Weekly Market Commentary February 26, 2019

Fast Facts

Anyone Home?- A massive building boom has left as many as 65 million empty apartments across China, triggering fears of a housing collapse. Nearly a quarter of urban apartments sit unoccupied, and the latest data show sales in 24 cities falling by 44 percent. The exception to the trend: China’s four largest cities, where sales volume actually increased 12 percent. Real estate—with a total value of $65 trillion—makes up 80 percent of the wealth of China’s citizenry.

Cows Kill More Americans Each Year Than Sharks Do- While sharks account for about 53 bites per year, only one of those ends up being fatal. Cows, on the other hand (or hoof), kill around 20 people per year. Still, don’t expect Steven Spielberg to reimagine Jaws as Hooves anytime soon.

A Star is Born and She Wears $30million in Diamonds– Lady Gaga made a big impression at Oscars on Sunday night with her talent and her sense of style. She won her first Academy Award for best original song for “Shallow,” from “A Star Is Born.” For the big night, the singer and actress wore a show-stopping necklace with a 128-carat yellow diamond that is reportedly worth over $30 million, according to Entertainment Tonight. The so-called Tiffany Diamond was unearthed in 1877. The jeweler Tiffany & Co., which owns it, says the last time it was worn was in 1961, when Audrey Hepburn donned the lavish jewels for a “Breakfast at Tiffany’s” photoshoot. Tiffany & Co. called the spectacular gem “one of the largest and finest Fancy Yellow diamonds in the world.” The jeweler shared a photo of Gaga wearing the necklace on Instagram. “Released from the vault specifically for Lady Gaga, this marks the first time in history that the legendary Tiffany Diamond has graced an awards show red carpet,” the post said.


Weekly Focus – Think About It

“They always say time changes things, but you actually have to change them yourself.”
 –Andy Warhol, American artist


 The Markets

Investors were pleased with the Federal Reserve’s (Fed) new approach to its balance sheet.

The Fed delivered its semi-annual Monetary Policy Report to Congress last week. The report recapped the events of late 2018 and reiterated the Fed’s intention to “…be patient as it determines what future adjustments to the federal funds rate may be appropriate to support the Committee’s congressionally mandated objectives of maximum employment and price stability.”

In other words, rate hikes are on hold for now.

The Fed also addressed issues related to its balance sheet, which grew from $900 billion at the end of 2006 – about 6 percent of the United States’ gross domestic product (GDP) – to almost $4.5 trillion at the end of 2014 – about 25 percent of U.S. GDP. (GDP is the value of all goods and services produced in the United States in a given period.)

The balance sheet more than quadrupled during the past decade because the Fed began buying Treasuries and mortgage-backed securities, a policy called quantitative easing, in an effort to restore the U.S. economy to health, according to The Hutchins Center of the Brookings Institute.

Friday’s report indicated the Fed will not shrink its balance sheet to pre-crisis levels, reported Erwida Maulia for Financial Times. Markets responded positively to the news:

“U.S. stocks and Treasuries were comfortably higher at midday on Friday as the Federal Reserve signaled it will hold a much larger balance sheet in the long term than it did before the financial crisis, helping ease investor concerns about tightening financial conditions.”

Investors also remained optimistic about trade talks between the United States and China. Major U.S. stock indices finished the week higher.

Salt water has an economic IMPACT due to sea levels rising at a more rapid rate during the past three decades, according to the U.S. Global Change Research Program’s Climate Science Special Report. Since 1900, sea levels have risen between 7 and 8 inches. Since 1993, they’re up 3 inches.

As levels continue to rise, people and companies around the world are likely to be affected. Morgan Stanley reported, “Many coastal cities around the world that look attractive to real assets investors – for example, Miami, New York, Boston, Osaka, Guangzhou, and Mumbai – are particularly vulnerable to flooding and other weather-related problems. And, infrastructure assets favored by investors, like airports, cell towers, and oil and natural gas pipelines, are often located in places prone to storms and extreme heat…Insurance will continue to be an important safeguard, but a limited one.”

Protecting property and improving infrastructure is likely to change demand for specific goods and services. Sarah Green Carmichael of Barron’s reported, “As we rush to protect basements and beach houses, companies in the home-improvement retail sector should benefit…So should companies that make products to cope with flooding, such as commercial-grade water pumps…Upgrades to infrastructure also mean good news for the construction sector…”

The textile industry – think fabrics and clothing – may also be affected since major exporters like Bangladesh, Indonesia, and the Philippines, which supply 10 percent of the textiles and clothing imported by the United States, are vulnerable to coastal flooding.

Sea level is a macroeconomic issue. It has the potential to affect output and income across the global economy. Investment managers who take a top-down approach to investing consider the ways in which macroeconomic factors, like changing sea levels, could affect the market as a whole, as well as the share prices of specific companies. Bottom-up investors take a different approach. They consider company fundamentals, such as management team and earnings growth potential, first.


Best regards,

John Klevens, CFP


Sources: The Week Magazine, Nikkei Asian Review, ABCnews.go.com
Portions of this newsletter has been prepared by Peak Advisor