Alchanati Campbell & Associates
What's up Humanity?
Gambling laws changed, sorrow in Santa Fe, China’s trade agreement, the wealth agreement, and prevention.
The Market. The S&P 500 finished in the red for the week, ending Friday's session at 2,712.97.
The Dow finished in the red for the week, ending Friday's session at 24,715.09. Additionally, the Dow carried over an 8 day streak of gains into the early part of this week. The Nasdaq finished in the red for the week, ending Friday's session at 7,354.34. Crude Oil finished green for the week, ending at 71.35 per. Remember this news is coming after the events of last week with Iran, as well as the rising tensions in the Middle East that have been escalating this entire week.
(Some events factoring into these price changes include, but are not limited to: that trade war thing people are talking about, the price of oil (touched on above), and the U.S. economy performing so well.)
China gives in..? So, China sent over some trustworthy individuals to engage in trade talks with some of America's trustworthy individuals. Essentially, the two powerhouses came to an accord to reduce the U.S. trade deficit (or the Chinese trade surplus, depending on how you look at life) by $200 billion, leaving it at approximately $175 billion. Trade surplus is when exports exceed imports. This means China is exporting more to the US than they are importing from the US. That seems like a sizable amount. Of course, that’s what the Trump Administration had to say. Chinese news outlets, on the other hand, offered all but confirmation of such an accord. Either way, the fact that the powerhouses negotiated and have discussed deals should be taken as a good sign. In order to decrease the deficit by $200 billion, there would have to be drastic increases in imported American products, a drastic reallocation of Chinese imports, a drastic reduction in Chinese exports, and a restructuring of the supply chain.
America’s 16th this year, 16th school shooting… 17 year old student fatally shot 10 people and injured another 10 others using a semi-automatic pistol and a sawed-off shotgun in a high school shooting in Santa Fe, Texas. It is said that the shooter wanted to carry out this attack for awhile. He wrote in his journal about his thoughts and plan of carrying out the attack and committing suicide after the shooting, but he “didn’t have the courage” to take his own life.
Correlation between mass shootings and gun sales. Over the past years, when shootings occurred across the country, there was a sizable increase in demand for newer, tighter gun regulation. This has generally led to firearm companies, such as American Outdoors Brands Corporation, AKA Smith and Wesson($AOBC) and Sturm, Ruger and Company ($RGR) to experience boosts in their stock prices. There are two main reasons for this:
Notably, Democrats and Republicans tend to have two contrasting views on firearm regulation. Put simply and generally, the former believe in more regulation, while the latter does not. With a Democrat being President for 8 years from 2012 onward, the concern for rising regulation was more urgent. However, now that Donald Trump is in office, there is less of concern because, well, he is Donald Trump, a Republican (on paper), who isn't about to allow increased regulation on firearms. So, with less of a concern on regulation due to the current administration, firearm stocks during his term have not seen nearly the same reaction that they did under Barack Obama. In my opinion (which probably isn't good representation of anything), this is one of the prime examples of politics and finance interacting with each other, and it is remarkable to watch the two powerhouse fields to push and pull with each other. While in my mind this doesn’t necessarily work as an example of the butterfly effect because there isn't too much distance between the two fields, it is a nice example of how social events can have colossal changes in highly quantitative, sometimes algorithmic, fields such as finance.
Fools Gold. So you are looking to buy a house, but you have bad credit. Your mortgage broker offers you a new mortgage class called the adjustable rate mortgage (or floating rate mortgage). You take the deal. During the loans initial period, your principal and interest rate remains relatively low. After paying down the loan for two years, your principal and interest payments jump to 12%. What do you do? If for the past two years your home price has increased in value, you can refinance to pay down your loan. Such borrowing practices lead to the financial crisis of 2008 and investment banks are not done dealing subprime. The Wall Street Journal recently revealed that from 2010 to 2017 Wells Fargo, Citigroup and others lent out $1.4 billion to subprime auto loan brokerages. Default rates on these loans are now at 5.8%, higher than the 5% default rate on subprime mortgages in 2008. To make predictions based on the past is a fools game, but the lending conditions in today's market are eerily similar to the ones in 2008.
Vegas baby! And maybe New Jersey and every other state too. The Supreme Court ruled that States can allow betting on individual sporting events. Americans illegally bet an estimated $150 billion on sports games each year, and with betting becoming legalized, States could see more money flowing onto their balance sheets. But Las Vegas is not afraid…
The Wealth gap. Income inequality describes the gap between a six-figure salary and minimum wage, and the gap between a household’s total assets minus debts. The wealth gap is much worse among families with children, which has been widening in the past years. A huge reason for this are policies that have eroded public spending and private income for families with children. With college tuition, employment changes, and debt (mortgage and student loans), the separation of the rich and poor is becoming massive.
The right and wrong of failing. You have two options. One, openly examine past mistakes and learn. Two, avoid a reckoning and repeat them. The latter needs to go and the stigma that surrounds failure needs to go. The best way to avoid failure in the future is to embrace and learn from past failures.
Prevention. It is said that the best way to ‘contain’ the next financial crisis is to make sure financial institutions are strong (raising capital and liquidity requirements), subjecting banks to stress tests, and requiring them to create plans for their own unwinding. The structural resilience of the financial system is the first line of defense in promoting financial stability, with monetary policy of maximizing employment and price stability second in line.
The Alchanati Campbell and Associates Team
WHAT'S UP FRIDAY? is a weekly newsletter that will give you a summary of "What's up?" on Wall Street, in the US and around the World written by The Alchanati Campbell and Associates Team. What makes us unique is we focus on long-term knowledge; knowledge that will still be useful to you 10 years from now.