DIASTOLE ECONOMIC AND MARKET COMMENT
January 27, 2025

It’s Fed week! It’s Fed week! And there is absolutely no mystery about what the Federal Open Market Committee will decided about interest rates. I mean there might be one guy who’s still not sure, but EVERYBODY else knows that the Fed is not going to move rates on Wednesday. The latest economic data was not bad, but showed that inflation is getting harder to move, and according to the Consumer Price Index, it currently sits around 2.89%. The Fed’s target rate is (say it with me) 2%, but long-term inflation in the U.S. averages closer to 3.25% - according to YCharts. Leading me to believe that the FOMC and Jerome Powell have set a very conservative target, knowing that even getting close is a win. Chairman Powell speaks Wednesday at 2:30 and everyone except that one guy will be watching.

We’re only about three weeks into the new year, and stock markets are higher. But bond yields are higher too, and the two compete for investor money. Should I take a risk on stocks going even higher, or choose the safer bet and go with yields on the 10-year Treasury at more than 4.6%? Which will make more sense long-term? Of course we don’t know what the markets will do in the future, and that’s why we advocate for sensible portfolio allocations to stocks, bonds, and cash, to spread your risk and also your potential gain.

If you’re in the housing market, buying or selling, then you have observed inflation in action. House prices are soaring at the same time that mortgage rates are sitting near 7% - way higher than the rate of inflation. U.S. existing-home sales in 2024 were the lowest they had been since 1995, which, contrary to the way it feels, was thirty years ago, not ten. Mortgage rates have to come down to break the house-price logjam, but what will it take? Lenders presumably work on a supply-demand basis, but with very little demand, why aren’t rates coming down to attract borrowers?

The Department of Agriculture is predicting that egg prices will rise by 20% this year, versus a 2.2% rise in food prices in general. The ongoing avian flu outbreak is the largest reason, but apparently demand for eggs is up too. I’m not sure why. Maybe people hear the news stories about egg prices and think, “yes, I would like an egg right about now.” But aren’t there plenty of people with back yards who could raise chickens? Take one for the team, folks.

Elon Musk’s Department of Government Efficiency (so-named in order to promote his favorite meme coin, the dogecoin) is proposing eliminating the penny from our pockets. The penny is obviously worth one cent, but costs more than three cents to make. Proponents of this plan say that we should all round up or down to the nearest nickel in order to pay cash. The only problem with that is that nickels, worth five cents, cost more than 13 cents to make. It seems there is a problem with that math. Perhaps we should round to the nearest quarter, which only costs a little more than eleven cents to manufacture. Yay! We just solved our deficit problem!

And speaking of deficits, the Congressional Budget Office now predicts that the federal budget deficit will jump to $2.7 trillion in 2035. That’s ten years from now, and it is the amount of the budget shortfall for ONE YEAR. It is NOT our total debt, which officially stands over $36 trillion, although many believe it is much higher. Okay, people. Stop making pennies!

For the week ending on January 24th, the Standard & Poor’s 500 finished at 6,101, the Dow Jones Industrial Average at 44,424, and the Nasdaq Composite Index at 19,954. The yield on the ten-year Treasury Note closed at 4.626%. U.S. crude oil cost $74.21 per barrel, N.Y. gold cost $2,772.73 per ounce, and one Euro was worth $1.05.

Elizabeth E. Cook
Partner, Diastole Wealth Management

News and information presented here was gathered from sources believed, but not guaranteed, to be reliable, including (but not limited to) The Wall Street Journal, The New York Times, The Washington Post, USA Today, Axios, Barron’s, Bloomberg, Morning Brew, The Guardian, The Hustle, The Economist, Yahoo Finance, YCharts, Reuters, The Associated Press, CNBC, and CNN. If you have questions, please call us at 203.458.5220.

Maybe I’m not the only one who thought that “gold medals” was just a figure of speech. It never occurred to me that they were made of real gold. Turns out, they are made of silver with at least six grams of real gold plating. But that hasn’t stopped the gold medals awarded at the Paris Summer Olympics to begin to discolor, even though it’s only been six months. More than 100 athletes have asked for their medals to be replaced due to rusting and tarnishing, and the French Olympic Committee has agreed. Apparently, the medals are varnished to protect against oxidation, but the French used a new formula that conformed to EU regulations banning chromium trioxide, which is toxic. So, which do you want? Medals that look beautiful, or ones that won’t kill you? Think hard.

DIASTOLE ECONOMIC AND MARKET COMMENT
February 3, 2025

Well, the groundhog saw his shadow yesterday morning, signifying six more weeks of winter (or an early spring - he’s not very reliable). And tomorrow will bring us President Trump’s just-announced tariffs. One way or another, investors are not happy.

Markets were lower on Friday, after talk of tariffs from the White House, and are down again today because the president said, “nope. not kidding” about his proposed tariffs, and indicated that they would take effect on Tuesday. Which is tomorrow, despite the fact that it feels like it’s Thursday already.

Tariffs, you’ll remember, are paid by the importer of foreign goods to the U.S. government. And then the importer turns around and charges more for his products to cover the tariff payment. You see where this is going: Americans pay more for imported goods, and the importer gives the money to the Treasury. How is this different from taxes, but with a different middleman?

The tariffs already announced include 25% on Mexican and Canadian goods (except for Canadian energy, which is tariffed at 10%), plus 10% on Chinese goods - on top of the leftover Chinese tariffs from the last Trump Administration. In other words, you can still afford avocados for your Super Bowl party today, but tomorrow might be a different story.

Still, there are those who feel that the tariffs are just the opening salvo in what may become trade negotiations. Will deals be worked out? Will some importers be exempted, like Apple was during the last Trump Administration? Stay tuned.

U.S. steelmakers are already anticipating raising their own prices when tariffs on Canadian steel and aluminum cause import prices to rise. It is inevitable that this will happen in many industries. Picture cars made with foreign parts, lumber from the timbered north, and tequila. Competitors will match higher prices. And of course, tariffs will be put on U.S. exports in retaliation, making our goods more expensive in other countries, hurting sales.

The conservative Wall Street Journal Editorial Board called it “The Dumbest Trade War in History,” while the more moderate Bloomberg News wrote, “Why This is a Bad Idea.” And the liberal Washington Post said, “Trump’s abrupt imposition of steep tariffs on goods moving across U.S. borders threatens significant disruption for regional supply chains that have become deeply intertwined over the past three decades.” Will they be proved right, wrong, or somewhere in the middle?

Tariffs, by raising costs for regular guys and gals, also contribute to inflation. Rising prices anywhere encourage rising prices everywhere. It is no surprise, then, that the Federal Reserve Open Market Committee met last week and announced that it would not be cutting interest rates further. The personal-consumption-expenditures price index (PCE), which is the Fed’s favorite inflation indicator, rose 2.6% over the 12 months of 2024. That’s good, but not “Fed good”. The Fed is still hoping to attain 2% inflation.

U.S. gross domestic product (GDP) grew 2.5% in 2024, which is also good, although it slowed its pace somewhat in the fourth quarter. In all of 2023, GDP rose 3.2%. We will get January jobs numbers this Friday to help complete the picture. Fed Chairman Jerome Powell announced on Wednesday, “We do not need to be in a hurry to adjust our policy stance.”

DeepSeek, a Chinese AI product, shook the high-tech world last week when it announced that it had created an easy, quality AI interface with only six million dollars and not-the-best chips. Nvidia, producer of the high-end chips that American AI is built on, lost $589 billion in market value after the announcement, although it has recovered quite a bit since then. Surely the TikTok debacle will inform the U.S. government about allowing citizens to use foreign search tools? After all, it is called DeepSeek.

For the week ending on January 31st, the Standard & Poor’s 500 finished at 6,040, the Nasdaq Composite at 19,627, and the Dow Industrials at 44,544. The yield on the ten-year Treasury Note closed at 4.569%. U.S. crude oil cost $73.70 per barrel, N.Y. gold cost $2,825.00 per ounce, and one Euro was worth $1.03. Through Friday, the major stock indices were all up for 2024 year-to-date as well as on a trailing-12-month basis.

Elizabeth E. Cook
Partner, Diastole Wealth Management

News and information presented here was gathered from sources believed, but not guaranteed, to be reliable, including (but not limited to) Morning Brew, Barron’s, Axios, The Wall Street Journal, CNBC, Business Insider, Reuters, The Washington Post, Bloomberg, The New York Times, Yahoo Finance, CNN, and The Economist. If you have questions, please call us at 203.458.5220.

In the I-never-saw-this-coming category, Elon Musk has admitted to paying confederates to play his characters in video games like Diablo IV - giving him a BIG head start when he plays on his own. He had previously bragged about conquering the game, even as other players saw his character chasing treasure, while Musk himself was occupied in public. What do we think about the world’s richest man bragging about false accomplishments? Can you say self-driving Tesla?

DIASTOLE ECONOMIC AND MARKET COMMENT
February 10, 2025

Stock and bond markets went sideways last week as investors digested the ongoing tariff and DOGE sagas. Beyond politics, there were still a few economic stories making an impact. On Friday we received the January jobs number, which was weaker than expected. 143,000 net new jobs were created versus 169,000 estimated in advance. But since the November and December jobs numbers were revised upward by 100,000, it all kind of washed out in the end. The unemployment rate fell slightly to 4%.

Meanwhile the number of overall job openings decreased to 7.6 million as of the end of December, down from 8.16 million in November and 12.2 million in early 2022. A judge decided that the Trump Administration’s offer to pay workers through September if they resign now could NOT expire on the 6th (last Thursday) but had to remain open. No one knows yet whether most of the workers taking the deal are planning to retire, or are going to be looking for new work, but the answer could affect unemployment numbers in the future.

Per Forbes magazine, approximately 65,000 workers have taken the buyout deal so far, out of the two million who received the offer. Will their payments through September materialize?

The dueling China/U.S. tariffs have not been postponed. China has levied a 10% tariff on American crude oil, agricultural machinery, and some cars and trucks. Some coal and natural gas will face a 15% tariff as of today. And the U.S. has threatened tariffs on China in retaliation: up to 25%, depending on how the wind blows. In addition, Trump just announced that his government would impose a 25% tariff on all steel and aluminum imported into the country.

Might I gently suggest that instead of a tariff, which will end up costing the American consumer more, the Trump Administration might consider a duty, which is paid by the foreign exporter? We have long maintained a small duty on Canadian lumber, and it seems to work just fine.

Apparently many Americans thought the tariff threats were real, and they purchased enough big ticket goods in December (pre-tariff) to widen our trade deficit significantly in that month. The trade gap rose from $78.2 billion in November to $98.4 billion in December, according to the Commerce Department’s Bureau of Economic Analysis. Although most of the Canadian and Mexican tariffs have been postponed for a month, they still may take effect in March.

The president is calling for the creation of an American sovereign wealth fund - something that only Congress can authorize. A sovereign wealth fund is something that usually only oil-rich countries with huge budget surpluses can afford. They have extra revenue? They invest it to diversify their holdings away from energy. But the U.S. has a budget deficit, which means that we would have to borrow the money for the fund. Is there anything we can invest in on an enormous scale that could overcome the headwind of interest payments on the loans?

Perhaps what the president has in mind are newly-announced ETFs and separately-managed accounts to be issued by Truth Social. Trump’s social-media company has applied for trademarks for names for these investments, although there is no evidence that Truth Social has applied for SEC registration or approval. It remains to be seen if the SEC is willing to regulate these presidential investments.

DOGE’s Elon Musk must be disappointed by Tesla’s 2024 sales figures. Registrations of Tesla’s Model 3 sedan dropped by 36% in 2024. Sales in California alone fell by 12% for the year. Shares of Tesla stock have fallen in price since its recent high right around Election Day. The consumers who like the idea of an electric vehicle may not be as pleased with Musk’s turn to the right and embrace of Donald Trump. Also, there are a lot more EV choices these days. Have you seen the Ioniq 6 lately?

We are just about a month away from the day (March 14th) when the Treasury can no longer cover important payments through fancy bookkeeping and deferred pension funding. The House and the Senate are both working on new budgets, but sadly are not working together. We may end up with two budgets, neither of which has the approval of the whole Congress. Will we end up closing down the government? I hope not. Remember that it takes more money to close and reopen Washington than it does to just keep it running. Think of it as a fractious, selfish, and pontificating thermostat.

For the week ending on February 7th, the Standard & Poor’s 500 finished at 6,025, the Nasdaq Composite Index at 19,523, and the Dow Jones Industrials at 44,303. The yield on the ten-year Treasury Note closed at 4.487%. U.S. crude oil cost $71.85 per barrel, N.Y. gold cost $2,875.00 per ounce, and one Euro was cheap at $1.03.

Elizabeth E. Cook
Partner, Diastole Wealth Management

News and information presented here was gathered from sources believed, but not guaranteed, to be reliable, including, but not limited to: Yahoo Finance, MarketWatch, Barron’s, The Wall Street Journal, The Washington Post, The New York Times, Axios, Business Insider, Morning Brew, The Economist, Bloomberg, USA Today, 1440 Digest, Reuters, The Associated Press, CNBC, The Bureau of Labor Statistics, and CNN. If you have questions, please call us at 203.458.5220.

Astronomers say that in the year 2182, Earth might be hit with a medium-sized asteroid known as Bennu. If that happens, our planet could experience a global winter for years afterward. So, first of all, this is not next week we’re talking about, and secondly, isn’t Ben Affleck available to rocket to the asteroid and change its trajectory? If not, he has kids, right?

Go Birds!

DIASTOLE ECONOMIC AND MARKET COMMENT
February 24, 2025

There is so much going on in the country, and in the world, that watching the news is a little like looking through a kaleidoscope. Which part is going to change next? I have found that the best way to look through a kaleidoscope is to keep your eyes in one place while everything else moves around.

So - looking at investments and the economy - we have news of a sort from Jerome Powell, Chairman of the Federal Reserve. Last week the minutes of the latest Fed meeting were released, and in the prior week, Powell testified to Congress. Essentially, JPo indicated that the Fed had the luxury of a strong economy and thus time to consider its next move. Inflation has dropped significantly from the highs it reached in 2022, but dropping the last one percent is proving stickier than expected. Talk of tariffs has many people worried about reigniting inflation, while the consumer-price index (CPI) which was recently released showed that prices were higher by 3% compared to one year ago. The Fed’s target inflation rate is 2%.

Meanwhile, the producer-price index rose 3.5% for the twelve months ending in January. Not what Powell wants to see. Last year, the Fed lowered rates three times for a total of one percentage point.

So - when the Fed finally does act, will it be ready to cut rates once more because inflation is near targets and employment is weakening? Or will it actually have to raise rates because inflation is intractable? The Fed Open Market Committee next meets in mid-March, and as always, we will be holding our breath (not from now until then, or we would turn an unfortunate shade of purple, but you know what I mean).

We are feeling inflation especially in eggs, due mostly to bird flu wiping out whole flocks (herds?) of egg-laying hens. Some retailers are rationing eggs, and prices are 53% higher than they were a year ago. If you have a backyard, you know what to do. Just make sure there is a roof on your chicken coop so that YOUR chickens don’t catch the flu.

As for the stock markets, last week saw the Standard & Poor’s 500 reach record highs, right before markets fell sharply. Fears of tariffs and inflation caused investors to sell, and on Friday alone, the Nasdaq Composite dropped more than 2%. On the other hand, as the federal government fires workers, will unemployment, currently at historically low levels, jump so much that interest rates will go down? It’s all connected, people!

Investor Warren Buffett , chairman and CEO of Berkshire Hathaway, released his annual letter over the weekend and reiterated what he has always said, that he doesn’t buy stocks, he buys companies. And these days it’s harder to find companies worth buying. Berkshire is sitting on more than $330 billion in cash and Treasury bills, while he looks for suitable investments. But Buffett doesn’t even think that buying Berkshire itself is a good idea, as the company’s repurchase of its own shares fell to zero in the last quarter of 2024.

U.S. total credit card balances now stand at a record-high $1.2 trillion, with total U.S. household debt (which includes mortgages and other loans as well as credit cards) has reached an all time high of $18 trillion. Despite my griping, that is not all mine. The top 10% of American earners now account for 49.7% of all U.S. spending, according to the Wall Street Journal.

A government shutdown is still on the calendar for Friday, March 14th. That’s when the current continuing resolution (CR) expires, leaving the government without a budget. While Republicans remain in control of both houses of Congress, the House and the Senate are working on separate and contradictory budget proposals, and no concessions are being made to attract Democrat votes. The president prefers the House version, but ultimately the House and Senate have to agree on one version in order to enact it.

Today marks the third anniversary of the Russian invasion of Ukraine, and peace talks between the U.S. and Russia are underway in Saudi Arabia without the participation of Ukrainians. The fragile cease-fire is holding in Gaza as Israeli hostages are exchanged for Palestinian prisoners. Still, we worry that if just one guy is caught looking sideways, the cease-fire will collapse.

For the week ending on February 21st, the S&P finished at 6,013, the Nasdaq at 19,524, and the Dow Jones Industrials at 43,428. The yield on the ten-year Treasury Note closed at 4.420%. U.S. crude oil cost $70.23 per barrel, N.Y. gold cost $2,939.95 per ounce, and one Euro was worth $1.05.

Elizabeth E. Cook
Partner, Diastole Wealth Management

News and information presented here was gathered from sources believed, but not guaranteed, to be reliable, including (but not limited to) New York Magazine, The Wall Street Journal, The New York Times, The Washington Post, USA Today, Barron’s, MarketWatch, Bloomberg, CNN, CNBC, Axios, Market Brew, Yahoo Finance, Business Insider, 1440 Digest, Reuters, and The Associated Press. If you have questions, please call us at 203.458.5220.

A kayaker off the coast of southern Chile was sucked into the mouth of a humpback whale before being spit out, about three seconds later, along with his inflatable boat. He might have been swallowed, but the whale, which has plenty of room in its mouth, has less room in its throat - likely saving the kayaker. There is no truth to the rumor that the kayaker said something about interest rates with which the humpback disagreed.