The Mysterious Surge in $100 Bills

Mar 1, 2019   //   by Bruce Mason   //   Weekly Market Update  //  No Comments

The markets went largely sideways this week as trade talks with China appeared to hit a few speed bumps and economic indicators were decidedly mixed.  Given the exceptionally fast rise in the markets over the past few months, it is to be expected we might see the markets consolidate a bit while investors digest the data.

Part of what is helping support the market is testimony from the Federal Reserve Chairman, Jay Powell, who this week appeared before the Senate Banking Committee.  In his testimony he reiterated the Fed’s position that policy decisions will be data dependent.  Based on his comments, it seems the Fed is struggling with how to unwind its balance sheet in the face of a slowing economy and is reconsidering the viability of further interest rate hikes.  While these developments may not sound like great news, it is exactly what investors want to hear because it suggests the Fed is considering more than just economic data but also market volatility and investor sentiment.

Despite the media circus surrounding testimony by Michael Cohen, there was quite a bit of company news that warrants mentioning.  Tesla, which has been in the news more for its CEO’s transgressions than its cars, announced yesterday it is finally going to start selling a $35,000 entry-level Model 3.  The bulls insisted this is the beginning of the transformation of the mass-market electric vehicle in the United States.  The bears suggested that selling a car below costs is almost certainly a way to drive the company into financial trouble.  Even Mr. Musk himself stated the company would not turn a profit in the first quarter after having posted a couple quarters of profit last year.  One of the cost saving measures the company announced is the closure of most of its retail stores.  Going forward, the company will only sell its cars online with a seven-day return policy.  This could utterly transform the way cars are sold, or it could be a colossal failure.  Legislation regarding the sale of cars goes back to the advent of automobiles.  Time will tell how this idea pans out.

In other company news, Samsung announced its Galaxy Fold phone which marks the first phone that has a foldable screen.  The screen is 7.3 inches but folds in half and is small enough to fit in a pocket.  If this interests you, the phone will be available April 26th and will cost an eye-watering $1,980.  In another first of its kind, Boeing unveiled an unmanned fighter jet designed to fly alongside crewed aircraft in combat.  The company hopes to sell the aircraft, which has a range of 2,000 nautical miles and costs considerably less than a conventional fighter jet, to customers around the world.  And lastly, an innovation that could help many people was approved by the FDA this week.  Medtronic developed a radio frequency system for the ablation of nerve tissues which could be used to reduce chronic pain.  The device uses radio waves to heat up a small area of nerve tissue to stop it from sending pain signals.  Given the opioid epidemic and heightened awareness surrounding the use of pain medication, this could be a game changer.  Disabling pain lasting more than three to six months affects at least 100 million adults in the U.S. according to Medtronic, with treatment and lost productivity costs reaching $635 billion a year.

In closing, I bring you a mystery.  It seems the amount of $100 bills in circulation is surging and is leaving some economists scratching their heads.  The number of $100 bills has doubled since the financial crisis, with more than 12 billion of them across the world, according to data from the Federal Reserve.  There are so many that $100 bills have now passed $1 bills in circulation.  Generally, economists believe the surge is related to people around the world wanting to hoard cash.  While some purport it has to do with corruption and crime, others suggest it has become a store of value, in much the same way gold was in previous eras.  Also fascinating, the shelf life of a $100 bill is considerably longer at 15 years versus the $1 bill which on average lasts in circulation just under 6 years.  And perhaps most interesting, 60% of all U.S. bills and almost 80% of $100 bills are held overseas which is up from 15-30% in 1980.  If you have a theory on the rise of the $100 bill, please let us know.  Until then, the Treasury Department will just have to work its printing presses at capacity.  Now you know.

March 1, 2019

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