February 16, 2018
Weekly Market Comment
“It is not disbelief that is dangerous to our society; it is belief.” – George Bernard Shaw
The TSX Composite gained 2.8% while the S&P 500 recovered 4.3%.
A sense of calm crept back into the market. The S&P 500 has re-claimed a majority of its drop while the VIX volatility index (aka the “fear” index), thawed from 50% to sub 20% (see chart below).
The Fed’s new Chairman Powell started this week, the first Fed chair without an economics degree in modern times (though he is the richest, worth over $100 million). Powell was an Obama appointee to the Fed and is expected to maintain continuity. He prefers a little less regulation but he’s no extremist. Powell has started by increasing the informality and speed with which Fed economists and other employees communicate with one another in a bid to speed up and encourage more communication and conversation. While not conducting economic research himself, Powell is said to be a voracious reader of economic papers and studies. The next FOMC meetings are March 20-21. Investors will keep a very close eye on the outcome.
Meanwhile, the U.S. Department of Commerce dropped a widely expected bombshell on foreign steel and aluminum exporters by recommending a 24% tariff on global imports and at least 53% on imports from 12 specific countries (including China, India and Russia). Furthermore, each nation would face a quote of allowable exports to America. Its protectionist policy would make Bernie Sanders proud, though it remains to be seen how much of these recommendations actually get implemented. They benefit steel workers and local producers but NATO made the point that it would hurt the U.S. defense industry by increasing military hardware costs. Trump was recently quoted telling lawmakers “you may have a higher price, but you have jobs,” so the notion of higher domestic steel prices is not controversial.
A well-known comedian once mocked mankind for complaining for things so miraculous and unlikely as the ability to travel 30,000 feet in the sky while sitting in a chair, all at a fraction of the time of traveling via boat, train, car, horse or walking.
What few people realize is just how little profitable (if at all) your trip is to the airline. Despite record setting performance these past four years, the average per passenger profit amongst the seven largest U.S. carriers on an average $355 ticket was a modest $19.65. Last year was only $17.75. You and your spouse probably tip more for a nice dinner and don’t think twice. The bottom line is that air travel is as close to a non-profit charitable service as a consumer could ever hope for. The only better bargain we can think of is shopping at Costco.
Prime Minister Trudeau and the Natural Resources Minister Jim Carr turned up the heat on B.C.’s opposition to the Trans Mountain pipeline expansion project. “By blocking the Kinder Morgan pipeline, he’s putting at risk the entire national climate-change plan, because Alberta will not be able to stay on if the Kinder Morgan pipeline doesn’t go through.” In the meantime, chief White House economic advisor Gary Cohn reportedly has support from his boss to push for implementing a 25 cent-per-gallon gasoline tax to raise funds for infrastructure improvements. But according to Strategas Research, such a gas tax would remove 60% of the expected $120 billion gain from the recent income tax cuts. The estimated $4 billion in corporate bonuses to workers as a result of corporate tax cuts would be dwarfed by the estimated $71 billion gas tax expense to consumers. It remains to be seen what will actually materialize but it illustrates that every action, be it a tax cut or tax hike, has pros and cons. There is no such thing as black and white when it comes to economic policy.
Enjoying the Olympics? If so, be glad you don’t live in North Korea, where the state TV station has not broadcast any of the games yet. “For the North Korean regime, there is no big incentive in reminding its people that the South lives well enough to host an Olympics,” said one defector from North Korea. “Unless one of its athletes wins a surprise medal, it’s not likely to broadcast any competition to its people.”
No such medal has been won yet. Canada, on the other hand, ranks 3rd for most medals thus far. The Pinkowski-Allen Team has an exciting Olympics connection. Brianne Gardner, an associate financial advisor on our team, is the sister to Darren Gardner, a member of Canada’s snowboarding team. He will be racing on February 21 and the 23. Ride well, Darren!
Musings Beyond The Markets
There is a major contemporary artist, Takashi Murakami, showing at the VAG. It’s a major show for little ‘ol Vancouver so check it out if you have any interest.
Murakami is a neo-pop artist who straddles the high-brow serious art world and mere cartoons and Japanimation. He describes his style as “superflat”, representing both his style of imagery and of post-war Japan in general (where homogeneity is a social expectation).
You may more commonly recognize that he was the artist who created the Louise Vuitton symbols but don’t hold that against him.