It's the Economy, Stupid

Yeah, risky headline for sure. Trust me on this: I’m the last person who should be going on record calling anyone stupid. My point in dredging up James Carville’s iconic phrase isn’t so much about the “stupid” part. Rather, it’s a reminder that it’s always about the economy…

And economics. Can’t have an economy without economics. 

So, it’s always about the economy and economics. Stupid. 

I bring this up today because Bloomberg is running an article that claims Russian president Putin has ordered officials to “tone down” the anti-U.S. rhetoric. 

You may recall Russia was sounding a bit uppity with regards to the U.S. bombing mission in Syria, with promises to shoot down U.S. missiles and possibly even the platforms from which they came…

Word is that Putin has ordered all such talk to stop. And it’s because U.S. sanctions have really started to squeeze the Russian economy. And Russia isn’t in any position to hit back.

It was a calculated risk that started with the “annexing” of Crimea. Putin knew there would be sanctions for invading another country. But he figured it would be worth it in the long run. Same with his attempts to keep Ukraine out of NATO and aligned with Russia. Same with Syria. And screwing with U.S. elections. 

But a chemical weapons attack in Syria and the poisoning of a former Russian spy and his daughter seems to have (finally) tipped the balance. 

Now, it’s true that the use of chemical weapons in Syria came after the latest round of U.S. sanctions. But the U.S. airstrikes over the weekend combined with the amazing surge in aluminum prices since last week have done the job. 

U.S. sanctions on Russian aluminum company Rusal say Congress is serious. The airstrikes say the U.S. isn’t backing down. Putin is saying, “Enough.”

Hit ‘Em Where it Hurts

Getting these sanctions to really bite has been a somewhat slow process. The latest move on aluminum has been very effective. Rusal is the biggest aluminum company outside of China. Now its stock is hitting record lows, down ~70% in the last week. 

Yeah, ouch. And just as Russia has been getting out of an oil-related recession, too.

Politics is basically a sideshow. Russia can’t afford for its economy to get whacked again. So Putin wants to try and put an end to it. 

It’s the economy, stupid. It gets proven time and time again that the market is the ultimate arbiter. Those entities that figure this out are the ones that not only succeed but prosper.

Did you see the recent news that Bank of America will stop lending to companies that make assault weapons? You might think Bank of America’s decision to end its lending relationship with the $51 billion guns and ammo market is a political move. It’s nice to think a company is standing up for its beliefs. But this move by BofA is purely motivated by economics…

Sure, the bank may lose a little money in the short term. But ask yourself, who are the customers that Bank of America will be counting on to drive its growth over the next 50 years? They’re millennials and whatever the generation that follows them is now being called. And how do they feel about assault weapons? 

More than ever, these new generations want to see their own values reflected in the products they buy and the companies they support. Investors should pay attention to this trend. Companies that really “get” this are going to be the really successful ones going forward. 

So, it’s ironic that the face of the millennial CEO — Mark Zuckerberg — hasn’t figured this out. Or maybe he is just now figuring it out. Either way, I think his company is in big trouble. The kids today don’t really use Facebook. And Zuckerberg’s sociopathic approach to user data isn’t going to make the best invitation to these kids today. 

Facebook will report first-quarter earnings on April 25. They will be good, and the stock will likely rally. If you want make some loot on the downside, take a look at some Facebook put options after April 25. I will be, because I think the second quarter (April to June) will not be very good.

The Starbucks Problem

On May 29, Starbucks will close all +8,000 of its U.S. stores for “bias training.”

If you didn’t hear about it, a Philadelphia store manager called police on two black men who hadn’t purchased anything and were apparently just sitting in the store. There have been protests and a lot of social media ranting going on. 

For Starbucks, this is a big economic issue. And the racial overtones will make it tough to deal with. Look, I’m an old white guy, and I get Starbucks a few times a month. And I can tell you the obvious: Starbucks tends to locate its stores in white neighborhoods or in busy urban office areas. I don’t recall seeing many ghetto Starbucks. 

So, how does Starbucks cater to the demographics that have the desire to drop $5 on a latte without appearing like they are being racist? Well, maybe not calling the cops on patrons who aren’t causing any problems would be a good place to start. But after that, I don’t have any answers for Starbucks…

I will say Starbucks is usually very aware of who its customers are. And unlike Facebook, Starbucks is usually very responsive to customer concerns.

Those are a couple reasons I’ve had Starbucks in the Wealth Advisory portfolio for the last five years. I expect Starbucks will find the right solution here, because that’s what great companies do.

Until next time,

Briton Ryle

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A 21-year veteran of the newsletter business, Briton Ryle is the editor of The Wealth Advisory income stock newsletter, with a focus on top-quality dividend growth stocks and REITs. Briton also manages the Real Income Trader advisory service, where his readers take regular cash payouts using a low-risk covered call option strategy. He is also the managing editor of the Wealth Daily e-letter. To learn more about Briton, click here.