Turning Water into a Lifestyle Product

May 31, 2019   //   by Bruce Mason   //   Weekly Market Update  //  No Comments

Despite an abbreviated trading week, the markets had a lot to say.  The needle ticked a bit higher on the “fear” gauge as investors moved money into fixed income driving interest rates lower.  The 10-yr treasury, that had been at 2.75% just two weeks ago, now hovers around 2.2% which represents a large move in a rather short period of time.  What’s driving volatility can be summed up in two words – trade and uncertainty.  There’s too little of the first and an abundance of the second.

Optimism, exhibited just a few weeks ago, is waning as investors and analysts grapple with the fallout of worsening trade rhetoric between China and the United States.  The hope had been that both countries could knock out a deal, perhaps not to either’s liking, but allowing each to save face and claim victory no matter how small or real the outcome.  That hope is fading as both sides appear to be digging in for the long haul.  The S&P 500 has pulled back over the past month and currently sits right at its 50-day moving average.  As long-term investors, we recognize that times like this present buying opportunities and should be viewed as part of the overall investment cycle.  Additionally, having a well-constructed portfolio that is properly diversified can help reduce some, but not all, of the volatility.  Keeping a positive outlook is vital during these rough patches.

So, what’s going on with trade that has investors troubled?  In retaliation for putting a ban on Huawei, China announced it is halting all soybean purchases and is considering putting a moratorium on the sale of rare earth elements to the U.S.  Rare earth elements, while not actually rare, are a crucial component of products that cut across the U.S. economy, not only in the tech sector but the energy, automobile, and defense industries as well.  We know agriculture is being hurt by these tariffs as demonstrated by the President’s proposal to give $16.5 billion in aid to farmers this year.  Further, over 95% of rare earth elements come from China and while it would be an inconvenience if we couldn’t buy the next smartphone, it is another matter if it impacts missile guidance systems, antimissile defense systems, and satellites.  While not impossible, it will take time for the United States to rebuild its rare earth elements industry.  That gives China real leverage for now.

In other trade news, Germany, France, and the U.K. created a workaround for those countries wishing to continue to do business with Iran in the face of U.S. sanctions.  European countries broadly oppose President Trump’s decision to withdraw from the nuclear accord.  The proposed plan would allow companies to trade with Iran without the use of U.S. dollars or American banks.  However, this proposal is drawing heat from U.S. officials, leading to a strongly worded letter issuing a threat of punishment to those countries deciding not to comply with the trade restrictions.  While it does not stipulate what the consequences would be, it is reasonable to believe that sanctions could be placed on those non-complying countries.

In company news, the New York Times reported that Google now has more temporary and contract workers (121,000) than actual employees (101,000).  Though they often work side by side with full-time employees, they are employed by outside agencies.  In response, Google CEO, Mr. Pichai announced that by April 2020 Google would commit to pay temporary staff $15 per hour and offer 12 weeks of parental leave and healthcare by 2022.  Perhaps the company cannot attract enough qualified individuals to fulfill its ranks.  On the other hand, Google isn’t the only company in Silicon Valley to use these practices.

In closing, let’s talk about water.  The bottled water industry has been on an exponential growth trajectory in recent years.  I’m going to sidestep the controversy over the sourcing of said water or even its quality.  However, let’s talk about its marketing.  This week I learned there is a startup marketing its water as “Liquid Death” and runs $21.99 for a 12-pack.  The cans are festooned with dripping golden skulls and the tagline, “murder your thirst.”  It isn’t flavored and claims no health benefits.  It is simply water with a big marketing budget.  To be fair, it isn’t the first to make such a splash.  Others include “Bulletproof FATwater” and LIFEWTR, each suggesting different benefits.  Perhaps it’s just me, but has this gone a little too far?  Now you know.

May 31, 2019

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