Impossible but Not Necessarily Healthy

Jun 7, 2019   //   by Bruce Mason   //   Weekly Market Update  //  No Comments

In recent weeks, we’ve watched the markets slowly sell off due to trade war rhetoric and moderating economic data.  Fortunately, investors have a new champion in the Federal Reserve (Fed) which announced this week it will do whatever is necessary to stabilize the U.S. Economy.  The market took this to mean that the Fed plans on cutting interest rates, possibly as soon as this year.  In fact, analysts put a 90% probability of a rate cut in September, rising to 97% by December.  What the Fed sees and how soon it acts remain unclear.  However, when the Fed changes policy, it is worth paying attention.

Despite further talks, there has not been any progress (at least that we are aware of) on the trade front.  The President said this week he will wait until after his meeting with Chinese President Xi, at the G20 meeting at the end of this month, to decide if further tariffs are warranted.  What’s new this week is that President Trump now appears ready and willing to impose trade tariffs on Mexico over the issue with illegal immigration.  As soon as Monday, we may hear about a 5% tariff, rising by 5% each month, up to 25% on all goods coming into the United States from Mexico.  Unlike the impasse with China, it is believed this negotiation will be resolved quickly.

I’ve talked a lot lately about how tariffs can hurt economic growth and are generally viewed by scholars and conservatives alike as a bad idea.  However, there are some who benefit from tariffs.  It appears Vietnam has so far emerged as the largest beneficiary of this trade war, gaining an estimated 8% of its gross domestic product (GDP) from new business.  Other major beneficiaries are Taiwan, Chile, Malaysia, and Argentina who have seen additional exports to the U.S. and China.

Aside from troubles with China and Mexico, Venezuela (which hasn’t been in the news lately) is teetering on the brink of insolvency.  Earlier this week, the country failed to make an interest payment on a gold swap agreement valued at $750 million with Deutsche Bank, leading the lender to take possession of the gold used as collateral.  The loan that Deutsche Bank made in 2016 was backed by 20 tons of gold as collateral.  Venezuela’s gold holdings, one of Maduro’s few sources of capital to keep his regime going and his military forces loyal, have been shrinking.  In March, Venezuela’s central bank missed a deadline to buy back gold from Citigroup for almost $1.1 billion.  And earlier, the Bank of England refused to give back $1.2 billion worth of Venezuelan gold.  This doesn’t bode well for either the government or the people of Venezuela.

Enough talk about geopolitical issues.  Let’s talk about some good news.  The 30-year mortgage fell to a two-year low this week.  The 30-year fixed-rate mortgage averaged 3.82% down from 4.54% this time last year.  With rates dropping below 4%, there are over $2 trillion of outstanding conventional mortgages eligible to be refinanced – meaning the majority of what was originated in 2018.  Also worth noting, U.S. household net worth made the biggest quarterly gain in 14 years.  U.S. household net worth rose 4.5% in Q1 2019, more than offsetting the 3.6% decline in the last quarter of 2018.  Household debt growth moderated to an annual rate of 2.3% from 2.8% last quarter, while the household saving rate improved to 6.7% of disposable personal income from 6.5% in Q4.

In closing I turn to food, which seems like a regular occurrence.  This week we learned that chicken may be the new red meat.  New research, published in the American Journal of Clinical Nutrition, is raising questions about poultry and cholesterol.  The small study found that consuming high levels of red meat or poultry resulted in higher blood cholesterol than consuming an equal amount of plant-based protein.  The main takeaway is that we should all be watching saturated fat.  Call me skeptical, but the release of this study seems extraordinarily timed with the upsurge of plant-based protein that is making headline news, i.e. Beyond Meat, the Impossible Burger, etc.  Oddly enough, while the plant-based proteins may be better for the environment, they are not exactly a healthier alternative.   An 8oz serving of Impossible meat has 28 grams of total fat (36% daily value) and 16 grams of saturated fat (80% of daily value).  To its credit, it has no cholesterol (which the study appears to have focused on).  Now you know.

June 6, 2019

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