Marked <safe> from murderous AI bots today. Hope you are too. Wouldn’t it be funny if, when AI misbehaves, it goes after the billionaires who own it? Not funny for them, though.
Please take it as a given that we have discussed the AI whistleblowers, the alarm registered by the titans of big tech, the accounts of AI gone rogue, the way that AI data centers are causing noise and water problems, to say nothing of using up all the electricity. Despite my lighthearted tone, this is a serious issue. One of the problems with solving it is that it will require Congressional action, and that’s hard to come by these days. My first take would be to unplug everything,
So, in addition to AI fear and fear mongering (does Sam Altman of OpenAI REALLY want more regulation?) most of last week’s news was about war and inflation. And bonds and inflation, and gas and inflation, and inflation. We received two important inflation numbers: the Producer Price Index (PPI) and the Consumer Price Index (CPI). The PPI indicated that wholesale prices rose 5.4% over the trailing-twelve months ending in August, while the CPI showed consumer prices 3.4% higher over the last year. The Fed’s inflation target is 2%, and we are not close to it. Diesel fuel has surpassed six dollars a gallon, on average, and the ten-year Treasury Note is yielding exactly one hair below five percent, a psychologically important level.
So, thoughts automatically turn to the Federal Reserve’s Open Market Committee (FOMC) which will announce its next interest-rate decision on Wednesday at 2:00 p.m. Fed Chairman Kevin Warsh indicated earlier that interest rates would rise naturally by way of market forces. In other words, bond buyers may sit on their hands until yields are high enough to attract them. Alternatively, the Fed could raise the Fed-funds interest rates on Wednesday, thus forcing large banks to charge more on their loans. Raising rates is considered “hawkish” and tightens credit, making it more expensive to borrow. When money is tight, people spend less and inflation eases.
Right now, the odds of a rate hike on Wednesday are above 80%. It would be closer to 100%, except that we know the president is advocating for LOWER rates, which puts newly installed Chairman Warsh in a particularly delicate position. At the same time, Treasury Secretary Scott Bessent is proceeding with his higher Treasury-bond buybacks, in the hopes that increased demand will push bond prices higher, and therefore yields will be lower. (Bond prices and yields move inversely.) So far it hasn’t worked.
The news from Saudi Arabia is disturbing. Not only have the Houthis (aligned with Iran) partially blocked the shipping route through the Bay al-Mandab Strait in the Red Sea, but the Saudi Arabian pipeline that brings their oil across their country (i.e. from the Persian Gulf to the Red Sea) has been attacked by drones. About one third of the world’s oil supply used to pass through the Strait in the Red Sea and the Strait of Hormuz in the Persian Gulf. Iran is now able to shut down oil exports from both sides of the Arabian Peninsula.
Home mortgage loans have passed 7% in recent days, their highest level in over a year. Not surprisingly, home sales dropped again. But you’ll never guess which sector of real estate is having a bumper year. Go ahead, guess. Oh wait. I’ll tell you. It’s malls! Over the past year mall values jumped 13% – more than double the overall commercial market’s gains. OMG! Why? (Personal confession: I haven’t been in a mall in several years, and the mall closest to my house has recently converted to industrial use.) It turns out that many mall managers made good use of the time during and after Covid to revamp their properties. More high-end tenants, more restaurants, and more retailers aimed at tweens and teens have helped the mall recovery. Maybe I’ll go.
At a recent speech in Texas, the president announced that he would pay every adult in the country $5,000 if the Republicans hold both houses of congress in the midterms. To put it in perspective, the money required for that would be more than we spend on defense in a year.
We are finishing the hottest summer on record. The previous record was 1936, in the dustbowl.
For the week ending on September 11th, the Standard & Poor’s 500 finished at 7,657, the Nasdaq Composite at 26,333, and the Dow Jones Industrials at 52,573. The yield on the ten-year Treasury Note closed at 4.97%. U.S. crude oil cost $103.55 per barrel, N.Y. gold cost $4,311.20 per ounce, and one Euro was worth $1.15.
Elizabeth E. Cook
Partner, Diastole Wealth Management
News and information presented here were gathered from sources believed, but not guaranteed, to be reliable, including (but not limited to) Barron’s, The Wall Street Journal, The Economist, Axios, Bloomberg, Fortune, The Bureau of Labor Statistics, Reuters, CNBC, USA Today, Yahoo Finance, Morning Brew, CNN, and AP. If you have questions, please call Diastole at 203.458.5220, or email me, Liz Cook, at ecook@dwinvest.com. Thanks for reading!
Apple just introduced its first foldable iPhone, called Duo. You can use more than one app at a time on its larger screen. Chris Welch, in his review for Bloomberg, said, “Opening it doesn’t simply give you a bigger iPhone screen; the software changes with it, making the device feel closer to an iPad.” It is my understanding that next year the bigger iPhone will come in a harvest-gold version that will hang on your kitchen cabinet.