• Market Crumbs

What Some Are Doing And Saying Is Quickly Diverging

It's often said that the stock market isn't the economy. While that's debatable, when stocks do well companies typically (when they aren't buying back all their shares) invest more and hire workers, consumers are confident and spend more and GDP is positively affected, making the economy look good. The opposite happens when stocks are doing poorly.

There always has and always will be people calling for the markets to crash and others calling for them to continue to go up. So with stocks just below the highest level in the history of the world, it's interesting, and confusing, to watch both the words and actions of so many in the world of finance contrast each other.

The most obvious is the actions of central banks - the ones who are largely responsible for creating the longest bull market in history. Just last week, the Federal Reserve conducted overnight repo transactions to calm money markets for the first time since the height of the financial crisis as well as cut interest rates. The former head of the New York Fed's trading desk (aka the PPT) thinks that may not be enough and they may even have to buy more debt to "calm the market." Fed Chair Jerome Powell said the economy is in a “favorable place” but faces “significant risks.” Members of the Fed are increasingly divided on what they should do at this point in the longest economic expansion in U.S. history.

Then you have President Trump who has repeatedly said we're in the midst of the best economy ever, but at the same time constantly demands the "boneheads" at the Federal Reserve lower rates more than they have. If it's true we're in the best economy ever, why does the Fed need to cut rates and use tools from the financial crisis? With the election approaching, Trump knows lower rates are good for the stock market. Before becoming President, Trump even said "the Fed's reckless policies of low interest and flooding the market with dollars needs to be stopped or we will face record inflation."

Others are starting to raise the alarm as well. The Bank for International Settlements warned in its quarterly review that $17 trillion in negative-yielding global debt has reached "vaguely troubling" levels. The CEO of one of the world's largest asset managers sees U.S. growth slowing to just 1% next year. A recent survey found 38% of fund managers expect a global recession within the next year, the highest level since 2009. Goldman Sachs is even warning the market is about to "get wild" in October.

It's easy to see why "the most hated bull market ever" is so hated when so few are reaping the benefits of the stock market. "Conspiracy theorists" will say the policies are to help the top 10%, which so far seems to be correct. Others will point out the markets continue to make new highs so everything must be fine. Either way, what you read and what you see happening in the markets is starting to diverge at a rapid pace. Booms and busts are a natural part of the economic cycle and if the Fed uses all of its tools when stocks are near all-time highs, what will they do when they're not?

Leftover Crumbs

  • WeWantANewCEO. As the issues continue to mount for The We Company, its largest investor, SoftBank Group, is reportedly pushing the board of directors to oust CEO Adam Neumann. The plan to remove Neumann as CEO from the office-sharing startup reportedly has support from Softbank's chairman and CEO Mayoshi Son as well as Benchmark Capital, another large investor in the startup. Softbank may be interested in ousting Neumann to prevent an IPO, as the valuation has fallen from $47 billion to $10 billion, and avoid a significant writedown on its investment. If Neumann ends up getting canned, it may hurt his plan of becoming the world's first trillionaire.

  • Too toxic for Disney. In an interview promoting his memoir, Disney CEO Bob Iger revealed why Disney decided against buying Twitter. “The troubles were greater than I wanted to take on, greater than I thought it was responsible for us to take on...the nastiness is extraordinary” Iger said. Despite calling Twitter a "compelling" way to reach people, Iger decided instead to increase Disney's stake in sports streaming site BAMTech.

  • Is this what customers want? In an internal memo, Walmart announced it would halt sales of e-cigarettes in Walmart and Sam’s Club locations in the U.S. once it sells its remaining inventory. The world's largest retailer said “growing federal, state and local regulatory complexity and uncertainty” factored into its decision. Walmart is increasingly taking stances on social issues under CEO Doug McMillon, who will become chair of the Business Roundtable next year. Earlier this month the retailer announced it would stop selling ammunition for handguns and short-barrel rifles following two shootings at Walmart stores this summer.

  • Everyone just wants an edit button. Twitter has launched a "hide replies" feature in the U.S. and Japan. So how does it work? Say you tweet "I'm shorting the S&P 500" and someone replies "you're going to lose all of your money." You'll now be able to hide this reply so other users won't be able to see it unless they choose the option to view hidden replies. Despite the tweets not actually being deleted, critics of the new feature contend it could be used as a way of silencing opposing opinions.

  • Do you want the good news or bad news first? The good news is the growth in student loan debt slowed to 2% last year. The bad news is graduates from the class of 2018 are starting the next phase of their lives with an average of $29,200 in student loan debt - a new record. Almost two out of every three graduates from public and private nonprofit colleges last year went into debt to get a degree. The debate surrounding the $1.6 trillion in student loan debt facing the U.S. is a hot topic heading into next year's presidential election.