500 closed slightly lower at 2,578, the Dow was slightly lower at 23,358, and the Nasdaq was slightly higher at 6,782.  The yield on the ten-year Treasury Note slid to 2.35% from 2.4%.  Oil cost $56.55 per barrel, gold cost $1,295.80 per ounce, and one Euro was worth $1.17.

Elizabeth E. Cook
Partner

News and information presented here was gathered from sources believed, but not guaranteed, to be reliable, including The Wall Street Journal, The New York Times, Barron’s, The Economist, Reuters, 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.