
Economic Comment from Mr. E.S. Finley - Retired Chairman ICEC
E.S. Finley
E.S. Finley
The DJIA rose to a fresh record of 22641.67, reversing losses after being negative immediately following the Fed’s announcement of keeping the door open to a December inter- est rate increase. The Fed’s signal that it will plan rate rises this year and next caused the dollar and Treasury yields to rise, and gold to falter. The blue-chip index has risen in nine straight sessions. The S&P turned positive to close at a record 2508.24. The WSJ Index reversed its earlier losses to trade up 0.4%. Gold with other haven assets showed 0.6% decline. In general, stocks reacted mildly to the Fed’s unwinding. However, the tech softness caused the Dow to come down to 22296.09. The S&P 500 moved in the range of just 12.31 points or less than 0.5% last week, the lowest move in 45 years.
The S&P Global Ratings downgraded China’s credit rating to A-plus from AA-minus, reflecting its “prolonged period of strong credit growth which has increased China’s economic and financial risks.” The rating and view of risks in China now match those of Moody’s which lowered China’s rating in May, as Fitch did in 2013. Meanwhile China plans to speed up making electric cars by 2019 and to ease rules requiring foreign car makers to have local partners, which would pave the way for Tesla to build cars there.
Based on the revised data, U.S. economic output grew at a 3.1% annual rate in the second quarter, better than expected and the best in two years. Many economists estimate the economy to grow at 2% to 3% rate in the third quarter. It is worthwhile to note that for 50 years GDP components have been lagging to provide up to date figures as consumers’ patterns have been constantly changing.
The total net worth of U.S. households rose by 1.7 trillion in the second quarter of 2017 to $96.3 trillion. While the increase was smaller than in the first quarter, $2.3 trillion, it marked the seventh straight quarter overall wealth rise in the U.S. The value of real es- tate rose by $564 billion in the last quarter, better than the gain in the previous quarter. During the recession 2007-09, when the housing market and the stock market fell, households lost nearly $12 trillion in wealth, which was fully recovered by the second half of 2012.
British Prime Minister Theresa May said that the U.K. would honor the financial commitments to the EU’s current budget, and seek to retain current trade terms with the block for two years after its planned exit in 2019. She said – Britain’s exit from EU “does not mean that we are turning our back on Europe, or worse, that we do not wish the EU to succeed.”
Ms. Merkel’s Christian Democrats and their Bavarian sister party saw their worst result since 1949, losing around a fifth of the 41.5% support they got just four years ago. Following which, challenged after the rise of a nationalist party, Ms. Merkel began work on a three-way coalition.
European investors are buying more foreign bonds than ever. Between May and July they bought $192 billion in international bonds, the largest sum in any three months period on record. The trend has global implications as heavy demand from the eurozone puts pressure on yields elsewhere in the world, including the U.S., where it lowers the borrowing costs.
OPEC is trying hard to absorb output from Libya and Nigeria, whose surging production could derail the group’s efforts to withhold crude oil supply and cause prices to rise. The new output wipes out almost half of OPEC’s other members, or about 1.23 mil- lion barrels a day. At the same time Brazil opened the door to major oil producers to jointly explore their offshore holdings. Mean- while oil prices bounced back in the third quarter on strong demand.
WSJ reported that Chairwoman Janet Yellen “came as close as she ever is likely in accepting that quantitative easing is still poorly understood by the experts. Explaining the central bank prefers set short-term rates rather than buy and sell stuff, she said it was because we understand pretty well what the effects [of rate changes] are on the economy, and so do investors.” Despite recent low inflation, Yellen defended the Fed’s gradual path of rate increases. The search for a new Fed chairman will prefer someone who favors low interest rates and financial deregulation.
Senate Republicans released their budget blueprint for fiscal year 2018, with a resolution ending September, indicating reduction in taxes of $1.5 trillion over 10 years and revising the tax code.
The volume of leveraged loans is up 53% this year in the U.S. putting it on pace to exceed the 2007 record of $534 billion. Henrik Johnsson, co-head of global debt- capital markets at Deutche Bank AG said - “We’re overdue for a correction.” At the same time Target is raising its minimum wage to $11 an hour and later to $15 an hour in order for the retailer to compete filling low-wage jobs. Higher prices of stocks and lower level of Treasuries reflect stronger global growth with prospects of tax overhaul, higher profits and U.S. borrowing. However, some traders are jittery, particularly remembering the months of October in the past.
Car sales hit their fastest annual pace of 2017, helped by discounts and by replace- ment of storm-damaged vehicles. Mi- crosoft came out with a product to challenge IBM in artificial intelligence for every- day business use, while Twitter began testing a new limit of 280 characters, double the current limit.
Rainer Weiss of MIT with Kip Thorne and Barry Barish of California Institute of Technology, received the Nobel Prize for their role in detecting gravitational waves. Through their work they vindicated a century-old prediction by Albert Einstein and established a new way to probe the hidden recesses of space, time and the universe.
MID-SHIP Report October 5, 2017

Economic Comment from Mr. E.S. Finley - Retired Chairman ICEC
E.S. Finley
E.S. Finley
The euro reached its highest level against the dollar since before the ECB announced its stimulus program in January 2015. Driving these gains are expectations that the ECB will taper its monthly 60 billion pounds of bond buying, as it runs out of assets to purchase. The euro was up 13% against the dollar this year. The Bank of England is preparing to raise the rates to restrain acceleration of inflation.
A recent surge in the value of the Yuan which hurt Chinese exporters, and currently caused China to reverse a range of measures it previously had put in to support its currency. The move will make it less expensive to buy dollars while selling the Yuan, putting some pressure on the currency.
In the U.S., inflation continues subdued as consumer price grew only 0.1% in July and 1.4% over the past year. Higher consumer spending with falling unemployment indicates high growth, however, inflation, the key measure, has weakened and as such complicates the picture of the economy for the Fed. That is, whether to raise its benchmark rate once more before the end of the year. Higher borrowing cost could risk consumer spending which could push inflation below the Fed’s target and undermine the economic expansion. On the other hand, consumer prices suddenly rebounded by 4% in August, the biggest jump since January, much of the gain due to a sharp rise in gasoline prices caused by Hurricane Harvey. U.S. fuel prices are expected to stay elevated for the rest of 2017. Core prices excluding food and energy grew only 2%, the most since February.
U.S. single-family starts continued to edge higher in August, however, overall housing starts slipped 0.85 % to an annual rate of 1.18 million, driven by continued steep decline in multiple family buildings. Single-family building starts rose 1.65% in August while starts for buildings with two or more units fell 6.5%.
After setting a record in 2016, U.S. industry sales have posted lower growth in each of the first eight months of this year. U.S. light vehicles sales fell 1.9% from a year ago and the industry’s annual selling pace was 16.14 million in August, down from 17.22 million a year ago. It is clear that buyers became more fickle.
Five of the seven months through July had seen payroll growth of over 200,000 and the average of the preceding 12 months had been a solid 180,000, a high level so late in the economic recovery. According to the Atlanta Fed a pace of 166,000 jobs a month for the next 12 months would take the unemployment rate below 4%, a level not seen since the beginning of this century.
The S&P 500 hit its 21st record of 2488 in 2017 and DJIA rose to 22370.80, its fifth straight record, as investors’ fears about North Korea and hurricane IRMA abated. Stocks rose broadly while haven assets retreated. At the same time, China has taken steps to shut down the country’s bitcoin exchanges owing to growing concern with the virtual currency and its recent surge in value.
According to the Census Bureau, medi-an household income last year was $59,039, up 3.2% from a year ago, on top of a 5.2% rise in 2015, a new high, surpassing the previous peak for household income reached in 1999. Government officials warned against historical comparisons due to changes in how they calculate the figures over time.
Recently President Trump said “hopefully the U.S. can renegotiate NAFTA, but if we can’t, we will terminate it and we will start all over again with a real deal.” The administration officials confirmed that the president remained open to revising the U.S. commitments under the Paris accord rather than quitting the pact.
Resorting to a series of stimulus to stabilize the economy after the financial crisis, the Fed now prepares the final move to unwind slowly its $4.2 trillion portfolio mortgage and Treasury bonds purchased earlier.
At the same time, the Senate passed the defense policy bill 89-8 in a broad show of support for lifting military spending well above the current spending. In a stern warning to North Korea President Trump said – “The United States has great strength and patience, but if it is forced to defend itself or its allies, we will have no choice but to totally destroy North
Korea.”
MID-SHIP Report September 21, 2017
A recent surge in the value of the Yuan which hurt Chinese exporters, and currently caused China to reverse a range of measures it previously had put in to support its currency. The move will make it less expensive to buy dollars while selling the Yuan, putting some pressure on the currency.
In the U.S., inflation continues subdued as consumer price grew only 0.1% in July and 1.4% over the past year. Higher consumer spending with falling unemployment indicates high growth, however, inflation, the key measure, has weakened and as such complicates the picture of the economy for the Fed. That is, whether to raise its benchmark rate once more before the end of the year. Higher borrowing cost could risk consumer spending which could push inflation below the Fed’s target and undermine the economic expansion. On the other hand, consumer prices suddenly rebounded by 4% in August, the biggest jump since January, much of the gain due to a sharp rise in gasoline prices caused by Hurricane Harvey. U.S. fuel prices are expected to stay elevated for the rest of 2017. Core prices excluding food and energy grew only 2%, the most since February.
U.S. single-family starts continued to edge higher in August, however, overall housing starts slipped 0.85 % to an annual rate of 1.18 million, driven by continued steep decline in multiple family buildings. Single-family building starts rose 1.65% in August while starts for buildings with two or more units fell 6.5%.
After setting a record in 2016, U.S. industry sales have posted lower growth in each of the first eight months of this year. U.S. light vehicles sales fell 1.9% from a year ago and the industry’s annual selling pace was 16.14 million in August, down from 17.22 million a year ago. It is clear that buyers became more fickle.
Five of the seven months through July had seen payroll growth of over 200,000 and the average of the preceding 12 months had been a solid 180,000, a high level so late in the economic recovery. According to the Atlanta Fed a pace of 166,000 jobs a month for the next 12 months would take the unemployment rate below 4%, a level not seen since the beginning of this century.
The S&P 500 hit its 21st record of 2488 in 2017 and DJIA rose to 22370.80, its fifth straight record, as investors’ fears about North Korea and hurricane IRMA abated. Stocks rose broadly while haven assets retreated. At the same time, China has taken steps to shut down the country’s bitcoin exchanges owing to growing concern with the virtual currency and its recent surge in value.
According to the Census Bureau, medi-an household income last year was $59,039, up 3.2% from a year ago, on top of a 5.2% rise in 2015, a new high, surpassing the previous peak for household income reached in 1999. Government officials warned against historical comparisons due to changes in how they calculate the figures over time.
Recently President Trump said “hopefully the U.S. can renegotiate NAFTA, but if we can’t, we will terminate it and we will start all over again with a real deal.” The administration officials confirmed that the president remained open to revising the U.S. commitments under the Paris accord rather than quitting the pact.
Resorting to a series of stimulus to stabilize the economy after the financial crisis, the Fed now prepares the final move to unwind slowly its $4.2 trillion portfolio mortgage and Treasury bonds purchased earlier.
At the same time, the Senate passed the defense policy bill 89-8 in a broad show of support for lifting military spending well above the current spending. In a stern warning to North Korea President Trump said – “The United States has great strength and patience, but if it is forced to defend itself or its allies, we will have no choice but to totally destroy North
Korea.”
MID-SHIP Report September 21, 2017

Economic Comment from Mr. E.S. Finley - Retired Chairman ICEC
E.S. Finley
E.S. Finley
Stimulated by global growth and healthy earnings, the Dow Jones Industrial Average gained 20% since the election of President Trump, as it has also done following each recent presidential election. This time the Dow climbed over the 22000 level. In addi- tion, payrolls showed an increase of one million jobs since the election, bringing the unemployment down to 4.3%, the lowest in 16 years.
Despite these good numbers, President Trump’s ratings are in the low thirties, the worst level of any president in recent times. It took some weeks for the country to accept the fact that Russia interfered in the election, which in turn cast a heavy pall over the Presidency. The Russian investigation followed and Trump’s promised agenda items were delayed by many distractions.
The OEC&D said that consumer prices across the G20 were 2% higher than a year earlier. The last time inflation was lower was in October 2009, when it stood at 1.7%. The Treasury Department will auction $134 bil- lion in securities, comprising $95 billion in new debt. The U.S. economy is expanding but not fast enough for the Federal Reserve to raise interest rates quickly, boosting risky assets such as stocks.
In commodities, oil prices rose after the U.S. data showed that crude inventories contin- ued to shrink and gasoline demand climbed. Fears of a Venezuelan debt default arising, with fallout from the election seen as a pos- sible tipping point. An investor consensus that the dollar will continue to weaken is fueling rallies in everything from U.S. stocks to commodities.
Japan’s economy grew at a 4% annual pace in the second quarter showing strong spend- ing by consumers and businesses driving the sixth straight quarter of growth, giving world’s third largest economy its longest expansion since 2006, and the quickest since the first quarter 2015.
Significantly, China’s foreign-exchange re- serves increased for a sixth consecutive month, growing by $23.93 billion from the previous month to $3.081 trillion, the highest level in nine month, and bigger than economists forecast of $15 billion. The U.S. dollar index declined 3% in July, while the dollar dropped 0.75% against the yuan on China’s onshore market.
China took formal measures to curb out- bound investment to establish firmer control over corporations whose international shop- ping spree has rattled China’s currency and foreign exchange reserves.
The British government is beginning to accept the realities about Brexit, however, the pertinent language does not disguise many contradictions. It will take time to resolve the differences. Europe’s officials believe decision to tide the Trump and Brexit waves backfired.
In less than 20 years more than half of all publically traded companies have disappeared. There were 7,355 U.S. stocks in November 1997. Nowadays, there are fewer than 3,600. That explains why stock pickers have been underperforming.
Bullish investors are pushing prices of copper, aluminum and other industrial metals to multiyear highs, hoping that recent signs of resurgent global growth and falling supplies will increase demand for raw materials. Gold is expected to outperform the stocks for the first time since 2011.
As price of crude oil dropped below $50 a barrel, and the costs of producing shale ascended, the producers of shale are turning to conventional drilling. At the same time gasoline prices surged after Harvey knocked out a number of refining operations.
U.S. new home sales fell sharply in July, decreasing 9.4% to an annual rate of 561,000. Putting the housing market into a pattern of rising prices and flattening sales. The entire U.S. economy grew 3% in the second quarter, well above estimates. Presi- dent Trump called on Congress to approve a steep cut in corporate tax rates and simplify the U.S. tax system, urging bipartisan support for the plan.
Federal Reserve Chairwoman Janet Yellen and EU Central Bank President Mario Draghi offered few new clues, both central banks are putting in place to gradually to ratchet back unprecedented stimulus.
They defended the financial regulatory and global architecture that has come under threat by governments unhappy with the slow pace of economic growth that fol- lowed the 2007-09 recession.
Business investment is now rising at a faster rate than overall economic growth for the first time since 2014. U.S. business investment rose at a 5.2% annual rate during the second quarter, after a 7.2% increase in the first quarter.
China reemerged as a coal importer and has boosted the success of U.S. produc- ers who are now shipping more coal abroad than at any time in the last two years. That growth comes at a time when President Trump has vowed to end a long decline the in the U.S. coal business.
China’s financial markets are sending conflicting signals about the health of the world’s second economy where a strength- ening of currency, buoyant stocks and soaring commodities contrast with the pessimism of the country’s bond holders.
MID-SHIP Report September 7, 2017

Economic Comment from Mr. E.S. Finley - Retired Chairman ICEC
E.S. Finley
E.S. Finley
Prime Minister Theresa May called an early election in April, only to be handed a stinging defeat to her and her ruling Conservative party, depriving her of a majority in Parliament and thrusting the country into a new period of prolonged political uncertainty as it prepares to depart from the European Union. The British pound slumped following this setback. Ms. May turned to an unlikely partner, the head of the Labor party, to hold on to power. At the same time French President Macron’s centrist par- ty was projected to win a commanding majority in Parliament, in a victory for his pro-EU movement. German Chancellor Angela Merkel sketched out the outlines of a bargain with France on fixing the governance of Europe’s single currency. At the same time police detained hundreds of anticorruption protesters across Russia, including opposition leader Alexel Navalny, who hopes to harness a surprise surge in rallies against the Kremlin to challenge President Vladimir Putin in elections next year. The U.S. senate passed a bill expanding sanctions on Moscow and to wrest more control of Russian policy from the Trump administration.
OECD forecast that the world economy would grow by 3.5% this year, the fastest pace since 2011. It downgraded its estimate of the U.S. GDP’s growth rate to 2.1% from 2.4% projected in March. The World Bank predicted global growth of 2.7%.
According to WSJ analysis, the U.S. exported 1 million barrels of oil a day during some months this year - double the pace of 2016 and is on track to average that amount for all of 2017. As a result these American exports, which make up only 1% of global volume, puts downward pressure on crude prices keeping them between $45 and $55 a barrel. However, oil glut is not respond- ing to OPEC’s output caps, triggering, when inventories were revealed, crude oil prices to fall to their lowest level of 2017. Oil industry and investors are re- signed to the idea of lower oil prices.
In the U.S. about 3 million potential first-time home buyers have been shut out of the market over the past decade due to tight lending standards and shortages of affordable housing in many markets, reducing a key component of housing demand. The number of first-time buyers averaged 1.5 million a year over the past ten years. ISM’s service index rose slightly to 56.9 in May, reaching a record high in the number of opening jobs, mainly owing to a lack of skills in the labor force. A growing number of major insurers are seeking premium increases averaging 20% or more for next year on plans sold under the Affordable Care Act. Senate GOP leaders have set a timeline for voting next week to repeal large chunks of the Affordable Care Act, even though they haven’t yet secured enough support to pass it.
For the first time Republicans have successfully passed broad legislation to replace the 2010 Dodd-Frank overhaul law. It is unlikely to become law but aspects, dubbed Financial Choice Act, could be approved by Congress in smaller pieces with more modest agenda. The administration will call for curbs on the U.S. consumer–finance regulator and reassessment of a broad range of banking rules. Republicans held on to a hotly contested U.S. House seat in Georgia, beating back a strong challenge that still showed the Democrats’ inability to turn opposition to Trump’s presidency into electoral gains.
The Fed’s rate increases have not exerted desired effects of cooling off Wall Street’s overheating. Mixed messages without details create confusion when Congress will lift the debt ceiling. Although recently the Fed said it would raise short-term interest rates and spell out in greater detail its plans to start shrinking its $4.5 trillion portfolio of bonds and other assets this year. That caused the dollar and Treasury yields pared and U.S. stock indexes mixed, after Dow reached new record at 21528.99.
WSJ believes that the Fed might turn out to be right this time, and wages and inflation will pick up as job vacancies prove hard to fill, while Republicans are forced to pass tax and health laws.
MID-SHIP Report June 22, 2017
OECD forecast that the world economy would grow by 3.5% this year, the fastest pace since 2011. It downgraded its estimate of the U.S. GDP’s growth rate to 2.1% from 2.4% projected in March. The World Bank predicted global growth of 2.7%.
According to WSJ analysis, the U.S. exported 1 million barrels of oil a day during some months this year - double the pace of 2016 and is on track to average that amount for all of 2017. As a result these American exports, which make up only 1% of global volume, puts downward pressure on crude prices keeping them between $45 and $55 a barrel. However, oil glut is not respond- ing to OPEC’s output caps, triggering, when inventories were revealed, crude oil prices to fall to their lowest level of 2017. Oil industry and investors are re- signed to the idea of lower oil prices.
In the U.S. about 3 million potential first-time home buyers have been shut out of the market over the past decade due to tight lending standards and shortages of affordable housing in many markets, reducing a key component of housing demand. The number of first-time buyers averaged 1.5 million a year over the past ten years. ISM’s service index rose slightly to 56.9 in May, reaching a record high in the number of opening jobs, mainly owing to a lack of skills in the labor force. A growing number of major insurers are seeking premium increases averaging 20% or more for next year on plans sold under the Affordable Care Act. Senate GOP leaders have set a timeline for voting next week to repeal large chunks of the Affordable Care Act, even though they haven’t yet secured enough support to pass it.
For the first time Republicans have successfully passed broad legislation to replace the 2010 Dodd-Frank overhaul law. It is unlikely to become law but aspects, dubbed Financial Choice Act, could be approved by Congress in smaller pieces with more modest agenda. The administration will call for curbs on the U.S. consumer–finance regulator and reassessment of a broad range of banking rules. Republicans held on to a hotly contested U.S. House seat in Georgia, beating back a strong challenge that still showed the Democrats’ inability to turn opposition to Trump’s presidency into electoral gains.
The Fed’s rate increases have not exerted desired effects of cooling off Wall Street’s overheating. Mixed messages without details create confusion when Congress will lift the debt ceiling. Although recently the Fed said it would raise short-term interest rates and spell out in greater detail its plans to start shrinking its $4.5 trillion portfolio of bonds and other assets this year. That caused the dollar and Treasury yields pared and U.S. stock indexes mixed, after Dow reached new record at 21528.99.
WSJ believes that the Fed might turn out to be right this time, and wages and inflation will pick up as job vacancies prove hard to fill, while Republicans are forced to pass tax and health laws.
MID-SHIP Report June 22, 2017

Economic Comment from Mr. E.S. Finley - Retired Chairman ICEC
E.S. Finley
E.S. Finley
For the first time in three decades, Moody’s cut China’s sovereign credit rating to A1 from Aa3 and changed its outlook to negative from stable. Moody’s now rates China’s credit along- side that of countries such as Japan, Saudi Arabia and Israel. The move came as Beijing has intensified a campaign in recent months to rein in risky investments and financial practices that pose a threat to the stability of the world’s second largest economy. China’s central bank has effectively anchored the yuan to the dollar, a policy turn that helped to stabilize the currency in a year of political transition and mar- ket concern about economic
management. Emerging markets are the calm- est they have been in three years. The geopolitical map of the world is undergoing a significant change. The rise of China, India and Brazil diminishes the importance of G7 which used to represent the seven biggest economic nations of the world. The G20 is now more representative on a global basis. Equally significant was Ms. Merkel’s recent statement that EU has to straighten itself out on its own as it can- not rely on the U.S., thus deepening the rift. The World Bank predicted that the global growth will hit 2.9% next year.
After OPEC announced an extension of production cuts; investors were disappointed enough to cause oil prices to plunge 5%, the biggest one day decline in three weeks. Most of the economists anticipate oil prices to hover near $50 level.
The dollar slipped after the Fed’s minutes from the last meeting were published. Businesses are upbeat but are less optimistic than earlier in 2017. WSJ’s Dollar Index fell 0.3% to 88.87. The minutes showed that Fed officials continue to expect to raise the interest rates soon, even though the economy appeared to have stumbled in the first quarter. However, earnings of U.S. firms grew in the 1Q at the fastest rate in nearly six years. The S&P 500, Dow Jones, and Nasdaq have risen for six straight sessions with the Nasdaq reaching a new high at 6295.25, DJA at 21144.18 and S&P 500 at 2430.06 They were all bolstered by consumer discretionary stocks.
Consumer and business spending in the first quarter was stronger than initially thought and the revised GDP was up to a growth pace of 1.2% from 0.7% annual rate. Nearly half of the borrowers who refinanced their homes in the 1Q chose the cash-out option. Americans made 433 million fewer trips to restaurants at lunchtime due to lack of time and higher prices, resulting in about $3.2 billion in lost business for restaurants last year. Business investment was higher than previously estimated, showing larger spending on construction, research and development expenses. ISM’s index of manufacturing rose to 54.9 in May. Companies are foregoing the stock splits. So far this year just two firms in the S&P 500 have split their shares. Twenty years ago the level was nearly two a week according to some economists. High stock prices are supposed to attract more attention these days.
Employers added 174,000 jobs in April, and 253,000 in May, bringing the “official” unemployment rate to 4.3%. The ratio of employment of labor force has virtually unchanged in five decades. At the same time credit scores for consumers reached a record high this spring, while the share of the riskiest borrowers hit a record low, helping lend- ing and economic activity. ISM service index fell to 56.9 in May from 57.5 in April. Compared with a year earlier, productivity rose 1.2% in the first quarter. Thus far, rewriting the tax code appears to have failed. Meanwhile the markets’ simultaneous gains in many assets concern investors that this confluence can’t go on forever.
The “ECONOMIST” addressed their readers about the problem with the U.S. budget, stating that “Steve Mnuchin the Treasury Secretary, has already banked that $2 trillion to pay for the tax cuts that are supposed to spark the 3% growth in the first. An- other contradiction is that the budget predicts growing revenue from the estate (inheritance) tax, which it promises to abolish. It is one thing for the executive and the legislature to disagree. But the Trump administration has produced blueprint that
contradicts itself.”
MID-SHIP Report June 8, 2017
management. Emerging markets are the calm- est they have been in three years. The geopolitical map of the world is undergoing a significant change. The rise of China, India and Brazil diminishes the importance of G7 which used to represent the seven biggest economic nations of the world. The G20 is now more representative on a global basis. Equally significant was Ms. Merkel’s recent statement that EU has to straighten itself out on its own as it can- not rely on the U.S., thus deepening the rift. The World Bank predicted that the global growth will hit 2.9% next year.
After OPEC announced an extension of production cuts; investors were disappointed enough to cause oil prices to plunge 5%, the biggest one day decline in three weeks. Most of the economists anticipate oil prices to hover near $50 level.
The dollar slipped after the Fed’s minutes from the last meeting were published. Businesses are upbeat but are less optimistic than earlier in 2017. WSJ’s Dollar Index fell 0.3% to 88.87. The minutes showed that Fed officials continue to expect to raise the interest rates soon, even though the economy appeared to have stumbled in the first quarter. However, earnings of U.S. firms grew in the 1Q at the fastest rate in nearly six years. The S&P 500, Dow Jones, and Nasdaq have risen for six straight sessions with the Nasdaq reaching a new high at 6295.25, DJA at 21144.18 and S&P 500 at 2430.06 They were all bolstered by consumer discretionary stocks.
Consumer and business spending in the first quarter was stronger than initially thought and the revised GDP was up to a growth pace of 1.2% from 0.7% annual rate. Nearly half of the borrowers who refinanced their homes in the 1Q chose the cash-out option. Americans made 433 million fewer trips to restaurants at lunchtime due to lack of time and higher prices, resulting in about $3.2 billion in lost business for restaurants last year. Business investment was higher than previously estimated, showing larger spending on construction, research and development expenses. ISM’s index of manufacturing rose to 54.9 in May. Companies are foregoing the stock splits. So far this year just two firms in the S&P 500 have split their shares. Twenty years ago the level was nearly two a week according to some economists. High stock prices are supposed to attract more attention these days.
Employers added 174,000 jobs in April, and 253,000 in May, bringing the “official” unemployment rate to 4.3%. The ratio of employment of labor force has virtually unchanged in five decades. At the same time credit scores for consumers reached a record high this spring, while the share of the riskiest borrowers hit a record low, helping lend- ing and economic activity. ISM service index fell to 56.9 in May from 57.5 in April. Compared with a year earlier, productivity rose 1.2% in the first quarter. Thus far, rewriting the tax code appears to have failed. Meanwhile the markets’ simultaneous gains in many assets concern investors that this confluence can’t go on forever.
The “ECONOMIST” addressed their readers about the problem with the U.S. budget, stating that “Steve Mnuchin the Treasury Secretary, has already banked that $2 trillion to pay for the tax cuts that are supposed to spark the 3% growth in the first. An- other contradiction is that the budget predicts growing revenue from the estate (inheritance) tax, which it promises to abolish. It is one thing for the executive and the legislature to disagree. But the Trump administration has produced blueprint that
contradicts itself.”
MID-SHIP Report June 8, 2017

Economic Comment from Mr. E.S. Finley - Retired Chairman ICEC
E.S. Finley
E.S. Finley
U.S. stocks advanced to fresh records in the first half of May as a rally in crude oil and dollar weakness generated gains. Emerging markets also rose. However, as the latest political developments in Washington created a climate of risk aversion in financial markets, the S&P 500 fell the most in eight months, turning the volatility index to surge, while haven assets such as gold advanced at a rapid pace. The stocks have recovered since then. Currently there is no more talk about stimulus or tax cuts. Bloomberg stated that “a verdict is on a synchronized global expansion - alive and well.”
At the same time, China announced in Mid-May that it invested over $50 billion over the past three years to knit Asia, Europe and Africa more closely through infrastructure referred to as “Silk Road” or “One Belt, One Road”. The U.S. shipped just $42.4 Billion in goods to China in the first 5 months of the year, or 8% less than a year before, and 13.8% below the peak export year of 2014.
Japan’s economy picked up speed in the first quarter. With GDP at 2.2%, extending its recent stretch of growth under PM Abe, by the longest expansion of five quarters since 2006. Japan ap- pears back on a stable if unspectacular growth rate.
WSJ reported that the cyberattack that spread around the globe recently hit businesses, hospitals and government agencies in more than 150 countries, and it is likely to keep growing as it is designed to spread quickly.
Oil rose back above $50 a barrel to a one month high on growing confidence that OPEC will maintain its efforts to diminish a global glut.
Europe’s largest companies recorded their strongest quarter of profit growth in almost seven years, raising hopes that it is poised to shake off the effects of the global economic crisis that began in 2008, and affected Europe for longer than it did the U.S. or Asia. Indian states used to be fiscally impressive, but after the government guaranteed bonds issued by states, its bonds became close to “junk”.
Until recent days, the Brazilian Real had gained 20% over 18 months and IBovespa surged 42%. Currently however Brazilian markets tumbled following turmoil over President Temer’s problems. The Real plunged 8% while stocks slid 10%, developing risk-off market in assets. The U.K. on the other hand had expected monetary policy to be loosened in August. The Brexit hit to the U.S. is limited.
In the U.S. total household debt was up about 14% in the 1Q or $149 billion, compared with prior quarter to a total of $12.725 trillion. In the 1Q the total debt was about 85% of GDP. CBO expects that it will rise to 122% in 2040. Still, the UoM consumer sentiment rose to 97.7. The White House is proposing to bal- ance the federal budget over 10 years. Its policies would cut $4.5 trillion in spending from Medicaid, food stamps, disability benefits and student loans, while lowering taxes and raising reve- nues by $1 trillion. The division within the party will be challenging, especially in the senate.
The Federal Reserve’s assets now total $4.5 trillion, up from less than 1 trillion ten years ago. Investors worry that as one of the largest traders now, by rolling back, the Fed may risk disrupting mar- kets and the economy, when its growth is still tepid.
Industrial production jumped 10% in April, the largest gain in more than three years. However, housing starts declined 2.6% to a 1.172 million annual rate. Permits also fell by 2.5% to a pace of 1.229 million.
Purchases of new homes fell by 11.4% in April to an annual rate of 569,000. The housing market is at or near 10 year high for sales of newly built and previously owned homes and economists believe momentum is like- ly to continue throughout the year despite the last month’s decline.
“The Economist” stated in its lead article that “Trumponomics offers no lasting remedy for America’s economic ills. It may yet pave the way for something worse.” On the other hand JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon said he re- mains optimistic about the global economy and the prospects for regulatory reform under President Trump.
MID-SHIP Report May 25, 2017
At the same time, China announced in Mid-May that it invested over $50 billion over the past three years to knit Asia, Europe and Africa more closely through infrastructure referred to as “Silk Road” or “One Belt, One Road”. The U.S. shipped just $42.4 Billion in goods to China in the first 5 months of the year, or 8% less than a year before, and 13.8% below the peak export year of 2014.
Japan’s economy picked up speed in the first quarter. With GDP at 2.2%, extending its recent stretch of growth under PM Abe, by the longest expansion of five quarters since 2006. Japan ap- pears back on a stable if unspectacular growth rate.
WSJ reported that the cyberattack that spread around the globe recently hit businesses, hospitals and government agencies in more than 150 countries, and it is likely to keep growing as it is designed to spread quickly.
Oil rose back above $50 a barrel to a one month high on growing confidence that OPEC will maintain its efforts to diminish a global glut.
Europe’s largest companies recorded their strongest quarter of profit growth in almost seven years, raising hopes that it is poised to shake off the effects of the global economic crisis that began in 2008, and affected Europe for longer than it did the U.S. or Asia. Indian states used to be fiscally impressive, but after the government guaranteed bonds issued by states, its bonds became close to “junk”.
Until recent days, the Brazilian Real had gained 20% over 18 months and IBovespa surged 42%. Currently however Brazilian markets tumbled following turmoil over President Temer’s problems. The Real plunged 8% while stocks slid 10%, developing risk-off market in assets. The U.K. on the other hand had expected monetary policy to be loosened in August. The Brexit hit to the U.S. is limited.
In the U.S. total household debt was up about 14% in the 1Q or $149 billion, compared with prior quarter to a total of $12.725 trillion. In the 1Q the total debt was about 85% of GDP. CBO expects that it will rise to 122% in 2040. Still, the UoM consumer sentiment rose to 97.7. The White House is proposing to bal- ance the federal budget over 10 years. Its policies would cut $4.5 trillion in spending from Medicaid, food stamps, disability benefits and student loans, while lowering taxes and raising reve- nues by $1 trillion. The division within the party will be challenging, especially in the senate.
The Federal Reserve’s assets now total $4.5 trillion, up from less than 1 trillion ten years ago. Investors worry that as one of the largest traders now, by rolling back, the Fed may risk disrupting mar- kets and the economy, when its growth is still tepid.
Industrial production jumped 10% in April, the largest gain in more than three years. However, housing starts declined 2.6% to a 1.172 million annual rate. Permits also fell by 2.5% to a pace of 1.229 million.
Purchases of new homes fell by 11.4% in April to an annual rate of 569,000. The housing market is at or near 10 year high for sales of newly built and previously owned homes and economists believe momentum is like- ly to continue throughout the year despite the last month’s decline.
“The Economist” stated in its lead article that “Trumponomics offers no lasting remedy for America’s economic ills. It may yet pave the way for something worse.” On the other hand JPMorgan Chase & Co. Chief Executive Officer Jamie Dimon said he re- mains optimistic about the global economy and the prospects for regulatory reform under President Trump.
MID-SHIP Report May 25, 2017

Economic Comment from Mr. E.S. Finley - Retired Chairman ICEC
E.S. Finley
E.S. Finley
The plan of the biggest tax cut and the largest tax reform in the history of the U.S. was designed to stimulate an increase of jobs and raise the growth rate of the economy, as well as simplify the system. It focuses on goals of tax relief for families, particularly middle-income households. It calls for cutting the income brackets from seven to three: 10%, 25%, and a top 35%, below current top rate of 39.6%. The new top rate would not apply to pass- through income which a business entity passes on to its owners, that rate would be 15%. The plan proposes doubling the standard deduction for individuals from $6,300 for single filer to $12,000 for married couples. Deductions for mortgage interest and charitable contributions would be protected. The proposal aims to cut other deductions including state and local taxes. The plan also aims to repeal en- tirely the estate tax. At the same time the plan opened the cardinal question of how to finance it without increasing our nation- al debt.
WSJ editorial of April 27th including the following comment : “Mr. Trump’s plan is an opening bid to frame negotiations in Congress, and there are plenty of bargaining chips. Perhaps the corporate rate will rise to 20%, or maybe the House will include a more modest border adjustment. Budget rules and Democratic opposition could force Republicans to limit the reform to 10 years. But better to start with a big pro-growth offer rather than preemptively lower aspirations. Republicans won’t get another opportunity like this to reshape the tax code for a generation.” Meanwhile the administration stated its plan could curb carried interest for private equity firms, with financiers still getting tax cuts.
Economic developments other than the tax treatment also came to light. A new Greek agreement frees money for bond redemption, by conceding on the main points to release a payment the country needs to pay creditors in July. Puerto Rico was hit with creditors’ lawsuits after the expiration of a recent debt renegotiation deadline. Chinese regulations to reduce risks have disturbed markets, pulling down stocks and commodities.
The ECB is not ready to wind down its stimulus despite investors returning to EU in an economic rebound. Macron’s election to the presidency of France gives the EU a fresh opportunity for investments and economic growth.
In the U.S., big tech extended its earning boom, but Ford’s profit fell 35% in the 4Q hurt by high costs and lower sales.
Meanwhile, for the first time in a decade, new households chose to buy homes rather than rent. Trump’s threat to leave Nafta caused both Canada and Mexico to go back to renegotiating the agreement. U.S. trade with Mexico grew the most in March, the highest in ten years after a decline in the value of the peso.
In the U.S., the GDP expanded at a 0.7% annual rate in January through March, the slowest pace of expansion in three years, caused by sharply cut consumer spending on big ticket items. U.S. auto sales cooled in April raising fears that it may get worse as banks are pulling back from auto loans. Despite rising household confidence the economy has expanded at an anemic 2% since 2000. Meanwhile, earnings from major oil companies signal that they may be turning a corner on their way to recovery. At the same time Apple reported that its cash has topped a quarter of a trillion dollars, greater than the market value of Walmart or Procter and Gamble, exceeding the foreign currencies reserves held by the U.S. and Canada combined. Bankers call for a new rule to govern operational risks to free capital for investments and lending, while the consumer sentiment is at its highest in 16 years. Treasury Secretary Mnuchin said an overhaul of the tax system, regulatory reform and better trade will help produce 3% U.S. economic growth within two years. While American spending grew steadily in March after ac- counting for inflation, the U.S. manufacturing activity fell to 54.8 in April from 57.2 in March, a second monthly decline, but still higher for each month this year than any month in 2015 or 2016. The advance in technology stocks pushed the composite of the S&P500 and Nasdaq to new highs. The CBOE Volatility Index slumped to 10.11, the lowest level in ten years. In a rare occurrence, indicating a level of complacency the VIX, now one of the most watched indexes, fell further to its lowest level since 1993, after more than eight years without dipping below 10. The House passed a $1.1 trillion bill to fund the government through September 30th to avoid a shutdown.
The Federal Reserve decided at its May 3rd meeting to hold their benchmark rate steady in a range between 0.75% and 1%, and is likely to raise short-term interest rates gradually this year, if the economy rebounds after a soft first quarter. The policy makers also set an important course when and how to reduce the Fed’s large holdings of mortgage and Treasury Securities. They pointed out that it would maintain its normal path this year.
Profits at S&P 500 companies are estimated to have jumped 13.9% in the first quarter from a year ago, growing nearly twice as fast as revenue on a per-share basis. After gaining just 79,000 in March, businesses added 211,000 jobs in April, bringing the official unemployment rate to 4.4%, very questionable, by the fact that the labor participation rate is now still only 62.9% or almost as bad as it was close to 50 years ago. According to WSJ, “15 million Americans could not find jobs in 2009, now the number is 51 million.” The GOP health-care bill having passed the House is now up to the Senate. U.S. listed IPOs raised over $16 billion in the first 4 months of the year, more than four times as much as last year and double the comparable 2015 total.
MID-SHIP Report May 11, 2017
WSJ editorial of April 27th including the following comment : “Mr. Trump’s plan is an opening bid to frame negotiations in Congress, and there are plenty of bargaining chips. Perhaps the corporate rate will rise to 20%, or maybe the House will include a more modest border adjustment. Budget rules and Democratic opposition could force Republicans to limit the reform to 10 years. But better to start with a big pro-growth offer rather than preemptively lower aspirations. Republicans won’t get another opportunity like this to reshape the tax code for a generation.” Meanwhile the administration stated its plan could curb carried interest for private equity firms, with financiers still getting tax cuts.
Economic developments other than the tax treatment also came to light. A new Greek agreement frees money for bond redemption, by conceding on the main points to release a payment the country needs to pay creditors in July. Puerto Rico was hit with creditors’ lawsuits after the expiration of a recent debt renegotiation deadline. Chinese regulations to reduce risks have disturbed markets, pulling down stocks and commodities.
The ECB is not ready to wind down its stimulus despite investors returning to EU in an economic rebound. Macron’s election to the presidency of France gives the EU a fresh opportunity for investments and economic growth.
In the U.S., big tech extended its earning boom, but Ford’s profit fell 35% in the 4Q hurt by high costs and lower sales.
Meanwhile, for the first time in a decade, new households chose to buy homes rather than rent. Trump’s threat to leave Nafta caused both Canada and Mexico to go back to renegotiating the agreement. U.S. trade with Mexico grew the most in March, the highest in ten years after a decline in the value of the peso.
In the U.S., the GDP expanded at a 0.7% annual rate in January through March, the slowest pace of expansion in three years, caused by sharply cut consumer spending on big ticket items. U.S. auto sales cooled in April raising fears that it may get worse as banks are pulling back from auto loans. Despite rising household confidence the economy has expanded at an anemic 2% since 2000. Meanwhile, earnings from major oil companies signal that they may be turning a corner on their way to recovery. At the same time Apple reported that its cash has topped a quarter of a trillion dollars, greater than the market value of Walmart or Procter and Gamble, exceeding the foreign currencies reserves held by the U.S. and Canada combined. Bankers call for a new rule to govern operational risks to free capital for investments and lending, while the consumer sentiment is at its highest in 16 years. Treasury Secretary Mnuchin said an overhaul of the tax system, regulatory reform and better trade will help produce 3% U.S. economic growth within two years. While American spending grew steadily in March after ac- counting for inflation, the U.S. manufacturing activity fell to 54.8 in April from 57.2 in March, a second monthly decline, but still higher for each month this year than any month in 2015 or 2016. The advance in technology stocks pushed the composite of the S&P500 and Nasdaq to new highs. The CBOE Volatility Index slumped to 10.11, the lowest level in ten years. In a rare occurrence, indicating a level of complacency the VIX, now one of the most watched indexes, fell further to its lowest level since 1993, after more than eight years without dipping below 10. The House passed a $1.1 trillion bill to fund the government through September 30th to avoid a shutdown.
The Federal Reserve decided at its May 3rd meeting to hold their benchmark rate steady in a range between 0.75% and 1%, and is likely to raise short-term interest rates gradually this year, if the economy rebounds after a soft first quarter. The policy makers also set an important course when and how to reduce the Fed’s large holdings of mortgage and Treasury Securities. They pointed out that it would maintain its normal path this year.
Profits at S&P 500 companies are estimated to have jumped 13.9% in the first quarter from a year ago, growing nearly twice as fast as revenue on a per-share basis. After gaining just 79,000 in March, businesses added 211,000 jobs in April, bringing the official unemployment rate to 4.4%, very questionable, by the fact that the labor participation rate is now still only 62.9% or almost as bad as it was close to 50 years ago. According to WSJ, “15 million Americans could not find jobs in 2009, now the number is 51 million.” The GOP health-care bill having passed the House is now up to the Senate. U.S. listed IPOs raised over $16 billion in the first 4 months of the year, more than four times as much as last year and double the comparable 2015 total.
MID-SHIP Report May 11, 2017

Economic Comment from Mr. E.S. Finley - Retired Chairman ICEC
E.S. Finley
E.S. Finley
President Donald Trump likes a weaker dollar, and some corners of the market agree. He is undecided about re-nominating Yellen. WSJ said –“Although the greenback’s knee-jerk reaction from Trump’s comments has all but been reversed, the U.S. currency appears to be entrenched in a new range amid prospects of delayed policy from Washington and a slower pace of interest-rate hikes. The Bloomberg Dollar Index slumping 4.5 percent since its January high, headed toward its worst week in nearly a month. For some traders this comes as welcome news. A lower dollar could lend support to sectors and asset classes battered by the 24 percent gain over the past five years. To be sure, many see the recent slump as only temporary thanks to a U.S. economy that remains on solid ground. However, should the greenback face continued weakness, these assets could see a bid.” Meanwhile China posted its biggest one-day gain against the dollar in three months to prop up its currency. It singled out its one policy objective in particular – to keep the Yuan stable. The Yuan has gained 1% this year against the dollar. At the same time China posted a growth of 6.9% in the first quarter, its fastest pace since the third quarter of 2015 and ahead of its target of 6.5%.
After heading into uncharted territory of quantitative easing, the world central banks are beginning to plan their course through uncharted waters of quantitative tightening. The Federal Reserve, European Central Bank and Bank of Japan combined balance sheets of the three total about $13 trillion. The IMF predicted that the world will grow this year at an annual rate of 3.5%.
Turkey voted to hand Recep Tayyip Erdogan sweeping authority in the most radical overhaul since the republic was founded 93 years ago, on the expectation he’ll safeguard security amid regional wars and kick start the economy. The referendum won approval of 51.3 percent to 48.7 percent, according to the state-run Anadolu news agency, as opposition parties alleged fraud and the European Union branded it as unfair. Britain’s Prime Minister called a surprise early general election for June 8 to strengthen her in exit talks with the European Union. British lawmakers approved her call. The U.K. pound surged on hope an election will come to a more favorable Brexit outcome.
Brazil appears to be recovering from its slump. The GDP annual growth rate is currently at 0.5%. It is estimated that by the end of this year the GDP will reach 2.5% growth rate. With ongoing elections in France and in Germany later this year, the pro-EU forces are showing a new approach by a strong defense of the economic bloc and its place in their countries’ future.
The expectations of faster growth of U.S. economy did not materialize and investors are reassessing their portfolios. Sales at U.S. retail stores, restaurants and online sellers decreased 0.2% in March, after revising February sales were down to 0.3% from 0.1%, the first consecutive decline for retail spending since beginning of 2015. Retailers are closing stores at a record pace this year after years of overbuilding and online competition. Goldman reported 1Q income $5.15 a share on revenue of $8.03 billion, due to 2.4% lower revenue from a year ago. IBM reported a 13% drop in 1Q following narrower profit margins. Bumper crops in Brazil and Russia depress prices imperiling Ameri- can growers. According to Government Accountability Office over 300,000 people had gone a year without payment on the Parent Plus Loan, which exceeds the default rate on U.S. mortgages at the peak of the housing crisis. Current housing market appears to be overheating.
On the other hand the UoM consumer sentiment is near the highest level in more than a decade and the index of current conditions in April was near the highest level since 2000. Inflation consumer price index declined 0.3% in March. Prices excluding food and energy fell 0.1%, the first decline for core prices since January 2010, the steepest drop for overall prices since January 2015. Health insurers’ delaying decisions about ACA markets are causing uncertainty about the health law. Housing starts rose 6.8% in March to an annual rate of 1.215 million. Residential permits rose 3.6% to 1.26 million pace. New home construction was up 8.1%, in 1Q from 1Q 2016, while permits jumped 0.4% at the same time. Mortgage rate went below 4% for the first time since November. Housing market’s recovery is raising concerns that home prices are overheating. Goldman reported 1Q income $5.15 a share on revenue of $8.03 billion, due to 2.4% lower revenue from a year ago. IBM reported a 13% drop in 1Q following narrower profit margins. Both of these and the drop in oil prices and energy shares caused softness in equities and boosted demand for bonds. Since then the stock market underwent recovery after the Trump administration stated it will complete the biggest overhaul of the tax code since Reagan by the end of the year, whether health care gets done or not. Another reason is that Macron appears to lead in France. For the first time Nasdaq reached above 6085 and Dow climbed over 21000. At the same time Exxon Mobil applied to the Treasury Department for a waiver from U.S. sanctions on Russia in a bid to resume its joint venture with the state oil giant PAO Rosneff, which was rejected by Trump.
As we go to print the following announcement came from the Trump administration: “The White House made its opening bid for what officials called the “biggest tax cut” in U.S. history -- with cuts that would benefit businesses, the middle class and certain high-earning individuals -- but left unanswered questions about whether the plan would be paid for, or how.
A list of goals for the tax overhaul, unveiled by President Donald Trump’s top economic adviser Gary Cohn and Treaury Secretary Steven Mnuchin Wednesday, calls for slashing the federal income- tax rate to 15 percent for corporations, small businesses and partnerships of all sizes. It also imposes a one-time tax on about $2.6 trillion in earnings that U.S. companies have parked overseas. The plan would end the taxation of corporations’ offshore income by moving to a territorial system, in which most foreign profits would be exempt from U.S. taxes. Currently, the U.S. taxes business income no matter where it’s earned.”
MID-SHIP Report April 27, 2017

Economic Comment from Mr. E.S. Finley - Retired Chairman ICEC
E.S. Finley
After a long stretch of low inflation and interest rates, the developed world central banks are thinking about changing the inflation target move above 2%, temporarily or permanently. It is thought that the idea of a rigid target goal was a mistake.
Chinese banks are lending record volumes abroad to tap new growth. Bank of China was the top originator of overseas corporate loans last year with $246.2 billion, 11% rise from 2015. The overseas financing boom is so far confined to a few state-owned banking majors.
Nine months after Britain voted to leave the EU, Prime Minister May said she wanted an orderly and fair process to make sure Europe “remains strong and prosperous.” She underlined how the U.K. saw its military and security contributions as a vital card to play in the coming talks, to win better EU market access. Meanwhile the strengthening of China’s Yuan against the dollar could weaken U.S. claim of currency manipulation.
Expectations that President Trump's election would lead to a U.S. rapprochement with Russia are fading as the situation is provoking a more skeptical view, and is limited to specific areas of possible cooperation, given Russia's provocations involving weapons, Iran, cyber warfare and intervention in the Ukraine. Even that ended it when Trump suddenly decided to strike a Syrian regime air base and send a signal to Russia.
Having noted the eighth consecutive decline of the Dow, its longest run of losses, WSJ believes Dow’s losing streak recalls 2011. However, back then WSJ says, the losses were more severe; the Dow dropped 6.7% compared with 1.9% today. This time the stocks are falling from record highs. At the same time President Trump and GOP leadership began their struggle with the
opposition, which will require Democratic cooperation to avert a government shutdown before the end of April. The Republican leaders indicated that they were likely to exclude from legislation the most contentious provisions to keep the government running past April.
The CBO said that the federal budget deficit rose $63 billion in the first half of fiscal 2017 to $522 billion from a year earlier and that the national debt will nearly double over the next 30 years. It has doubled since 2008 to about 77% of the GDP and would reach 150% in 2047. This would be the highest level since the post-World War II peak, up from an estimate of 145% reached in January. CBO warned that “such high and rising debt would have serious budgetary and economic consequences” and they also lowered their projections for GDP growth over the next three decades, due in part to a slower productivity trend. Although the interest costs are expected to average 2.1% of the GDP, down from 2.5% last year, those costs are projected to triple over the next 30 years from 7% today to 21% by 2047. Health-care and Social Security by far, were consistently forecast as the biggest drivers of federal spending, with fewer workers to support retirees.
Chicago Fed President Charles Evans said “the U.S. central bank could raise short-term interest rates four times this year if inflation picks up, but suggested three increases re- main more plausible.” At the same time former Atlanta Fed President Dennis Lockhart said “politics could hamstring efforts to achieve long-term growth as the Fed winds down its crisis-era stimulus measures, inter- est rates, and starts to shrink its balance sheet” which comprises $4.5 trillion of mort- gage and Treasury securities. This should not disturb the market while the Fed intends to furnish a gentle interest rate climb. Federal Chairwoman clearly indicated that the era of extremely simulative monetary policy was coming to an end.
The Trump administration’s early proposals for overhauling NAFTA appear disappointing. Mexico’s government had no immediate response while the private sector welcomed it. Canada felt the document dimmed hopes for a simple process after Mr. Trump stated that NAFTA only required “tweaking” when it came to Canada. WSJ commented that “markets brush off U.S. trade fears.” U.S. home prices rose 5.9% in January, the fastest rate in three years. The 20-city index rose 5.1% over a year ago. Wages are rising at about a 2.4% rate, much slower than home prices. Limited supply is a big factor in the price gains. Economists view mortgage rates near historic lows, which keeps homes affordable even as prices climb. Home buying this season is expected to be the toughest in a decade.
The amount investors borrowed against their brokerage accounts climbed to $528.2 billion in February, up 2.9% from $513.3 billion in January, which was the first margin record in two years. Margin debt totaled 2.5% of market capitalization on the NYSE in February, where it was in 2013, and thus continues to show bullishness despite political and economic cross-currents. After eight consecutive declines, the Dow reached 20728 on March 30. After-tax corporate profits jumped 22.3% in the 4Q compared with a year earlier, it was the strongest year-over-year gain in almost 5 years. The economy actually grew at a 2.1% rate adjusted from 1.9% estimate. The S&P 500 posted its biggest quarterly gain since the end of 2015 by rising 5.5% in the 1Q of the year and advancing 12% in S&P 500, just in the tech sector alone. On the other hand, despite spending cuts and modest rebound, WSJ reports that the major oil companies are struggling to break even. At the same time ISM reported in March, U.S. manufacturing index at a healthy pace of 572, the strongest in three years. Imports from China fell 5% in the first two months of the year, a record for February. The number of nonfarm jobs rose only by 98,000 in March. By buying record volumes of new bonds, investors are signaling that many are skeptical about the prospects for faster economic growth.
MID-SHIP Report April 13, 2017
Chinese banks are lending record volumes abroad to tap new growth. Bank of China was the top originator of overseas corporate loans last year with $246.2 billion, 11% rise from 2015. The overseas financing boom is so far confined to a few state-owned banking majors.
Nine months after Britain voted to leave the EU, Prime Minister May said she wanted an orderly and fair process to make sure Europe “remains strong and prosperous.” She underlined how the U.K. saw its military and security contributions as a vital card to play in the coming talks, to win better EU market access. Meanwhile the strengthening of China’s Yuan against the dollar could weaken U.S. claim of currency manipulation.
Expectations that President Trump's election would lead to a U.S. rapprochement with Russia are fading as the situation is provoking a more skeptical view, and is limited to specific areas of possible cooperation, given Russia's provocations involving weapons, Iran, cyber warfare and intervention in the Ukraine. Even that ended it when Trump suddenly decided to strike a Syrian regime air base and send a signal to Russia.
Having noted the eighth consecutive decline of the Dow, its longest run of losses, WSJ believes Dow’s losing streak recalls 2011. However, back then WSJ says, the losses were more severe; the Dow dropped 6.7% compared with 1.9% today. This time the stocks are falling from record highs. At the same time President Trump and GOP leadership began their struggle with the
opposition, which will require Democratic cooperation to avert a government shutdown before the end of April. The Republican leaders indicated that they were likely to exclude from legislation the most contentious provisions to keep the government running past April.
The CBO said that the federal budget deficit rose $63 billion in the first half of fiscal 2017 to $522 billion from a year earlier and that the national debt will nearly double over the next 30 years. It has doubled since 2008 to about 77% of the GDP and would reach 150% in 2047. This would be the highest level since the post-World War II peak, up from an estimate of 145% reached in January. CBO warned that “such high and rising debt would have serious budgetary and economic consequences” and they also lowered their projections for GDP growth over the next three decades, due in part to a slower productivity trend. Although the interest costs are expected to average 2.1% of the GDP, down from 2.5% last year, those costs are projected to triple over the next 30 years from 7% today to 21% by 2047. Health-care and Social Security by far, were consistently forecast as the biggest drivers of federal spending, with fewer workers to support retirees.
Chicago Fed President Charles Evans said “the U.S. central bank could raise short-term interest rates four times this year if inflation picks up, but suggested three increases re- main more plausible.” At the same time former Atlanta Fed President Dennis Lockhart said “politics could hamstring efforts to achieve long-term growth as the Fed winds down its crisis-era stimulus measures, inter- est rates, and starts to shrink its balance sheet” which comprises $4.5 trillion of mort- gage and Treasury securities. This should not disturb the market while the Fed intends to furnish a gentle interest rate climb. Federal Chairwoman clearly indicated that the era of extremely simulative monetary policy was coming to an end.
The Trump administration’s early proposals for overhauling NAFTA appear disappointing. Mexico’s government had no immediate response while the private sector welcomed it. Canada felt the document dimmed hopes for a simple process after Mr. Trump stated that NAFTA only required “tweaking” when it came to Canada. WSJ commented that “markets brush off U.S. trade fears.” U.S. home prices rose 5.9% in January, the fastest rate in three years. The 20-city index rose 5.1% over a year ago. Wages are rising at about a 2.4% rate, much slower than home prices. Limited supply is a big factor in the price gains. Economists view mortgage rates near historic lows, which keeps homes affordable even as prices climb. Home buying this season is expected to be the toughest in a decade.
The amount investors borrowed against their brokerage accounts climbed to $528.2 billion in February, up 2.9% from $513.3 billion in January, which was the first margin record in two years. Margin debt totaled 2.5% of market capitalization on the NYSE in February, where it was in 2013, and thus continues to show bullishness despite political and economic cross-currents. After eight consecutive declines, the Dow reached 20728 on March 30. After-tax corporate profits jumped 22.3% in the 4Q compared with a year earlier, it was the strongest year-over-year gain in almost 5 years. The economy actually grew at a 2.1% rate adjusted from 1.9% estimate. The S&P 500 posted its biggest quarterly gain since the end of 2015 by rising 5.5% in the 1Q of the year and advancing 12% in S&P 500, just in the tech sector alone. On the other hand, despite spending cuts and modest rebound, WSJ reports that the major oil companies are struggling to break even. At the same time ISM reported in March, U.S. manufacturing index at a healthy pace of 572, the strongest in three years. Imports from China fell 5% in the first two months of the year, a record for February. The number of nonfarm jobs rose only by 98,000 in March. By buying record volumes of new bonds, investors are signaling that many are skeptical about the prospects for faster economic growth.
MID-SHIP Report April 13, 2017

Economic Comment from Mr. E.S. Finley - Retired Chairman ICEC
E.S. Finley
E.S. Finley
According to WSJ, the European Union is undergoing a fragmentation of its political systems following Netherland’s experience of the biggest shift at the polls in the collapse of the of the Labor Party, after the Far Right Party wanted to ban the Quran. The Labor Party won less than 6% of the vote, compared with 25% in the last election in 2012. Social democrats were not limited to the Netherlands. In France the Socialist Party is so unpopular that its candidate for president, Benoit Hamon is unlikely to survive the first election in April. In Italy, center-left Democratic Party is in danger of fracturing after the failure of former Prime Minister Matteo Renzi to reform the country. The U.K.’s Labor party is struggling with unpopular leadership, and Theresa May is finding it more difficult to bring brexit to a resolution. Germany’s Social Democrats appear to back the trend under SPD party’s new chancellor candidate Martin Schultz. As conservatives move to the right and social democrats fade, a gap is opening in the center. Splintered to a rare degree were the 13 parties which won seats in Netherland parliament, with the largest – Prime Minister Mark Rutte’s Center-right, getting 21 seats, united in anti-establishment and anti-EU sentiment. Greece may be faced with another financial crisis. The U.K experienced the deadliest act of terror by ISIS since 2005.
Yet despite the above complications, the latest issue of the Economist featured its leading article titled “The World Economy” in which it stated that “A synchronized global upturn is under way. Thank stimulus, not the populists.” They point to the Institute of International Finance summary showing that in January the developing world hit its fastest monthly rate of growth since 2011. The article concludes that “A fiscal splurge at home and a stronger dollar would widen America's trade deficit but populists could yet snuff out the upsurge.”
The kiss and make-up meeting between Chancellor Angela Merkel and President Donald Trump did not accomplish much beyond praise of training youth (Apprenticeship) in Germany for gainful employment positions, leaving as of now, the Ukraine and other complicated situations unresolved. “In the period leading up to this visit, I’ve always said it’s much, much better to talk to one another and not about one another, and I think our conversation proved this,” the German leader said through a
translator. President Trump said he had “reiterated to Chancellor Merkel his strong support for NATO, as well as the need for our NATO allies to pay their fair share for the cost of defense, as many nations owe us vast sums of money from past years.”
President Trump set the stage by stating that – “North Korea is behaving badly. They have been ‘playing’ the United States for years. China has done little to help.” Secretary of State Rex Tillerson, made a brief but most power- ful statement by saying – “Let me be very clear: The policy of strategic patience ended.” He views the situation created by North Korea as very serious which implied among other things, a possible pre-emptive strike.
The two-day meeting of G-20 finance ministers in Baden Baden was a confrontation against the U.S. seeking to correct, what it views as an unfair global trading system against advanced and emerging groups of market countries, in heading off what they see as President Trump’s protectionist agenda. EU and Japan’s leaders vowed to fast-track negotiations for signing a trade pact as soon as this year, to counter U.S. protectionism while boosting ex- ports. Freeport’s conflict with Indonesia about copper deepened as the giant mine failed to resolve the standoff.
The Federal Reserve stated two weeks ago that it would raise their bench mark federal funds rate by 0.25% to a range between 0.75% and 1%, with two more increases this year. While Ms. Yellen expects continued improvement of the economy, she was careful to note that the Fed had not materially changed its forecasts for economic growth, unemployment and inflation. In the track of the statement Treasury prices had their biggest gain in 10 months, with a yield on the 10 –year note at 2.50%, while Dow appeared to settle at 20668, after its biggest drop of 237 points on March 21. Declines serve an important function in a healthy market cycle. Meanwhile bank loans have risen 4.6% annually, the slowest gain in three years, with retail sales barely rising 0.1% in February the smallest in nine month.
After the Fed announcement of raising the rate, the dollar suffered losses, losing ground against the euro, yen, and several emerging market currencies, The WSJ Dollar Index fell to the lowest level since the end of February, down this year 2.5% even after the Fed raised its rate to between 0.75% to 1%. Treasury Secretary Steven Mnuchin plans to overhaul the tax code by August if Congress gets behind it.
As a first attempt at the fiscal 2018 budget, President Trump proposed sharp cuts to spending on foreign aid, the arts, environmental protection and public broadcasting. These are supposed to pay for a bigger military and securer border, but they ran into a heavy opposition on both sides of the isle. To avoid increasing the deficit, CBO projected a budget of $487 billion in 2018. However, the proposal leaves untouched $2.5 trillion in outlays on Medicare, Social Security and other mandatory spending. More proposals are expected by mid-May. Meanwhile the GOP suffered a dramatic defeat when the House speaker was forced to pull the health-care bill from the floor. President Trump said, surprisingly, that the best development is for Obama care to “explode.” It is difficult to predict the political and economic effects this GOP set- back may exert short- and long-term. The next step for the Administration is likely to be tax reform and tax rates policy, which hope- fully fare better than the moribund health- care bill.
The UoM consumer sentiment Index rose to 97.6 in February, the highest level since 2004, while U.S. consumer prices increased by 2.8% since last year. Orders for durables rose 1.7% to $235.39 billion, reflecting a 47.6% increase for civilian aircraft after a gain of an 83.3% in January. ISM’s private sector manufacturing key rose in February to 57.7, its highest level since August 2014. The Trump administration approved the Keystone XL pipeline project while OPEC warned members on output. After seven years of losses, Sears raised doubts about its ability to keep operating, -- sending its shares to tumble. Meanwhile U.S. existing home sales declined 3.7% in February but were still up by 5.4% from a year ago, with the median price up 7.7%. New home sales rose 6.1% to an annual rate of 592,000, the highest in nine years. However, the decline in homeowner- ship rate to near 50-year lows is partly to blame for the U.S. economy’s sluggish recovery from the last recession.
MID-SHIP Report March 30, 2017
Yet despite the above complications, the latest issue of the Economist featured its leading article titled “The World Economy” in which it stated that “A synchronized global upturn is under way. Thank stimulus, not the populists.” They point to the Institute of International Finance summary showing that in January the developing world hit its fastest monthly rate of growth since 2011. The article concludes that “A fiscal splurge at home and a stronger dollar would widen America's trade deficit but populists could yet snuff out the upsurge.”
The kiss and make-up meeting between Chancellor Angela Merkel and President Donald Trump did not accomplish much beyond praise of training youth (Apprenticeship) in Germany for gainful employment positions, leaving as of now, the Ukraine and other complicated situations unresolved. “In the period leading up to this visit, I’ve always said it’s much, much better to talk to one another and not about one another, and I think our conversation proved this,” the German leader said through a
translator. President Trump said he had “reiterated to Chancellor Merkel his strong support for NATO, as well as the need for our NATO allies to pay their fair share for the cost of defense, as many nations owe us vast sums of money from past years.”
President Trump set the stage by stating that – “North Korea is behaving badly. They have been ‘playing’ the United States for years. China has done little to help.” Secretary of State Rex Tillerson, made a brief but most power- ful statement by saying – “Let me be very clear: The policy of strategic patience ended.” He views the situation created by North Korea as very serious which implied among other things, a possible pre-emptive strike.
The two-day meeting of G-20 finance ministers in Baden Baden was a confrontation against the U.S. seeking to correct, what it views as an unfair global trading system against advanced and emerging groups of market countries, in heading off what they see as President Trump’s protectionist agenda. EU and Japan’s leaders vowed to fast-track negotiations for signing a trade pact as soon as this year, to counter U.S. protectionism while boosting ex- ports. Freeport’s conflict with Indonesia about copper deepened as the giant mine failed to resolve the standoff.
The Federal Reserve stated two weeks ago that it would raise their bench mark federal funds rate by 0.25% to a range between 0.75% and 1%, with two more increases this year. While Ms. Yellen expects continued improvement of the economy, she was careful to note that the Fed had not materially changed its forecasts for economic growth, unemployment and inflation. In the track of the statement Treasury prices had their biggest gain in 10 months, with a yield on the 10 –year note at 2.50%, while Dow appeared to settle at 20668, after its biggest drop of 237 points on March 21. Declines serve an important function in a healthy market cycle. Meanwhile bank loans have risen 4.6% annually, the slowest gain in three years, with retail sales barely rising 0.1% in February the smallest in nine month.
After the Fed announcement of raising the rate, the dollar suffered losses, losing ground against the euro, yen, and several emerging market currencies, The WSJ Dollar Index fell to the lowest level since the end of February, down this year 2.5% even after the Fed raised its rate to between 0.75% to 1%. Treasury Secretary Steven Mnuchin plans to overhaul the tax code by August if Congress gets behind it.
As a first attempt at the fiscal 2018 budget, President Trump proposed sharp cuts to spending on foreign aid, the arts, environmental protection and public broadcasting. These are supposed to pay for a bigger military and securer border, but they ran into a heavy opposition on both sides of the isle. To avoid increasing the deficit, CBO projected a budget of $487 billion in 2018. However, the proposal leaves untouched $2.5 trillion in outlays on Medicare, Social Security and other mandatory spending. More proposals are expected by mid-May. Meanwhile the GOP suffered a dramatic defeat when the House speaker was forced to pull the health-care bill from the floor. President Trump said, surprisingly, that the best development is for Obama care to “explode.” It is difficult to predict the political and economic effects this GOP set- back may exert short- and long-term. The next step for the Administration is likely to be tax reform and tax rates policy, which hope- fully fare better than the moribund health- care bill.
The UoM consumer sentiment Index rose to 97.6 in February, the highest level since 2004, while U.S. consumer prices increased by 2.8% since last year. Orders for durables rose 1.7% to $235.39 billion, reflecting a 47.6% increase for civilian aircraft after a gain of an 83.3% in January. ISM’s private sector manufacturing key rose in February to 57.7, its highest level since August 2014. The Trump administration approved the Keystone XL pipeline project while OPEC warned members on output. After seven years of losses, Sears raised doubts about its ability to keep operating, -- sending its shares to tumble. Meanwhile U.S. existing home sales declined 3.7% in February but were still up by 5.4% from a year ago, with the median price up 7.7%. New home sales rose 6.1% to an annual rate of 592,000, the highest in nine years. However, the decline in homeowner- ship rate to near 50-year lows is partly to blame for the U.S. economy’s sluggish recovery from the last recession.
MID-SHIP Report March 30, 2017

Economic Comment from Mr. E.S. Finley - Retired Chairman ICEC
E.S. Finley
E.S. Finley
The world celebrated Gutenberg’s invention of the printing press 525 years ago, which opened a major pathway to education and science. The discovery of the computer half a century ago propelled the spread of knowledge at lightning speed to
unprecedented heights. Presently the world is ready to celebrate another historic mile- stone, as described in WSJ’s article written by Robert Lee Hotz. Scientists are stashing reams of digital data in molecules. IBM estimates that 90% of all electronic data has been created in the past two years. “The same genetic chemistry that provides the biological instructions for all known living organisms may someday provide us with the ultimate form of storage for our archives. In theory, a DNA storage system could reduce the entire Library of Congress to a small cube of crystals or a sticky genetic fluid.” The writer concludes that the
advancement could not come soon enough, as the world overload is growing to fill 10 mil- lion Blue-ray discs- or a flask of DNA every minute of each day.
After a number of years of slow growth and low inflation levels, commodities have lately shown their best performance. The S&P GSCI Index which tracks commodities rose 28% last year, – the biggest gain in eight years. Oil and natural gas prices advanced more than 50% in a year and metals also had big gains. Globally commodities rose 7% in January since a year ago.
China’s Premier Li Keqiang announced the “new normal” for the country’s downward slope of growth target of “about 6.5%” in lieu of 5.5% to 7%. China’s defense budget could grow 7% this year, the slowest in a decade. Global economics were affected by China’s widening its offensive against South Korean companies and their missile- defensive plans. Over the past two years Chinese businesses’ bankruptcies have surged, as the government attempts to reduce the bloated industrial sector debt. China experienced its first trade deficit in three years in February. Curiously, in January China’s exports rose for the first time in ten months, and South Korean sales rose for three months in a row. Strong exports were also revealed in Asia by Taiwan, Sin- gapore and Japan. The region is concerned over continued firing of missiles by North Korea. Meanwhile, in Europe, the U.K. avoided a recession since the Brexit half a year ago. Its GDP grew at a 2.4% rate, while Scotland grew only at a 0.7% rate.
Britain is contesting EU claim that it owes over $2 billion. Brexit gave Britain an appe- tite for finding strategic interest in the Middle East areas. Fears of France’s exit from the EU (Frexit) showed up in the weakness of bonds. Meanwhile in Brazil hundreds of city mayors were named in bribery and racket scandals, causing the country to extend its worst recession on record for a second con- secutive year, as its GDP shrank by 3.6% in 2016.
World central banks are amassing foreign currency reserves, disclosing the fragile underpinning of the global recovery, despite confidence in the financial situation. Chi- na’s foreign reserves increased by $6.9 billion in February. Also in February, ac- cording to Fitch rating, a great majority of central banks increased their foreign currency holdings to new records.
In the U.S., the ISM Service index rose to 57.6 in January. The manufacturing index increased to 57.7 in February, the best in three years. However, a day after posting their biggest gain of the year, the Dow dropped the most since the end of January, after it surpassed the 21,000 mark on March 1. At the same time, yield on the two-year Treasury note rose to 1.322%, the highest in eight years since June 2009, hitting a post-crisis high for short-term U.S. interest rates. The imminent likelihood of the Fed raising the interest rate depressed U.S. government bonds last week, with 10-year Treasury note yield at 2.609%, the highest in over two years. The sales decline made the bill more scarce and pushed up the price of U.S. debt maturity by a year or more. At the same time, according to the Commerce Department in January, the U.S. showed the biggest monthly trade deficit in five years, having increased 9.6% to $48.49 billion. That creates a drag on our GDP growth rate. Trade deficits were to be more balanced according to President Trump’s earlier campaign promises.
WSJ broadly described in its article how GM takes an exit from global rush. It sent a message by selling Opel to Peugeot for $2.2 billion, claiming that Europe is not worth the trouble. In recent years GM pulled out of Russia and scaled back in Southeast Asia and Australia, and the scale of operations are under review in India, Korea and Brazil due to “labor-costs pres- sures, political volatility or shaky economies.”
Oil prices fell 5.4% to $50.28 a barrel last week, the biggest drop in a year after statistics revealed a record surplus of 528.4 mil- lion barrels. Until last week OPEC kept the output in hand and the price around $52 and $55 a barrel, but dropped to a 3-monthlow, when Saudi Arabia stopped cutting. At the same time U.S. stocks, affected by energy prices, came off their recent high for Dow to settle below 21,000, while S&P 500 is up 250% since the crisis eight years ago. At the same time natural gas oversupply is turning into a global glut.
U.S. household net worth reached a record $92.8 trillion in the 4Q 2016, mainly due to the surge of stocks which added $728 billion and to the rise in home prices. U.S. house- holds lost about $13 trillion during the 2007- 2009 recession, however, it reached a rec- ord in the 4Q of $26.5 trillion, exceeding the housing bubble by $1.3 trillion. Employers added 235,000 new jobs in February, which seems to bring down the unemployment rate to a questionable level of 4.7%, while the U-6, the underemployment rate fell to 9.34%. The labor participation rate rose minimally 0.1% to above 63%, still the low- est in 50 years. Pointing to a sign of uncertainty of the bull market, insiders are now buying stocks at the slowest pace in three decades. The hourly earnings increased 2.8% since a year ago. The Fed is likely to raise the interest rate in March.
Last week, House Republicans released proposed legislation which would attempt to replace the Affordable Care Act and deliver on the central campaign promise by the GOP. Instead of the tax break that people get through their employer, the plan is to pay for the bill by allowing the ACA’s taxes to remain in place until the start of 2018. However, a number of conservative law- makers attacked the new plan, which rattled centrist Republicans. The CBO found that 24 million Americans would be without health insurance after a decade, with the federal deficit falling by $337 billion. As a result Republican senators warned that the GOP health-care plan needs fundamental changes.
MID-SHIP Report March 16, 2017
unprecedented heights. Presently the world is ready to celebrate another historic mile- stone, as described in WSJ’s article written by Robert Lee Hotz. Scientists are stashing reams of digital data in molecules. IBM estimates that 90% of all electronic data has been created in the past two years. “The same genetic chemistry that provides the biological instructions for all known living organisms may someday provide us with the ultimate form of storage for our archives. In theory, a DNA storage system could reduce the entire Library of Congress to a small cube of crystals or a sticky genetic fluid.” The writer concludes that the
advancement could not come soon enough, as the world overload is growing to fill 10 mil- lion Blue-ray discs- or a flask of DNA every minute of each day.
After a number of years of slow growth and low inflation levels, commodities have lately shown their best performance. The S&P GSCI Index which tracks commodities rose 28% last year, – the biggest gain in eight years. Oil and natural gas prices advanced more than 50% in a year and metals also had big gains. Globally commodities rose 7% in January since a year ago.
China’s Premier Li Keqiang announced the “new normal” for the country’s downward slope of growth target of “about 6.5%” in lieu of 5.5% to 7%. China’s defense budget could grow 7% this year, the slowest in a decade. Global economics were affected by China’s widening its offensive against South Korean companies and their missile- defensive plans. Over the past two years Chinese businesses’ bankruptcies have surged, as the government attempts to reduce the bloated industrial sector debt. China experienced its first trade deficit in three years in February. Curiously, in January China’s exports rose for the first time in ten months, and South Korean sales rose for three months in a row. Strong exports were also revealed in Asia by Taiwan, Sin- gapore and Japan. The region is concerned over continued firing of missiles by North Korea. Meanwhile, in Europe, the U.K. avoided a recession since the Brexit half a year ago. Its GDP grew at a 2.4% rate, while Scotland grew only at a 0.7% rate.
Britain is contesting EU claim that it owes over $2 billion. Brexit gave Britain an appe- tite for finding strategic interest in the Middle East areas. Fears of France’s exit from the EU (Frexit) showed up in the weakness of bonds. Meanwhile in Brazil hundreds of city mayors were named in bribery and racket scandals, causing the country to extend its worst recession on record for a second con- secutive year, as its GDP shrank by 3.6% in 2016.
World central banks are amassing foreign currency reserves, disclosing the fragile underpinning of the global recovery, despite confidence in the financial situation. Chi- na’s foreign reserves increased by $6.9 billion in February. Also in February, ac- cording to Fitch rating, a great majority of central banks increased their foreign currency holdings to new records.
In the U.S., the ISM Service index rose to 57.6 in January. The manufacturing index increased to 57.7 in February, the best in three years. However, a day after posting their biggest gain of the year, the Dow dropped the most since the end of January, after it surpassed the 21,000 mark on March 1. At the same time, yield on the two-year Treasury note rose to 1.322%, the highest in eight years since June 2009, hitting a post-crisis high for short-term U.S. interest rates. The imminent likelihood of the Fed raising the interest rate depressed U.S. government bonds last week, with 10-year Treasury note yield at 2.609%, the highest in over two years. The sales decline made the bill more scarce and pushed up the price of U.S. debt maturity by a year or more. At the same time, according to the Commerce Department in January, the U.S. showed the biggest monthly trade deficit in five years, having increased 9.6% to $48.49 billion. That creates a drag on our GDP growth rate. Trade deficits were to be more balanced according to President Trump’s earlier campaign promises.
WSJ broadly described in its article how GM takes an exit from global rush. It sent a message by selling Opel to Peugeot for $2.2 billion, claiming that Europe is not worth the trouble. In recent years GM pulled out of Russia and scaled back in Southeast Asia and Australia, and the scale of operations are under review in India, Korea and Brazil due to “labor-costs pres- sures, political volatility or shaky economies.”
Oil prices fell 5.4% to $50.28 a barrel last week, the biggest drop in a year after statistics revealed a record surplus of 528.4 mil- lion barrels. Until last week OPEC kept the output in hand and the price around $52 and $55 a barrel, but dropped to a 3-monthlow, when Saudi Arabia stopped cutting. At the same time U.S. stocks, affected by energy prices, came off their recent high for Dow to settle below 21,000, while S&P 500 is up 250% since the crisis eight years ago. At the same time natural gas oversupply is turning into a global glut.
U.S. household net worth reached a record $92.8 trillion in the 4Q 2016, mainly due to the surge of stocks which added $728 billion and to the rise in home prices. U.S. house- holds lost about $13 trillion during the 2007- 2009 recession, however, it reached a rec- ord in the 4Q of $26.5 trillion, exceeding the housing bubble by $1.3 trillion. Employers added 235,000 new jobs in February, which seems to bring down the unemployment rate to a questionable level of 4.7%, while the U-6, the underemployment rate fell to 9.34%. The labor participation rate rose minimally 0.1% to above 63%, still the low- est in 50 years. Pointing to a sign of uncertainty of the bull market, insiders are now buying stocks at the slowest pace in three decades. The hourly earnings increased 2.8% since a year ago. The Fed is likely to raise the interest rate in March.
Last week, House Republicans released proposed legislation which would attempt to replace the Affordable Care Act and deliver on the central campaign promise by the GOP. Instead of the tax break that people get through their employer, the plan is to pay for the bill by allowing the ACA’s taxes to remain in place until the start of 2018. However, a number of conservative law- makers attacked the new plan, which rattled centrist Republicans. The CBO found that 24 million Americans would be without health insurance after a decade, with the federal deficit falling by $337 billion. As a result Republican senators warned that the GOP health-care plan needs fundamental changes.
MID-SHIP Report March 16, 2017

Economic Comment from Mr. E.S. Finley - Retired Chairman ICEC
E.S. Finley
E.S. Finley
The deliberate slowing down of President Trump’s cabinet nominations is delaying a faster growth rate of the economy. The failures of funds in the wake of bearish bets undone by the S&P 500 and Dow recent records prove the point. And so does the rise of U.S. household debt which rose in 2016 to 12.6 trillion driven mostly by in- creases in credit card debt, auto and student loans and mortgage increases in the fourth quarter. The student loans were under $500 billion ten years ago. They exceeded $1 trillion in 2013 and rose to 1.3 trillion in the 4Q. In 2015 auto loans went over $1 trillion for the first time and rose to $1.2 trillion by the end 2016. In his recent WSJ article, James Mackintosh said that the investors liked the seeming predictability of the Fed during the past eight years. He states that the prospect of a fiscal handout under President Trump “has electrified the stocks and investors are ex- cited about the idea of a handover from monetary to fiscal policy.” Investors were more worried about deflation than inflation. “More importantly, the shift away from the Fed also increases the uncertainty about the direction of the policy.” Tax reform is likely to pass but not until late in the year.
The WSJ also points out that “As central banks begin to pull back on stimulus, old links are starting to fray. Markets that once moved closer together were parting ways. U.S. small-cap stocks outperformed large- caps, commodities remained resilient despite a rising dollar, which makes these assets more costly. Emerging markets dived as investors anticipated protectionism following President Trump’s election.” The Administration’s forecast project shows our GDP growth rate between 3% and 3.5% year-over-year during the next ten years. However, the Fed forecasts the economy to grow at a 1.8% and the CBO’s estimates it at 1.9%, both considerably less optimistic, and disappointingly, not by a decimal but by more than a whole point! Retail stores can- not withstand on-line e-competition, as J.C. Penney, a 114-year-old chain was forced to close 140 of their stores out of 1,000.
As the administration endeavors to renegotiate some of our existing trade agreements, President Trump is considering to exclude from U.S. exports any goods first imported into the country and moved unchanged to a third country such as Mexico or Canada. This management change would make the U.S. trade deficit appear larger, particularly by Mexico, creating a stronger argument for such renegotiation. Mexico refuses to accept Trump’s immigration and deportation policies. Meanwhile the U.S. Energy Information Administration stated that U.S. crude stockpiles rose to their highest level in the week ended Feb.10, based on data begun 30 years ago, putting oil prices at risk. Still, pricing power came back to the U.S. land drilling rigs.
At the same time, Freeport rejected Indonesian government’s terms of a 30-year copper supply agreement which stopped all copper shipments since Jan.12, and jumped the price of copper above $6,000 per metric ton. Another commodity reached headlines when in December, North Korea shipped more coal to China than allowed under U.N. sanctions. In January China suspended coal imports from North Korea to press the U.S. for fresh diplomatic efforts to curb Pyongyang's nuclear programs. Fear that France will elect Marina Le Pen as its president, who promised to take the country out of the EU, caused the investors to bring French bond prices down to the level of the peripheral ones from Italy, Spain and Portugal. A shortage of safe assets is being felt by investors. IMF will provide financing to Greece under the condition that they will further overhaul its financial structure.
After China’s President Xi Jinping cracked down on overseas investments and shook up his economic leadership, he is embark- ing on its most ambitious - and perilous -- campaign to convince investors that they shouldn’t depend on a bailout when markets go south. According to Bloomberg News, in a rare show of cooperation, the nation’s main financial regulators are drafting new rules for asset-management products that aim to make clear that the investments don’t have government guarantees. The products, which promise higher returns than bank deposits but are viewed by many investors as a form of risk-free savings, have become an integral part of the Chinese financial system after swelling in recent years to almost $9 trillion as of June 30.
Treasury Secretary Steven Mnuchin said in his first interview - “We think it’s critical that we get back to more normalized economic growth which is 3% or higher.” Thus far the Fed and the CBP project a long-run annual growth rate of 1.8% as the labor force is expanding slower than in the past. The Trump administration when helped by tax and regulatory reform could help raise growth higher, still, after 30 days since the election the President remains a historically divisive figure despite growing optimism. The Dow led by energy managed to hit a 14th straight record at 21,115.55 on March 1st. However, the stocks and bonds are again moving in tandem,- a warning signals to investors.
President Trump asked Congress for an increase of $20 billion for defense and security, up 2% from current level to $603 billion, which represents $54 billion or a 10% rise over budget caps set in law. In his first major address to the joint session of Congress, the President called for unity to overhaul healthcare and tax laws, repeal and replace the ACA and use $1 trillion for “national rebuilding” of infrastructure including roads and bridges, financed by private-public combination. To accomplish our goals at home and abroad, we must restart the engine of the American economy - making it easier for companies to do business in the U.S. Later on the President stated also that he sees a possibility of an immigration reform.
The minutes released by the Fed stated: “Many participants expressed the view that it might be appropriate to raise the federal funds rate again fairly soon if incoming infor- mation on the labor market and inflation was in line with or stronger than their current expectations or if the risks of overshooting the committee’s maximum-employment and inflation objectives increased.” The record of the Jan. 31—Feb. 1 gathering showed Fed officials wrestling with uncertainty on issues ranging from the Trump administration’s fiscal stimulus plans to the headwinds of a rising dollar which may pose difficulties. Also the ratio of employment to labor force continues to hover around 63%, the lowest level in forty years.
MID-SHIP Report March 2, 2017
The WSJ also points out that “As central banks begin to pull back on stimulus, old links are starting to fray. Markets that once moved closer together were parting ways. U.S. small-cap stocks outperformed large- caps, commodities remained resilient despite a rising dollar, which makes these assets more costly. Emerging markets dived as investors anticipated protectionism following President Trump’s election.” The Administration’s forecast project shows our GDP growth rate between 3% and 3.5% year-over-year during the next ten years. However, the Fed forecasts the economy to grow at a 1.8% and the CBO’s estimates it at 1.9%, both considerably less optimistic, and disappointingly, not by a decimal but by more than a whole point! Retail stores can- not withstand on-line e-competition, as J.C. Penney, a 114-year-old chain was forced to close 140 of their stores out of 1,000.
As the administration endeavors to renegotiate some of our existing trade agreements, President Trump is considering to exclude from U.S. exports any goods first imported into the country and moved unchanged to a third country such as Mexico or Canada. This management change would make the U.S. trade deficit appear larger, particularly by Mexico, creating a stronger argument for such renegotiation. Mexico refuses to accept Trump’s immigration and deportation policies. Meanwhile the U.S. Energy Information Administration stated that U.S. crude stockpiles rose to their highest level in the week ended Feb.10, based on data begun 30 years ago, putting oil prices at risk. Still, pricing power came back to the U.S. land drilling rigs.
At the same time, Freeport rejected Indonesian government’s terms of a 30-year copper supply agreement which stopped all copper shipments since Jan.12, and jumped the price of copper above $6,000 per metric ton. Another commodity reached headlines when in December, North Korea shipped more coal to China than allowed under U.N. sanctions. In January China suspended coal imports from North Korea to press the U.S. for fresh diplomatic efforts to curb Pyongyang's nuclear programs. Fear that France will elect Marina Le Pen as its president, who promised to take the country out of the EU, caused the investors to bring French bond prices down to the level of the peripheral ones from Italy, Spain and Portugal. A shortage of safe assets is being felt by investors. IMF will provide financing to Greece under the condition that they will further overhaul its financial structure.
After China’s President Xi Jinping cracked down on overseas investments and shook up his economic leadership, he is embark- ing on its most ambitious - and perilous -- campaign to convince investors that they shouldn’t depend on a bailout when markets go south. According to Bloomberg News, in a rare show of cooperation, the nation’s main financial regulators are drafting new rules for asset-management products that aim to make clear that the investments don’t have government guarantees. The products, which promise higher returns than bank deposits but are viewed by many investors as a form of risk-free savings, have become an integral part of the Chinese financial system after swelling in recent years to almost $9 trillion as of June 30.
Treasury Secretary Steven Mnuchin said in his first interview - “We think it’s critical that we get back to more normalized economic growth which is 3% or higher.” Thus far the Fed and the CBP project a long-run annual growth rate of 1.8% as the labor force is expanding slower than in the past. The Trump administration when helped by tax and regulatory reform could help raise growth higher, still, after 30 days since the election the President remains a historically divisive figure despite growing optimism. The Dow led by energy managed to hit a 14th straight record at 21,115.55 on March 1st. However, the stocks and bonds are again moving in tandem,- a warning signals to investors.
President Trump asked Congress for an increase of $20 billion for defense and security, up 2% from current level to $603 billion, which represents $54 billion or a 10% rise over budget caps set in law. In his first major address to the joint session of Congress, the President called for unity to overhaul healthcare and tax laws, repeal and replace the ACA and use $1 trillion for “national rebuilding” of infrastructure including roads and bridges, financed by private-public combination. To accomplish our goals at home and abroad, we must restart the engine of the American economy - making it easier for companies to do business in the U.S. Later on the President stated also that he sees a possibility of an immigration reform.
The minutes released by the Fed stated: “Many participants expressed the view that it might be appropriate to raise the federal funds rate again fairly soon if incoming infor- mation on the labor market and inflation was in line with or stronger than their current expectations or if the risks of overshooting the committee’s maximum-employment and inflation objectives increased.” The record of the Jan. 31—Feb. 1 gathering showed Fed officials wrestling with uncertainty on issues ranging from the Trump administration’s fiscal stimulus plans to the headwinds of a rising dollar which may pose difficulties. Also the ratio of employment to labor force continues to hover around 63%, the lowest level in forty years.
MID-SHIP Report March 2, 2017

Economic Comment from Mr. E.S. Finley - Retired Chairman ICEC
E.S. Finley
E.S. Finley
The head of the United Nations recently urged Washington not to scale down the financial support. Under NAFTA, Mexico trades with the U.S. half a trillion dollars’ worth of goods and services a year. President Trump intends to renegotiate that agreement which may have caused Mexico to reconsider its friendship with the U.S. For the first time in eight years the E.U. economy kept pace last year with the U.S. Ger- many showed a record trade surplus last year increasing tension with our country. Negotiations between Greece and international creditors failed.
India proposed to have a serious debate about the merits of a universal basic income as an efficient substitute for the country’s welfare programs including failed subsidies. The plan is serious but it presents difficulties. Else- where in Asia countering in the dispute about the trade with Japan, Prime Min- ister Shinzo Abe plans for a much larg- er investment in the U.S. His program includes an employment initiative which could work to create 700,000 jobs in the U.S. and new markets for $450 billion over the next decade. Japan has roughly a $60 billion annual trade sur- plus with the U.S. For 2016, the U.S. showed a $502.25 billion trade deficit, the largest deficit in four years, as we consume more than we produce, a gap President Trump wants to narrow to bolster our economy.
Weaker yen helped Japan’s exports and related profits. Meanwhile China’s currency reserves fell below $3 trillion in January, the lowest in six years. In- stead of singling out China, the new plan is for the secretary of commerce to designate the practice of currency manipulation as an unfair subsidy when employed by any country. It is a fact that foreign buyers hold a smaller share of the U.S. debt. As of November, for the first time in five years, less than 30% of the $20 trillion U.S. debt was held overseas; in the U.K. down 27% down from 36%, in Germany 49% down from 57% in 2014. These changes will affect interest rates.
Daniel Talurio’s resignation as Fed Reserve governor may remove one of the strongest voices for safeguards to protect banks against another meltdown. In addition, chairwoman Janet Yellen stated that if the economy continues to strengthen, irrespective of the administration’s policies, the Fed is prepared to be increasing the interest rate this year.
In the U.S. home prices continued to advance in November. The Case Shiller U.S. National Home Price Index rose at an annual growth rate of 10.4%, up from 10.1% in October. All of the 20 metro areas had positive home price appreciation, ranging from 5.67% to 15.3%. Denver had the highest at 15.3%, while Cleveland had the lowest at 5.67%.
At the same time the Hedge-Funds running around $850 billion, have been hit by losses in 2016, ranging from 4% to 15.3%. That compares with a 12% gain for the S.& P. 500 stock index including dividends. U.S. stocks softened somewhat by lower reported earnings as investors await new policies from the Trump administration. Even so, the proposed tax cuts, fewer regulations, likely followed by higher earnings pushed the Dow to reach a new record at 20504.41 on Feb. 14,
WSJ suggests that low volatility index (VIX) should not scare people because it measures a balance between supply and demand for options. When it is low, it suggests that there are many people willing to sell insurance policies against a market fall, and few wanting to buy protection. Coincidently, OPEC announced that its January oil production fell by 890,000 barrels a day and that members have largely complied in accordance with the agreement of November 30.
At the end of last year productivity of the U.S. worker rose for two straight quarters, reversing a long stretch of declines but still leaving the broader trend weak. Nonfarm business productivity of workers rose at a 1.3% annual rate in the fourth quarter. Productivity had fallen for three straight quarters before July last year, the longest streak of declines since the 1970s. The CPI rose 0.3% in December. Compensation rose 0.5% from September 2016 to December 2016; over the year it grew 2.2%. Employment increased by 227,000 in January, with unchanged unemployment at 4.8%. Producer Price Index rose 0.3%.
U.S. imports climbed 0.4% in December, while export prices also rose 0.4%. Growing consumer confidence, lower cost of goods because of the strong dollar, enabled the imports to surge in January. California ports of Long Beach and Los Angeles brought in 714,413 of 20-foot units in containers cargo, a 10.6% above last year’s Growing consumer confidence, cheaper cost of goods because of strong dollar, enabled the imports surge in January. California ports of Long Beach and Los Angeles brought in 714,413 of 20-foot units of containers cargo, a 10.6% above last year level-- the strongest since August.
MID-SHIP Report February 16, 2017
India proposed to have a serious debate about the merits of a universal basic income as an efficient substitute for the country’s welfare programs including failed subsidies. The plan is serious but it presents difficulties. Else- where in Asia countering in the dispute about the trade with Japan, Prime Min- ister Shinzo Abe plans for a much larg- er investment in the U.S. His program includes an employment initiative which could work to create 700,000 jobs in the U.S. and new markets for $450 billion over the next decade. Japan has roughly a $60 billion annual trade sur- plus with the U.S. For 2016, the U.S. showed a $502.25 billion trade deficit, the largest deficit in four years, as we consume more than we produce, a gap President Trump wants to narrow to bolster our economy.
Weaker yen helped Japan’s exports and related profits. Meanwhile China’s currency reserves fell below $3 trillion in January, the lowest in six years. In- stead of singling out China, the new plan is for the secretary of commerce to designate the practice of currency manipulation as an unfair subsidy when employed by any country. It is a fact that foreign buyers hold a smaller share of the U.S. debt. As of November, for the first time in five years, less than 30% of the $20 trillion U.S. debt was held overseas; in the U.K. down 27% down from 36%, in Germany 49% down from 57% in 2014. These changes will affect interest rates.
Daniel Talurio’s resignation as Fed Reserve governor may remove one of the strongest voices for safeguards to protect banks against another meltdown. In addition, chairwoman Janet Yellen stated that if the economy continues to strengthen, irrespective of the administration’s policies, the Fed is prepared to be increasing the interest rate this year.
In the U.S. home prices continued to advance in November. The Case Shiller U.S. National Home Price Index rose at an annual growth rate of 10.4%, up from 10.1% in October. All of the 20 metro areas had positive home price appreciation, ranging from 5.67% to 15.3%. Denver had the highest at 15.3%, while Cleveland had the lowest at 5.67%.
At the same time the Hedge-Funds running around $850 billion, have been hit by losses in 2016, ranging from 4% to 15.3%. That compares with a 12% gain for the S.& P. 500 stock index including dividends. U.S. stocks softened somewhat by lower reported earnings as investors await new policies from the Trump administration. Even so, the proposed tax cuts, fewer regulations, likely followed by higher earnings pushed the Dow to reach a new record at 20504.41 on Feb. 14,
WSJ suggests that low volatility index (VIX) should not scare people because it measures a balance between supply and demand for options. When it is low, it suggests that there are many people willing to sell insurance policies against a market fall, and few wanting to buy protection. Coincidently, OPEC announced that its January oil production fell by 890,000 barrels a day and that members have largely complied in accordance with the agreement of November 30.
At the end of last year productivity of the U.S. worker rose for two straight quarters, reversing a long stretch of declines but still leaving the broader trend weak. Nonfarm business productivity of workers rose at a 1.3% annual rate in the fourth quarter. Productivity had fallen for three straight quarters before July last year, the longest streak of declines since the 1970s. The CPI rose 0.3% in December. Compensation rose 0.5% from September 2016 to December 2016; over the year it grew 2.2%. Employment increased by 227,000 in January, with unchanged unemployment at 4.8%. Producer Price Index rose 0.3%.
U.S. imports climbed 0.4% in December, while export prices also rose 0.4%. Growing consumer confidence, lower cost of goods because of the strong dollar, enabled the imports to surge in January. California ports of Long Beach and Los Angeles brought in 714,413 of 20-foot units in containers cargo, a 10.6% above last year’s Growing consumer confidence, cheaper cost of goods because of strong dollar, enabled the imports surge in January. California ports of Long Beach and Los Angeles brought in 714,413 of 20-foot units of containers cargo, a 10.6% above last year level-- the strongest since August.
MID-SHIP Report February 16, 2017

Economic Comment from Mr. E.S. Finley - Retired Chairman ICEC
E.S. Finley
E.S. Finley
After being sworn in as President Donald Trump vowed that “All changes starting right here and right now” Jan. 20 “will be remembered as the day the people became the rulers of this nation again.” “From this day forward it’s going to be only America first.” To American workers and families: “You will never be ignored again.” A most remarkable statement in the history of the country for the solemn traditional occasion.
President’s cabinet took a tough line on China’s trade practices and reversed the domestic policies pushed by Obama’s administration. China showed 6.7% GDP in 2016 helped by easy credit and state spending and is set to take the lead of the global economy stating its population will peak in 2030. Yellen simultaneously commented on the U.S. economy that the Fed is planning to raise rates cautiously and gradually in the months ahead. Rebuking Trump’s policies, P.M. May said that U.K. would support free trade. While ECB stated that it will continue bond purchases through the end of 2017, ignoring Germany’s call for an early exit. Investors believe that the long-sluggish EU economy is finally on an upswing.
After meetings with business and union leaders, President Trump withdrew the U.S. from the TPP, 12-nation trade agreement that would have resulted in lost U.S. jobs. U.S. stocks and the dollar declined after Trump said he would shake up trade. Oil prices softened following possible rise in U.S. shale production although most analysts predict a lev- el near 60s by year’s-end.
Biggest macro surprise in 2017? Japanese wage growth, Japanese Economist Izumi Devalier believes that the reacceleration of wage growth could provide one of the biggest macro surprises for Japan in 2017. Investors increasingly appear to be coming around to Devalier’s view that the Japanese economy is due for a solid,1.5%pick-upin2017,up from 1.0% in 2016. However, skepticism around the potential for higher wage growth – the key to Japan’s reflation efforts – runs deep. The yield on U.S. Treasury 10-year notes slipped two basis points. German price growth rose at the fastest pace in 3 1/2 years.
In the U.S. bonds backed by risky single family mortgages exceeded $1 trillion for the first time in November, sounding a warning about this situation, as these bonds are insured by FHA and are held by borrowers with small down payments and low credit. It is regarded as the biggest shift in mortgage lending since the saving-and-loan debacle in the 1980s. Shares of financial companies – the best performing S&P 500 from Election Day to year-end are down 1.1% in 2017. On the other hand Netflix added 5.12 million subscribers abroad in the 4Q and 1.93 million in the U.S., the biggest quarterly growth in the company’s history, ended the year with 93.8 million subscribers, including 49.4 in the U.S. Company’s 4Q profit rose 55% to $66.7 million, while revenues climbed 36% to $2.48 billion.
For the first time in 2-1/2 years the CPI rose above 2%, namely - 2.1% in December, from a year ago, the largest year- over-year climb since June 2014. Fed Chairwoman Yellen commented that “It’s fair to say the economy is near maximum employment and inflation is moving to- ward our goal.” At the same time tensions arose during the hearings for rep. Mick Mulvaney regarding the cuts of entitlements and long-term settling of our national debt. The DJIA broke the 20,000 level on January 25th for the first time in its history. Investors appear convinced that President Trump will follow through with business-friendly policies including lower taxes and government spending, immigration crackdown with building a wall. President Trump’s 20% tariff on imports of Mexican imports caused President Nieto to cancel the meeting with Donald Trump, causing a major diplomatic rift with Mexico which President Trump appeared to try to repair.The latest immigration ban caused more unsettled climate. However, the telephone talks President Trump held with heads of several of the largest world economies were assessed as positive in nature.
Purchases of newly built single-family houses, accounting for a small share of overall home sales, fell 10.4% in December from November, to 536,000 annual rate, the slowest monthly sales pace since February and it was the steepest one month drop since March 2015. In all, an estimated 563,000 new homes were sold in 2016, up 12.2% from a year ago and the fifth straight year of sales growth. New home sales represented about 10% of all home sales last year. The U.S. economy expanded 1.9%, a lackluster trend, in the fourth quarter, a rate the Trump administration intended to double in months ahead.
The Dow Jones Industrial Average fell 122 points on Jan. 30, retreating below 20,000 after closing at records the week before. It was the index’s worst day since the election. The S&P 500 Index slid the most since Nov. 1, as Trump’s ban drew a rebuke from some Republican lawmakers, raising the specter of a rift between the executive and legislative branches. The dollar fell versus the yen and precious metals advanced as investors favored haven assets. The forthcoming earnings reports on major companies would likely carry a rational prediction for the short-term U.S. stock market.
MID-SHIP Report February 2, 2017
President’s cabinet took a tough line on China’s trade practices and reversed the domestic policies pushed by Obama’s administration. China showed 6.7% GDP in 2016 helped by easy credit and state spending and is set to take the lead of the global economy stating its population will peak in 2030. Yellen simultaneously commented on the U.S. economy that the Fed is planning to raise rates cautiously and gradually in the months ahead. Rebuking Trump’s policies, P.M. May said that U.K. would support free trade. While ECB stated that it will continue bond purchases through the end of 2017, ignoring Germany’s call for an early exit. Investors believe that the long-sluggish EU economy is finally on an upswing.
After meetings with business and union leaders, President Trump withdrew the U.S. from the TPP, 12-nation trade agreement that would have resulted in lost U.S. jobs. U.S. stocks and the dollar declined after Trump said he would shake up trade. Oil prices softened following possible rise in U.S. shale production although most analysts predict a lev- el near 60s by year’s-end.
Biggest macro surprise in 2017? Japanese wage growth, Japanese Economist Izumi Devalier believes that the reacceleration of wage growth could provide one of the biggest macro surprises for Japan in 2017. Investors increasingly appear to be coming around to Devalier’s view that the Japanese economy is due for a solid,1.5%pick-upin2017,up from 1.0% in 2016. However, skepticism around the potential for higher wage growth – the key to Japan’s reflation efforts – runs deep. The yield on U.S. Treasury 10-year notes slipped two basis points. German price growth rose at the fastest pace in 3 1/2 years.
In the U.S. bonds backed by risky single family mortgages exceeded $1 trillion for the first time in November, sounding a warning about this situation, as these bonds are insured by FHA and are held by borrowers with small down payments and low credit. It is regarded as the biggest shift in mortgage lending since the saving-and-loan debacle in the 1980s. Shares of financial companies – the best performing S&P 500 from Election Day to year-end are down 1.1% in 2017. On the other hand Netflix added 5.12 million subscribers abroad in the 4Q and 1.93 million in the U.S., the biggest quarterly growth in the company’s history, ended the year with 93.8 million subscribers, including 49.4 in the U.S. Company’s 4Q profit rose 55% to $66.7 million, while revenues climbed 36% to $2.48 billion.
For the first time in 2-1/2 years the CPI rose above 2%, namely - 2.1% in December, from a year ago, the largest year- over-year climb since June 2014. Fed Chairwoman Yellen commented that “It’s fair to say the economy is near maximum employment and inflation is moving to- ward our goal.” At the same time tensions arose during the hearings for rep. Mick Mulvaney regarding the cuts of entitlements and long-term settling of our national debt. The DJIA broke the 20,000 level on January 25th for the first time in its history. Investors appear convinced that President Trump will follow through with business-friendly policies including lower taxes and government spending, immigration crackdown with building a wall. President Trump’s 20% tariff on imports of Mexican imports caused President Nieto to cancel the meeting with Donald Trump, causing a major diplomatic rift with Mexico which President Trump appeared to try to repair.The latest immigration ban caused more unsettled climate. However, the telephone talks President Trump held with heads of several of the largest world economies were assessed as positive in nature.
Purchases of newly built single-family houses, accounting for a small share of overall home sales, fell 10.4% in December from November, to 536,000 annual rate, the slowest monthly sales pace since February and it was the steepest one month drop since March 2015. In all, an estimated 563,000 new homes were sold in 2016, up 12.2% from a year ago and the fifth straight year of sales growth. New home sales represented about 10% of all home sales last year. The U.S. economy expanded 1.9%, a lackluster trend, in the fourth quarter, a rate the Trump administration intended to double in months ahead.
The Dow Jones Industrial Average fell 122 points on Jan. 30, retreating below 20,000 after closing at records the week before. It was the index’s worst day since the election. The S&P 500 Index slid the most since Nov. 1, as Trump’s ban drew a rebuke from some Republican lawmakers, raising the specter of a rift between the executive and legislative branches. The dollar fell versus the yen and precious metals advanced as investors favored haven assets. The forthcoming earnings reports on major companies would likely carry a rational prediction for the short-term U.S. stock market.
MID-SHIP Report February 2, 2017

Economic Comment from Mr. E.S. Finley - Retired Chairman ICEC
E.S. Finley
E.S. Finley
After five quarters of decline, Wall Street analysts decided that S&P 500 earnings are set for another gain in the fourth quarter of 3.2%, after a 3.1% rise, the first year-over-year rise in corporate earnings in the second quarter, since the first quarter 2015. At the same time DJIA continues to endeavor to penetrate the 20,000 level, thus far unsuccessfully, despite the profit re- bound. Fed officials signaled that they are in favor of raising the interest rate still higher. Automobile producers sold 1.69 million light vehicles in December, 3.1% more than in the same period of 2015, equivalent to a pace of 18. 43 million, the highest since July 2005.
Donald Trump appears bent on naming China a currency manipulator but China is likely to keep the currency from weakening too far. The overnight lending market for Yuan jumped 61.3%, the highest level on record. It has remained above 10% since December 30. Despite various defensive moves Yuan weakened both onshore and off, falling 0.6% to 6.9320 against the dollar in the domestic market, and 1% to 6.8575 in Hong Kong. China’s foreign reserves fell to a six-year low in December, presenting a hard task for the Central Bank to control Yuan’s value. Chinese shares had a biggest drop in a month, concerned with a huge increase of IPOs. UBS and Morgan Stanley de- cided to increase their stake in their investment banking in China. The Central Bank of Turkey announced new measures to prop up the Lira by raising the rate for the first time in three years. Lira has fallen 12% since the beginning of 2017.
After a long delay, the U.K envoy to the EU resigned and thus complicated P.M. May’s entering Brexit talks. Consumer prices in the EU rose 1.1% in December, the fastest rate in more than three years. Fears of the U.K. pulling out of the EU’s single market caused the pound to drop to a 31-year low against the dollar. Our President- elect is just entering the White House, but he is already receiving advice. One of them appeared in the Friday, January 6th issue of the WSJ, in an Opinion article, entitled “The House GOP’s Tax Trade-Off”, by Martin Feldstein, chairman of the Council of Economic Advisers under President Ronald Regan, a professor at Harvard and a member of the Journal’s board of contributors.
He explains that the tax plan developed by the House Republicans is similar in many ways to President-elect Trump’s plan but has one additional favorable feature – a border tax adjustment that exempts exports and taxes imports. This would give the U.S. the benefit that other countries obtain from a value -added tax (VAT) but without imposing that extra levy on domestic
transactions.
Another advice came from Sean Rushton, a former policy advisor in the U.S. Senate, who suggested in his WSJ opinion article of January 13, that in the “light of the risk that the dollar will soar to dangerous heights, another Plaza Accord may be needed to remove the prospect of big dollar swings for an enormous benefit to the long-term productive economy.” At the same time, earnings in the 4Q from the three biggest banks, Chase, Bank of America and Wells Fargo, indicate that the Trump policies will bring down regulations and increase GDP. Federal Re- serve officials do not envisage a need for simulative actions to boost short- term GDP. The WSJ dollar Index fell to 910 from 920, the lowest in a month after Trump described it as “too strong” and thanked GM and Walmart for investing in the domestic market.
In his TV program on Sunday, January 15th, Fareed Zakaria presented two prominent West-European politicians, Richard Haas and Bernard-Henri Levy, who criticized recent U.S. foreign policy for having abandoned leadership and deprived the world order of the “glue” that kept the globe together. According to his latest statements, Donald Trump would be open to lifting sanctions on Russia and was not committed to a longstanding agreement with China over Taiwan -- showing his available leverage for realigning the U.S. relationships with our two global rivals.
As doubts about globalization are rising, Chinese President Xi Jinping strongly defended integration at the Davos annual World Economic Forum by stating that – “No one will emerge as a winner in a trade of war.” On the other hand, it would appear at this time that Mr. Trump is less predictable, remarking that the EU is “basically a vehicle for Germany and the bloc would probably see other countries follow Britain’s example and vote to leave.”
MID-SHIP Report January 19, 2017
Donald Trump appears bent on naming China a currency manipulator but China is likely to keep the currency from weakening too far. The overnight lending market for Yuan jumped 61.3%, the highest level on record. It has remained above 10% since December 30. Despite various defensive moves Yuan weakened both onshore and off, falling 0.6% to 6.9320 against the dollar in the domestic market, and 1% to 6.8575 in Hong Kong. China’s foreign reserves fell to a six-year low in December, presenting a hard task for the Central Bank to control Yuan’s value. Chinese shares had a biggest drop in a month, concerned with a huge increase of IPOs. UBS and Morgan Stanley de- cided to increase their stake in their investment banking in China. The Central Bank of Turkey announced new measures to prop up the Lira by raising the rate for the first time in three years. Lira has fallen 12% since the beginning of 2017.
After a long delay, the U.K envoy to the EU resigned and thus complicated P.M. May’s entering Brexit talks. Consumer prices in the EU rose 1.1% in December, the fastest rate in more than three years. Fears of the U.K. pulling out of the EU’s single market caused the pound to drop to a 31-year low against the dollar. Our President- elect is just entering the White House, but he is already receiving advice. One of them appeared in the Friday, January 6th issue of the WSJ, in an Opinion article, entitled “The House GOP’s Tax Trade-Off”, by Martin Feldstein, chairman of the Council of Economic Advisers under President Ronald Regan, a professor at Harvard and a member of the Journal’s board of contributors.
He explains that the tax plan developed by the House Republicans is similar in many ways to President-elect Trump’s plan but has one additional favorable feature – a border tax adjustment that exempts exports and taxes imports. This would give the U.S. the benefit that other countries obtain from a value -added tax (VAT) but without imposing that extra levy on domestic
transactions.
Another advice came from Sean Rushton, a former policy advisor in the U.S. Senate, who suggested in his WSJ opinion article of January 13, that in the “light of the risk that the dollar will soar to dangerous heights, another Plaza Accord may be needed to remove the prospect of big dollar swings for an enormous benefit to the long-term productive economy.” At the same time, earnings in the 4Q from the three biggest banks, Chase, Bank of America and Wells Fargo, indicate that the Trump policies will bring down regulations and increase GDP. Federal Re- serve officials do not envisage a need for simulative actions to boost short- term GDP. The WSJ dollar Index fell to 910 from 920, the lowest in a month after Trump described it as “too strong” and thanked GM and Walmart for investing in the domestic market.
In his TV program on Sunday, January 15th, Fareed Zakaria presented two prominent West-European politicians, Richard Haas and Bernard-Henri Levy, who criticized recent U.S. foreign policy for having abandoned leadership and deprived the world order of the “glue” that kept the globe together. According to his latest statements, Donald Trump would be open to lifting sanctions on Russia and was not committed to a longstanding agreement with China over Taiwan -- showing his available leverage for realigning the U.S. relationships with our two global rivals.
As doubts about globalization are rising, Chinese President Xi Jinping strongly defended integration at the Davos annual World Economic Forum by stating that – “No one will emerge as a winner in a trade of war.” On the other hand, it would appear at this time that Mr. Trump is less predictable, remarking that the EU is “basically a vehicle for Germany and the bloc would probably see other countries follow Britain’s example and vote to leave.”
MID-SHIP Report January 19, 2017

Economic Comment from Mr. E.S. Finley - Retired Chairman ICEC
E.S. Finley
E.S. Finley
My Economic Comments stopped three months ago due to my sickness. It’s difficult to absorb and understand how global economic affairs can change in just a few weeks and generate a swift and massive impact. The unexpected defeat of Secretary Clinton by Donald Trump, was the least envisaged victory by majority world over. Simultaneously, President Obama tried to establish a historical legacy for his 8-year term at the White House. After years of hesitancy, the Federal Reserve Chairwoman Yellen decided, backed by unanimous decision, to raise the basic rate by 0.25%, while the OPEC and the rest of the oil industry after numerous years of failing to curtail their output, decided to cut it by one million tons a day, bringing the price of oil to $55/65 per barrel.
Russian cyber attacks designed to disturb neighboring political order, established after WWII, have lately become more aggressive and provoking, including alleged hacking of our political system, similar to cold war activities of half a century ago. President Obama, in response to Putin’s role in this U.S. related hacking, expelled 35 diplomats. At the other side of the globe the Chinese interception of the underwater drone within 50 miles of U.S. base could be another test of U.S. resolve.
Meanwhile, the dollar strength, beginning after the U.S. election, brought the WSJ Dollar Index value against the 16 major trading partners to a 14-year high, as the Fed will speed up the pace of rate increases next year, while the economy picks up. Simultaneously, the DJIA climbed close to 20,000. The dollar surge will bring long-term conse- quences, among them reduced earn- ings and causing the dollar- denominated debt more expensive. Chinese currency was pushed to its lowest level in almost a decade while Japan’s yen fell to 118 against the dollar. The dollar strength is sending currencies tumbling. Yet, the stock market fear gauge, VIX, dropped to its lowest level in two years. On the other hand UoM survey of consumer inflation expectations over the next 5 to 10 years are dropping, while bond-market derivatives project consumer price increases for a similar period have been rising – a resounding contrast possibly leading to a volatility of the markets.
But not all the news is encouraging. U.S. Bureau of Census showed that in 2015, almost 40% of young employable people were living with their parents or relatives, the largest percentage in over half a century. The entire economy nearing year’s end is revealing weakening factors, such as income growth, with a 0.2% consumer spending in November. Forecasts for the last quarter of this year predict the economy to grow at the rate of 1.7%, and only 1.9% for the entire year and 2.1% next year.
U.S. stocks pared the fourth annual gain in the last five years, as the S&P 500 Index slipped to a three-week low in light holiday trading. A spike showed in the euro which trimmed the dollar’s fourth straight yearly advance, while Brent crude trimmed its gain in 2016. The S&P 500 Index cut its ad- vance to 9.5 % in 2016 as it headed for the first three-day slide since the November 8 election. The Dow Jones Industrial Average was poised to finish the year more than 200 points below 20,000 after climbing within 30 of the mark this week, while trading volume was at least 34% below the 30-day average at this time of day. A rapid surge in the euro disturbed the calm during the Asian morning, as a rush of computer-generated orders caught traders by surprise.
The U.S population grew 0.7% to 323.1 million this year, its lowest rate since the Great Depression, according to the Brookings Institution. Despite unem- ployment being at a 43 year low, with home prices at record levels, and econ- omy in the eighth year of expansion, the single-family homes’ construction permits were down 4.7% to 1.201 million, - recessionary level. Since the re- cession ended the starts which ac- counted for 67% of all residential build- ings slid 4.1% to 828,000 after peaking at 1.82 million in 2006, or 15% below long-run average. Looking ahead of the demographic wave of millennial buyers, it’s difficult not to be bullish. Also a new trend developed during the last few months. It appears that a number of cities took direct control of their security and other vital services, away from states and federal power.
Over seven million people, fifty years old or older, owed about $205 billion in federal student debt last year. About 33% were in default, increasing garnishment as more boomers retire from a nearly $1.3 trillion government portfolio. The National Retail Federation forecasted 3.6% rise in holiday spending versus 3.2% last year. A great number of investors flipped houses with the average profit at the highest level in years. At the same time luxury apartments face glut.
The 115th Congress is taking over with an agenda of tax cuts, rollbacks of regulations, and repeal of the Affordable Care Act. It will also face budgetary problems including a long-term solution of our foreign debt.
MID-SHIP Report January 5, 2017
Russian cyber attacks designed to disturb neighboring political order, established after WWII, have lately become more aggressive and provoking, including alleged hacking of our political system, similar to cold war activities of half a century ago. President Obama, in response to Putin’s role in this U.S. related hacking, expelled 35 diplomats. At the other side of the globe the Chinese interception of the underwater drone within 50 miles of U.S. base could be another test of U.S. resolve.
Meanwhile, the dollar strength, beginning after the U.S. election, brought the WSJ Dollar Index value against the 16 major trading partners to a 14-year high, as the Fed will speed up the pace of rate increases next year, while the economy picks up. Simultaneously, the DJIA climbed close to 20,000. The dollar surge will bring long-term conse- quences, among them reduced earn- ings and causing the dollar- denominated debt more expensive. Chinese currency was pushed to its lowest level in almost a decade while Japan’s yen fell to 118 against the dollar. The dollar strength is sending currencies tumbling. Yet, the stock market fear gauge, VIX, dropped to its lowest level in two years. On the other hand UoM survey of consumer inflation expectations over the next 5 to 10 years are dropping, while bond-market derivatives project consumer price increases for a similar period have been rising – a resounding contrast possibly leading to a volatility of the markets.
But not all the news is encouraging. U.S. Bureau of Census showed that in 2015, almost 40% of young employable people were living with their parents or relatives, the largest percentage in over half a century. The entire economy nearing year’s end is revealing weakening factors, such as income growth, with a 0.2% consumer spending in November. Forecasts for the last quarter of this year predict the economy to grow at the rate of 1.7%, and only 1.9% for the entire year and 2.1% next year.
U.S. stocks pared the fourth annual gain in the last five years, as the S&P 500 Index slipped to a three-week low in light holiday trading. A spike showed in the euro which trimmed the dollar’s fourth straight yearly advance, while Brent crude trimmed its gain in 2016. The S&P 500 Index cut its ad- vance to 9.5 % in 2016 as it headed for the first three-day slide since the November 8 election. The Dow Jones Industrial Average was poised to finish the year more than 200 points below 20,000 after climbing within 30 of the mark this week, while trading volume was at least 34% below the 30-day average at this time of day. A rapid surge in the euro disturbed the calm during the Asian morning, as a rush of computer-generated orders caught traders by surprise.
The U.S population grew 0.7% to 323.1 million this year, its lowest rate since the Great Depression, according to the Brookings Institution. Despite unem- ployment being at a 43 year low, with home prices at record levels, and econ- omy in the eighth year of expansion, the single-family homes’ construction permits were down 4.7% to 1.201 million, - recessionary level. Since the re- cession ended the starts which ac- counted for 67% of all residential build- ings slid 4.1% to 828,000 after peaking at 1.82 million in 2006, or 15% below long-run average. Looking ahead of the demographic wave of millennial buyers, it’s difficult not to be bullish. Also a new trend developed during the last few months. It appears that a number of cities took direct control of their security and other vital services, away from states and federal power.
Over seven million people, fifty years old or older, owed about $205 billion in federal student debt last year. About 33% were in default, increasing garnishment as more boomers retire from a nearly $1.3 trillion government portfolio. The National Retail Federation forecasted 3.6% rise in holiday spending versus 3.2% last year. A great number of investors flipped houses with the average profit at the highest level in years. At the same time luxury apartments face glut.
The 115th Congress is taking over with an agenda of tax cuts, rollbacks of regulations, and repeal of the Affordable Care Act. It will also face budgetary problems including a long-term solution of our foreign debt.
MID-SHIP Report January 5, 2017