Boeing’s Next Big Thing. And You Might Not Like It; Upper Middle Class Marks its Territory; To Brexit or Not to Brexit, Part Two

Coffee, tea or uranium enrichment?

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Boeing reportedly just signed an agreement with Iran Air so that the official airline of the potentially rogue nation can buy about 100 commercial aircraft from the American company. Rumor has it that the deal is worth $25 billion but there are still plenty of details that need to be hammered out before you can plan your Tehran vacay. Iran is definitely hard up for some new aircraft because it has just 250 aircraft and only 162 of them can fly, if that. The rest need spare parts. But with sanctions that have been in place for decades, those spare parts have been impossible to come by. Apparently the U.S. government feels that Iran held up its end of the dubious nuclear accord, however, the U.S. treasury still needs to give its seal of approval, along with every other human being in DC and beyond. You may not like the idea of the U.S. doing business with Iran but Boeing factory workers feel otherwise, as do Boeing shareholders who are chomping at the bit to get in on the profitable action. The fact is, the country is seen – and not just by the U.S. – as a promising growth market and there is plenty of money to be made there. European aircraft companies, Airbus and ATR, already have their agreements lined up with the Islamic Republic. Unfortunately, the Supreme Leader Ayatollah Ali Khameni is not so enthusiastic about buying aircraft from the United States and doesn’t see it an a priority. But then again, his state sponsors terrorism. So do we really care what his priorities are? Didn’t think so.

So classy!

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The upper middle class is thriving. At least that’s what the Urban Institute and economist Stephen Rose are saying. And just what makes a person upper middle class anyway? Glad you asked. If you find yourself in a three-person family that generates an annual income between $100,000 and $350,00, then you, my friend, are a thriving member of the upper middle class. Congratulations. I think. Stephen Rose argues that the true divide is not between the rich and poor, but rather it’s divided between the wealthy combined with the upper middle class, and everybody else. Warms the heart, no? The upper middle class was, once upon a time in 1979, 13% of the population. But in 2014, that class made up almost the 30% of the population. While the wealthy used to be just .1% of the population, that group is now 1.8% of the population. The middle class shrunk, presumably because some became wealthier and some…did not, and now makes up 32% of the population, compared to almost 39% back in 1979. The middle class, by the way, is defined as a family generating income between $50,000 to $100,000 annually. Just as there is an upper middle class, there is also a lower middle class which is defined as generating an annual income between $30,000 – $50,000. Generating an annual income anything less than that is probably not where you want to be. But on a high note, the standard of living has gone up for nearly all Americans, no matter what class they’re in.

 

Rate a moment…

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Janet Yellen appeared before the Senate Banking Committee and among the many fiscal pearls she imparted, she said that the Central Bank would go forward cautiously on its plan to gradually increase rates. Even though many experts were sure a June rate increase was in the works, “considerable uncertainty” with regard to the  U.S. economic outlook, global economic issues, a hiring slowdown and the looming “Brexit” vote in Britain nixed any thought of an increase. Janet Yellen did stress that the U.S. is not taking sides on the Brexit issue but cautioned that there will likely be economic consequences to the U.S, which sounds awfully ominous. There is concern that a Brexit would increase the value of the dollar, and that is not always a good thing, as evidenced by the dozens of companies that have lost millions of dollars in revenue and profits this year because of the strong dollar overseas. Ms. Yellen would like to see, among other things, a rebound in hiring and some growth improvement in the economy. No major surprises from the Brits would be nice too. Also during the meeting, Sen. Elizabeth Warren commented on the lack of diversity among the members of the Central Bank. Ten out of the 12 members are men, not there is anything wrong with those gentlemen. But still. Anyways, Chairwoman Yellen graciously replied: “It’s important to have a diverse group of policy makers who can bring different perspectives to bear.”Amen!

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The Middle’s Not Where It’s At; Unemployment Blame Game; The Fed’s Milky White Problem

Stuck in the middle…

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The middle class is shrinking and that’s not necessarily a good thing. Studies done by the Pew Research Center show that between 2000 and 2014, the middle class actually shrank in 9 out of ten U.S. cities. Of the 229 U.S. cities cited in the study, the amount of households classified as middle class dropped in 203 of those cities. Sure, some of those households left their socioeconomic perches because they graduated to the upper class. But that’s mostly not the case. In fact, the middle class now makes up less than half the population in the cities studied while the income inequality gap keeps growing. That could trigger some ugly economic consequences. The wider the gap gets, the more it is likely to inhibit economic growth. At least that’s what some experts think. What’s worse is that children raised in areas that are predominantly low-income, are less likely to reach the middle class. In case you were wondering, the middle class is defined as a household that earns an annual income between 2/3 to two times the median income. In 2014, a three-person household was considered middle class if its annual income was between $42,000 to $125,000. The largest middle class populations were found to be in the good old midwest. I’m sure there is irony in there somewhere. The largest low-income populations were found to be in the southwest, particularly near the Mexico border, while the highest populations of upper class were found to be in the northeast and the west coast. No matter where you stand on the issue, it’s one that is going to figure prominently in the November elections.

On the Verizon…

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Nothing like unemployment numbers to ruin an otherwise pleasant Thursday. The number of first time applicants rose by 20,000 to a grand total of 294,000 seeking jobless benefits. Unfortunately it marked the third straight week of increases of first-time applicants. But at least that number was still below the 300,00 mark  – for 62 weeks straight, mind you  – so the situation isn’t that alarming. Well, except maybe for those who find themselves out of work. Also, economists are actually pointing the finger at Verizon – or rather the 40,000 Verizon workers who went on strike back in April. They are likely the ones who have applied for jobless benefits while on strike.  Economists predicted that the number of applicants would fall to about 270,000, which makes perfect mathematical sense if you figure that the Verizon strike is apparently responsible for that unwelcome surge and without it the numbers would have dropped.

White as a sheet…

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The Fed’s been taking a lot of heat lately. And some of that heat has absolutely nothing to do with the fact that it hasn’t raised rates, yet again. Instead, top lawmakers penned a letter to Janet Yellen and company calling out the lack of diversity at the Central Bank which is “disproportionately white and male.” Ha! Who would have thought the Central Bank and the Academy Awards have something in common? Signed by 116 members of the House and 11 senators, the letter expressed disappointment over the Fed’s failure to “represent the public” and would like it to consider a number of factors, including race, when filling posts in the future. The letter did, however, praise Yellen for her strong leadership. So props to her on that. So just how disproportionately white and male is the Fed? Well, of the five current Fed governors, all of them are white. However, to be fair, two of them are women, including Janet Yellen, who happens to be the first women to head the Central Bank in its 100 year history. If that’s not disproportionately white and male, then I don’t know what is. Since monetary policy strongly correlates with hard-working Americans of every ilk, it does seem odd that the Fed is primarily made up of mostly one ilk. Give or take. At least minorities make up 24% of regional Fed bank boards. While that’s not an ideal representation, it’s still a 16% increase from 2010.

 

Rate Hike? What Rate Hike?; Chipotle’s Rocky Road to Recovery; McCormick’s Spicy Good Earnings

Easy does it?

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Well, if you’re looking for the Fed to raise rates, don’t hold your breath. Despite the fact that the Fed’s next meeting is planned for April 26th and 27th, experts think a move like that probably wont happen before July. It was initially believed that there would be four rate hikes over the course of the year, after the Fed raised the rates for the first time in nine years back in December. But now it looks like there will be just two.  Federal Reserve Chair Janet Yellen is still promising a gradual pace of rate increases, but even she admits that the economic climate just isn’t quite impressing these days. The Central Bank is paying very close attention to all the annoying economic issues going on in the world, like the global economic slump, the very very low oil prices and a relatively volatile stock market. Of course, it wouldn’t be right not to mention China’s own economic downturn.  Plus the Fed’s not too stoked about the rate of inflation, which has been holding steady at about 1% when its target is closer to a 2% rate. Add to that weak consumer spending and you’ve got a Fed that’s not looking to stir any fiscal trouble. Hence, the Fed has assured the country that it plans to “proceed cautiously” in its rate hike plans, which is awfully considerate, according to some people, anyway.

Burned burrito…

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Free burritos or not, Chiptole’s road to fiscal recovery is looking very far off.  Wedbush Securities analyst Nick Setyan came out with a new report that says he doesn’t expect the fast food chain to recover before 2018 – calling it “the best case-scenario” – and even lowered Chipotle’s price target from $450 – $400. Ouch. Before the food safety crisis, each Chipotle restaurant was pulling down $2.5 million in sales on average. But that’s not expected to happen again for quite some time, especially given the fact that Chipotle’s operating costs are only going to get higher and higher because of its more comprehensive and stringent food safety measures. And even though the company sent out coupons for nine million free burritos, with another 21 million free burrito vouchers en route, Chipotle will still eat a $62 million tab for that, as a burrito typically costs $7.10. But hey, whatever it takes to try and erase the ugliness of E. Coli and norovirus outbreaks, right? Even with all those vouchers being sent out, the company only expects that a quarter of them will actually get redeemed. Naturally, news of the report sent shares south when the stock is already down 37% since August. Shares of Chipotle closed today at 460.10.

Spice spice baby…

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Of all the companies to report earnings lately, this one’s pretty…spicy. Yes. I had to go there. McCormick & Co. just released its first quarter results and considering that the company’s products aren’t items typically used in bulk, the $13 billion company pulled in some very impressive figures. In the process, McCormick & Co. even managed to raise its 2016 outlook, and unlike other major food producers that have been struggling to keep up with a health/organic revolution,  McCormick hasn’t faced quite the same challenges. In fact, its stock is up around 28% in the last twelve months with a little help from some recent acquisitions. The spice-maker was expecting to earn between $3.65 to $3.72 per share. But now it’s looking like it’ll pick up between $3.68 and $3.75 per share for the year. Incidentally, despite China’s economic downturn, the country still managed to give McCormick some boffo growth. Perhaps there’s a correlation between economic stress and and a desire for spicy food? Hmm. Will have to explore that one…In any case, McCormick picked up a profit of $93.4 million on $1.03 billion in revenue and adding 73 cents per share. Analysts only expected 69 cents on $1.03 billion in revenue while the year before the company took in a profit of $70.5 million on $1.01 billion in revenue with 55 cents added per share. And if that’s not enough, McCormick also scored a new 52 week high today of 99.90.

Yellen at Congress, JP Morgan Chase-ing Earnings and Johnson & Johnson Sits Pretty at the Top

Cooing Wall Street…

Image courtesy of David Castillo Dominici/FreeDigitalPhotos.net

Image courtesy of David Castillo Dominici/FreeDigitalPhotos.net

Fed Chairwoman Janet Yellen graced Congress today with her presence and arguably dovish remarks during her semi-annual report on monetary policy. True, her comments  may not have been the stuff HBO series are made of but they did rattle Wall Street and sent its stocks and indexes south for a bit. The Fed Chairwoman wouldn’t offer up a time-table on any plans to raise short-term interest rates and still wants help from the Central Bank. “The economic outlook is very uncertain,” she said. Ugh. Not exactly the words you want to hear from the Fed. She also was not moved by the improving unemployment numbers yet she wasn’t too concerned about the slightly increasing inflation. “We have seen false dawn,” Yellen said, probably not meaning to be as dramatically poetic as the statement sounded. She’salso not too happy about the housing sector and again inadvertently sounded slightly poetic when she referred to the biotechs and social media sector as “stretched.” She apparently feels their stock values are very un-poetically inflated.

Bank’d

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Image courtesy of 2nix/FreeDigitalPhotos.net

The country’s second largest bank (by assets), the almost indomitable JP Morgan Chase graced the world with its second quarter earnings today. It beat Wall Street’s predictions. Yay! But wait a minute…its earnings and revenue both took a dive this year with an 8% decline in second quarter profit which I know has you all broken up inside. The bank’s shares gained $1.46 a share when Wall Street predicted $1.29 but its revenue fell $5.99 billion from $6.5 billion a year ago. Just like its banking pal Citigroup – who also released its earnings yesterday and also reached a multi-billion dollar settlement with the Department of Justice over its bad mortgage practices – JP Morgan Chase saw its trading revenue fall.

Unbeatable?

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I double dare you to go to your local pharmacy/supermarket with your full shopping list in hand and try NOT to walk out with a brand that isn’t part of the Johnson & Johnson family. Or then again, don’t bother because it simply is not possible. The company owns…well everything. Almost. Which explains why its second quarter earnings trumped Street estimates jumping 9% in its revenue to $19.5 billion and gaining 13% on its profits. Sure sales of stuff like Tylenol and baby oil helped. And don’t forget about Neutrogena and Aveno (yeah, it owns those as well). But Johnson & Johnson also made some nice chunks of cash with help from its Hepatitis C drugs Olysio and Sovarid. Yeah it has those too.