A random walk through recent economic, market and business headlines

“The time to repair the roof is when the sun is shining.” ― John F. Kennedy

 

2015.07.24_graph

The Fed may repair the roof by raising it. Interest rates are almost certain to be raised in September, according to a Wall Street Journal poll of economists. That view was confirmed last week by the person who matters most: Fed Chairman Yellen, who told Congress, “…we now think that the economy cannot only tolerate but needs higher interest rates.”

Needs higher interest rates! Strong talk. The Fed is building their case: the job situation has improved and our GDP is expected to grow almost 3% in the year ahead. Greece has settled down and the Chinese stock market is calmer. The Fed sees a window.

Comment: A lot can change between now and September 16.

 

Speaking of windows and roofs, prices of existing homes in the U.S. jumped to a record high in June, higher than the previous peak set in 2006. The median sale price jumped to $236,400, according to the National Association of Realtors.

Comment: Buyers are scrambling to lock in low interest rates.

2015.07.24_graph2Oil’s selloff last Wednesday

Oil is now officially trading in a bear market. So said Reuters last week, when crude dropped below $50 a barrel. Not exactly a bold call considering oil already dropped 60% over the last year, but oil prices took yet another hit, especially on Wednesday. The treaty with Iran is credited/blamed for cheaper oil, with expectations that Iranian oil will flood the market.
Comment: Other commodities are down as well, including gold, natural gas, copper, steel, lead and zinc.

Why is gold so cheap? Gold is down 43% over the past four years. This month gold dropped for ten consecutive days, finally hitting a bottom (for the moment, anyway), on Thursday. What’s up – or should we say, what’s going down – with gold? Traders offer several theories:

  • China isn’t buying as much gold as everybody thought they would.
  • Inflation is low worldwide, therefore gold has little appeal as an inflation-hedge.
  • Other hard assets are doing much better, including real estate.
  • Four years ago, and ounce of gold cost more than $1900. As we write these words, an ounce of gold costs $1083.

Comment: Gold bugs say the Chinese are buying more than gold than they are reporting.

 

2015.07.24_map

Funding of state retirement plans has increased for the first time since 2008, according to a Boston College study. The “aggregate funded ratio” has increased from 72% to 74%. Reason: most plans use a trailing five year stock market return to smooth their liability calculations. 2008’s bear market just rolled out of the calculation.
Wisconsin, South Dakota, Oregon, North Carolina and Tennessee have the best-funded plans. Illinois has the worst funded plan, at only 39.26%. (source: Pensions and Investments)
Comment: Still a long way to go.

 

Ubair’s ready when you are.

Ubair, really? Private jet rental is getting cheaper, reports the BBC. In other words, “there’s an app for that”. Several private jet booking companies have created apps that make private jet travel cheaper. The companies include Jetsmarter, Victor, Privatefly and – you guessed it – Ubair, a play on the name Uber (but not related to the ride-sharing company). The operative word here is “cheaper”… private jet travel is still not exactly cheap. For example a cross-country flight that would cost $600 per ticket on, say, a traditional American Airlines flight, can now be booked on a three-passenger private jet for around $1200.

Comment: But you’ll miss out on the fine airport dining at Chili’s Too.

 

Speaking of Uber, New York City backed down in a fight with the app-ride company last week, and extended Uber’s operating license in the Big Apple for another four months. During those four months, the city will study Uber’s impact on traffic and pollution.
Comment: Uber’s big vision statement: “Evolving the way the world moves”.

 

 

General Motors reported strong earnings last week, beating analyst expectations. Profits were led by sales of pickup trucks and SUV’s (encouraged by lower oil prices). Operating margins in China and the U.S. exceeded 10%.
Comment: Have you priced a new Chevrolet Tahoe lately? With a few options you’ll pay almost $70,000. Or….you could buy a Ferrari.

Ferrari filed paperwork last week for an initial public offering. The stock is expected to trade on the New York Stock Exchange, and could value the Italian car manufacturer at $10 billion.
The number of shares and price range haven’t been figured out yet.
Ferrari’s ownership is complicated even without the offering. 90% of the company is owned by Fiat Chrysler. 10% is owned by Piero Ferrari, the son of founder Enzo Ferrari. Piero says he’s not selling his stock.
Fiat Chrysler plans to use the proceeds from the Ferrari stock sale to focus on selling more Jeeps and to relaunch Alpha Romeo.

Comment: Fiat Chrysler also makes Maserati and Dodge Ram Trucks.

Watching the Tape is a compilation of news, observations and views written and edited by Bill Kibler, Senior VP, FinTrust Investment Advisors, bkibler@fintrustadvisors.com. Information is provided by sources believed to be reliable, but FinTrust is not responsible for accuracy. The information herein is not a recommendation to buy or sell any security. Past results are no indication of future performance.
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