We begin where we left off last week, with internal government strife about interest rates. You will remember that Treasury Secretary Scott Bessent initiated a program to buy back Treasury bonds, hoping to push prices higher and yields lower (which would help the government make its bond-interest payments). This came shortly after Bessent instructed the Treasury to purchase billions in Japanese yen, hoping to prop up the currency of one of the Treasury’s biggest foreign buyers of its bonds. It worked, briefly. Still with me?
Then newly minted Federal Reserve Chairman Kevin Warsh held his first press conference and reiterated that the Fed’s inflation target is 2% – the same as it was under Jerome Powell’s Fed. On Friday, Bessent spoke again, this time from the Fed’s Jackson Hole retreat, and emphasized that inflation has to come down from current levels. One infers from his statements that interest rate hike(s) are coming. Not what Bessent wants to see. The odds of a September rate hike jumped from 35% to 58% on Friday.
Also on Friday, stocks fell following Warsh’s remarks. Ever since the federal debt reached $40 trillion recently, investors are more concerned about it, and higher rates make it harder to pay the interest we owe. (Current debt equals about $117,000 per American citizen.) And we must say again, higher interest rates reward lenders (bond owners) and lower interest rates reward borrowers (the U.S. government, through its issued bonds, notes, etc.).
Historically, Treasurys have been considered the ultimate safe investment. But as the U.S. debt grows, fewer foreign countries and institutions are buying the debt instruments. They are no longer paying a price premium for Treasurys (meaning that Treasury interest rates are lower than comparable investments). Now they want yield, and it’s possible that Kevin Warsh is about to give it to them.
It’s not just interest rates we’re watching. There is also interest-rates’ close relative: inflation. Prices are high and are expected to rise even higher. Fertilizer and fuel are both negatively affected by wars in Ukraine and Iran. There go crop prices. Ukraine used to be a major wheat exporter – now disrupted, while domestic corn is suffering under a season of bad weather. Corn is a major animal feed, so there go prices of beef, chicken, and eggs. J.P. Morgan has announced that it expects food prices to grow at a 5% rate in the first half of 2027. That’s on top of all of the inflation we’ve already seen.
The U.S. has come to an agreement with Venezuela for an ownership stake in Venezuelan oil. While this sounds like a good thing for the price of oil, Ron Insana of CNBC just said that it will take five to ten years and about $2 trillion dollars to get the oil pumping. While the benefit of the oil is likely to go to Big Oil companies, the costs may just go to the American taxpayer. The oil infrastructure of Venezuela is in poor shape.
Oil in China is another story. According to the Wall Street Journal, China’s oil reserves in 2025 probably exceeded those in the U.S. by nearly 600 million barrels. So, as the war in Iran messes with oil deliveries, China is in a good position to withstand the upheaval. And as we pointed out recently, China is developing an Arctic trade route to Europe, which will coincidentally take its ships right past Russia, from whom it buys quite a lot of oil.
The stock markets were mixed last week, on a seesaw only they can see. But for the year, the market indices are still positive. That doesn’t mean that all stocks are up. Big tech stocks – both AI hyperscalers like Amazon, Microsoft, Google, and Meta, and AI infrastructure mavens like Nvidia – are moving markets. It tends to be hyperscalers one day and chip manufacturers the next day. Meanwhile, value stocks, which are old-fashioned manufacturing and dividend-paying stocks, are also having a moment. Asset allocation, people! You must carefully allocate your assets to various classes and sectors so that you have exposure to what’s going up as well as what might be weakening. Diastole can help.
For the week ending on August 28th, the Standard & Poor’s 500 finished at 7,711, the Nasdaq Composite Index at 26,402, and the Dow Jones Industrials at 53,559. The yield on the ten-year Treasury Note closed at 4.72%. U.S. crude oil cost $85.81 per barrel, N.Y. crude cost $4,455.50 per ounce, and one Euro was worth $1.16.
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) Morning Brew, Barron’s, USA Today, The Wall Street Journal, The Economist, Axios, Bloomberg, AP, CNN, Fortune, NASA, The New York Times, Business Insider, and Reuters. If you have questions, please call Diastole at 203.458.5220, or email me, Liz Cook, at ecook@dwinvest.com. Thanks for reading!
Are you a basketball fan? And are you wondering if 41-year-old LeBron James is ever going to retire? Well, one reason why he’s still hard at work (now in Philadelphia) may be that in 2018 he borrowed almost $300 million against his future earnings – payable in 2049. Superstars – they’re just like us! They’re deep in debt!