“If a window of opportunity appears, don’t pull down the shades.” – Tom Peters
Here’s what I am thinking and hearing: *1.) The impeachment inquiry against President Trump as it stands right now isn’t a market changing event. A prolonged inquiry leading to a trial could however allow China to “wait it out” when it comes to further trade negotiations, thus prolonging the uncertainty in the business community regarding the future investment of capital. This in itself would prove to be a strong headwind to economic growth. It remains to be seen if the impeachment inquiry will affect consumer spending which accounts for 2/3 of GDP. My feeling is that it won’t dent spending as long as employment remains strong. *2.) Recent Fed Speak: Boston Fed President Eric Rosengren: “‘Headline grabbing’ market swings this summer obscure the fact that U.S. economic conditions remain ‘relatively benign’.” He also said that he thought it was “‘plausible’ that the depressed 10-year Treasury rate this year is due more to weakness among U.S. trading partners than fears about the domestic U.S. economy…[and] ‘recession concerns do not seem to be reflected in the current pricing of stocks’…Markets were also reacting to significant risks from trade tensions…” New York Fed President John Williams said: “Low inflation is indeed the problem of this era. The current outlook of moderate growth, low unemployment, but stubbornly low inflation is a reflection of the broader economic picture.” He said that sluggish inflation is one of the central bank’s most pressing issues and promised to use monetary policy to sustain economic growth. *3.) The Business Roundtable, chaired by JP Morgan CEO Jamie Dimon, has downgraded their forecast for 2019 growth to 2.3% from 2.6% last quarter. Its indexes of hiring, capital investment and sales all declined. Roundtable President Joshua Bolten said: “Uncertainty [over trade] is preventing the full potential of the economy from being unleashed, limiting growth and investment here in the U.S.” CNBC reported, “This quarter’s survey asked members to rate the impact of the trade war on their business over the past year. More than half of the executives reported a somewhat or very negative impact on sales, while 40% of manufacturing CEOs said capital investment took a hit.” *4.) Entertainment mogul David Geffen on Disney CEO Robert Iger: “Literally, I have never heard one person say a bad thing about him and I have never seen him be mean. To be honorable, decent, smart successful and a terrific guy is unusual anywhere. But it is most unusual in the entertainment business. He’s in a category of one.” *5.) From the Atlantic Monthly: “If you wake up on a Casper mattress, hail a Lyft to get to your desk at WeWork, use DoorDash to order lunch to the office, hail another Lyft home, and have Uber Eats bring you dinner, you have spent your entire day interacting with companies that will collectively lose nearly $13 billion this year. Most have never announced, and may never achieve, a profit.”
The Labor Department said that the U.S. economy created 130,000 nonfarm jobs in August, partially due to the temporary hiring of Census workers. Excluding government hiring, private payrolls increased by only 96,000, the slowest pace since February. Average hourly earnings increased by 0.4% in the month and are higher by 3.2% year over year.
Last week, the Fed cut its target fed funds rate range by another 25 basis points (0.25%) to between 1.75% and 2.00% saying the cut was necessary, “In light of the implications of global developments for the economic outlook as well as muted inflation pressures.”
The U.S. ISM manufacturing survey for August declined to 49.1%, the lowest reading in more than three years. The August contraction ended a 35-month period during which the PMI averaged 56.5%. New orders and exports were weak, while backlogs rebounded.
The Institute for Supply Management said that its August non-manufacturing (services) index rose to 56.4 from 53.7 in July.
The IHS Markit said its initial reading of U.S. manufacturing PMI for September hit 51.0, the best reading since April. Stronger order growth and rates of output helped push the index higher.
The Commerce Department said that U.S. retail sales rose by 0.4% in August after being up by 0.8% in July as the consumer continues to keep the economy afloat. A jump in auto sales and healthy online buying contributed to the gain.
The University of Michigan’s consumer sentiment index for September rose to 92.0 from 89.8 in August. While consumers felt more confident about the economy, increased concerns about tariffs were evident.
The Conference Board said that consumer confidence fell to 125.1 in September from 134.2 in August, a 3-month low. Expectations fell to 95.8 from 106.4 and those who saw jobs as “plentiful” fell to 44.8% from 50.3% in August.
The Commerce Department said that U.S. new home sales jumped 7.1% in August as lower mortgage rates brought buyers into the market. The seasonally adjusted rate climbed to 713,000 units. Sales climbed in the West and South, but declined the Northeast and Midwest.
The National Association of Realtors (NAR) said that pending home sales rose by 1.6% in August. The gains were the strongest in the West where pending transactions were up 3.1%.
The S&P CoreLogic Case-Shiller 20-City Home Price Index for July increased by 2.0% on a year over year basis which represents to slowest rate of home price appreciation since 2012. Phoenix and Las Vegas continue to experience the most price appreciation over the past year with increases of 5.8% and 4.7% respectively. Seattle was the only city to see a decline in value of -0.6% year over year.
The Labor Department said that U.S. producer prices rose unexpectedly in August by 0.1% as a jump in the cost of services counterbalanced the largest decline in the price of goods in seven months.
The Germany Manufacturing PMI for September fell to 41.4, down from 44.7 in August, the lowest reading in seven years. The German manufacturing recession appears to be spreading to the services sector where the reading fell to 52.5 from 54.8 in August. Separated by category, things look much worse: Composite Output Index at an 83-month low, Services Index at a 9-month low, Manufacturing Index at a 123-month low and Manufacturing Output Index at a 86-month low.
According to the Bureau of Labor Statistics, since the year 2000, wages for women have grown by about 1/2% per year while wage growth for men has averaged closer to 1/4% per year. No matter how you slice it, the growth in wages has been pathetic over the past 19.5 years.
Do you want the bad news or the good news first? The Bad: The Congressional Budget Office states that the total public debt is at a record high of $22.5 trillion and has forecast roughly $1 trillion in annual deficits as far as the eye can see. The good: The net interest rate on the debt should finish 2019 at 1.8% of GDP and for perspective, that’s lower than it ever was from 1989 through 2001, during which it averaged 2.7% of GDP – and some of those years saw budget surpluses.
Brian Wesbury, Chief Economist at First Trust, puts the public debt into another perspective: “But here’s another reason not to fear the current debt of $22.5 trillion: the assets of all U.S. households combined are $129.7 trillion. Yes, they have debts worth $16.2 trillion, but that still leaves a net worth of $113.5 trillion. Now let’s imagine households paid off not only their own debts but the government’s, as well. That would have left them with $91.4 trillion in mid-2019. That’s about 4.3 times GDP. From the early 1950s through the mid-1990s, this ratio – the net worth households would have after paying off their debt and the national debt – hovered between 2.8 and 3.3 times GDP. Now it’s near a record high. None of this means U.S. fiscal policy is in a good place; it’s just that the debt is manageable…”
OxyContin maker Purdue Pharma has filed for bankruptcy protection after failing to reach a settlement agreement with plaintiff states. Legal documents for the prosecution contend the company over the years repeatedly failed to alert authorities to reports its painkillers were being abused. The Sackler family also bragged about its sales, documents illustrate. “According to a court filing in Massachusetts, Richard Sackler, who was the company’s president from 1999 to 2003, said at an event that ‘the launch of OxyContin Tablets will be followed by a blizzard of prescriptions that will bury the competition. The prescription blizzard will be so deep, dense and white.’ ” (CNBC)
“Thomas Cook, the world’s oldest travel firm, collapsed Monday, stranding hundreds of thousands of holidaymakers around the globe and sparking the largest peacetime repatriation effort in British history. The firm runs hotels, resorts and airlines for 19 million people a year in 16 countries. It currently has 600,000 abroad, forcing governments and insurance companies to coordinate a huge rescue operation.” (CNBC)
Earlier this month, Deere sold 30-year bonds at a record low yield for U.S. corporate debt of that maturity. Deere put the debt on the books at an initial yield of 2.877%, breaking the previous record of 3.197% that Disney issued in July of 2016. (WSJ)
American Express has announced that it will increase its quarterly dividend by 10% or $0.04 per share to $0.43. The company also announced a program to buy back 120 million common shares.
Microsoft has announced an 11% increase in its quarterly dividend to $0.51 per share. The company also announced that it will buy back $40 billion of its common shares.
Lockheed has said that it has won a NASA spacecraft contract worth as much as $4.6 billion to produce six Orion and potentially as many as 12 deep space exploration spacecraft.
Boeing says that it will pay $144,500 to each of the families of 346 people killed in the two 737 Max crashes.
Apple has said that it will manufacture the new version of its Mac Pro in Austin, Texas in an effort to avoid some of the China tariffs. The Mac Pro is the high-end machine for programmers, artists and other people who need a lot of power.
Jimmy John Sandwich Shops (Freaky Fast!) is selling to the owner of Arby’s Buffalo Wild Wings, Sonic and Rusty Taco for an undisclosed sum. Jimmy John Liautaud started the company right out of high school 36 years ago in Charleston, Illinois with $25,000 borrowed from his father.
Delta Air Lines has said that it has acquired 20% of Latin America’s largest Airline, LATAM for $1.9 billion. LATAM will exit the OneWorld Alliance and it not yet clear as to whether they will join Delta’s SkyTeam mileage-sharing alliance.
Spinning bike and treadmill maker Peloton has come public at $29.00 per share. The company raised $1.16 billion through its IPO and created a market value of around $8 billion.
Costco announced it will begin selling alternative meat products from privately held Don Lee Farms. The products will feature a Better Than Beef Burger line. “Don Lee Farms is a long-time vendor for Costco and is currently in a legal tussle with Beyond Meat over trade secrets”. (Seeking Alpha)
Nike reports fiscal 1st quarter earnings of $0.86 per share on revenue of $10.66 billion, an increase of 7.1% year over year.
Next week: Earnings from: Costco and Bed Bath and Beyond. Economic reports: ISM Non-Manufacturing Index for September, Manufacturing New Orders for August, U.S Purchasing Manager’s Index for September, ADP Private Payrolls for September and U.S. Non-Farm Payrolls for September.
WTI crude oil: $56.52 per barrel. 10-year U.S. Treasury note: 1.68%. Gold: $1,515 per ounce.
Sources: CNBC, Real Money Pro, Estimize.com, First Trust Economics, 361 Capital, Zero Hedge, Seeking Alpha, MarketWatch, Bloomberg, The Wall Street Journal, The Calafia Beach Pundit and The Gazette.
At the time of publication Cascade Investment Group and /or its clients owned shares of: JPM, DIS, UBER, LYFT, DE, AXP, MSFT, LMT, BA, AAPL, COST, NKE.
Disclosure: This publication shall not constitute an offer to sell or the solicitation of any offer to buy or sell any securities of the companies mentioned. This publication is solely a compilation of recent news releases from the sources cited above.
Ken Beach, President and Managing Partner of Cascade Investment Group, member FINRA & SIPC. Cascade Investment Group is not a tax or legal advisor. You should always consult with your tax advisor or attorney before taking any actions that may have tax consequences.
R.I.P. – Robert Hunter (Grateful Dead lyricist)
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