How to Monetize a Traffic Jam

May 17, 2019   //   by Bruce Mason   //   Weekly Market Update  //  No Comments

The markets look to close the week lower with trade woes taking center stage.  After trade talks broke down last Friday, it was hoped that both parties would come back to the table dedicated to hammering out a deal.  Instead, both China and the United States dug in for the long haul with both sides arguing they are in a position of strength.  Investors are uneasy given the economic uncertainty.  Fortunately, the effects of the tariffs won’t be felt immediately, giving both parties a bit more time to figure things out.

You might be wondering what industries will be most affected by the tariffs?  As it turns out, a lot.  The companies with the most exposure are Caterpillar, Boeing, and Apple.  However, the industries range from planes, trains, and automobiles, to agriculture and apparel.  China retaliated this week by raising tariffs on $60 billion of U.S. goods starting June 1.  Fortunately, President Trump announced he will delay a trade war with Europe on automobiles for another six months.  He also announced just two hours ago that a deal has been reached to lift steel and aluminum tariffs on Canada and Mexico.  So, while issues with China persist, there is progress being made on other fronts.

One industry hit particularly hard is agriculture and specifically farmers growing soybeans.  The Trump administration is planning on providing about $15 billion in aid to help U.S. farmers whose products were targeted by the newly unveiled Chinese tariffs.  This group has been among the hardest hit in the trade war, with U.S. soybeans falling to their lowest price in a decade and shipments to China dropping to a 16-year low.  A new aid program would be the second round of assistance for American farmers, after the Department of Agriculture’s $12 billion aid program last year.

In economic news, the May consumer sentiment reading is the highest since January 2004.  It seems people are generally happy with the economy.  Given the historically low unemployment rate and relatively high labor participation rate, it might not come as a surprise.  On the flip side, household debt rose for the 19th straight quarter, topping $13.67 trillion at the end of Q1.  This figure grew by almost $1 trillion in just twelve months according to the Federal Reserve Bank of New York.  Before you grow concerned, one metric we look at closely is the delinquency rate and as it happens, delinquencies are down slightly year-over-year.  In fact, virtually all the credit card companies reported April credit card charge-offs fell as of the end of April.  The other bit of good news is that business inventories remained unchanged in April.  This is important because as the economy slows we might expect to see inventories build as consumers slow their spending.  Inventories can be the proverbial canary in a coal mine when it comes to the economy, giving some insight ahead of the headline economic data.

In closing, I bring you news of a new fast food concept.  We’ve all heard about the crazy traffic in and around Los Angeles.  No doubt, some of you may have found yourself in it at one time or another.  Burger King wants to make your commute more enjoyable and perhaps less stressful.  They introduced the Traffic Jam Whopper this week which is a direct-to-car delivery service, which uses motorcyclists and real-time data to deliver food to those stuck on the road.  The whole thing seems borderline dystopian, as Burger King will target digital ads positioned around the biggest traffic jams and will press users to download the app to purchase burgers while stuck on the freeway.  If this works, imagine what else might be delivered straight to your car?  Imagine the possibilities.  Now you know.

May 17, 2019

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