DIASTOLE ECONOMIC AND MARKET COMMENT
January 21, 2025

I try very hard not to comment on politics in this weekly column. No matter what I might say, I would offend half of Americans (assuming all Americans are reading this, which I do). But the results of policies are fair game.

A president’s first full day in office doesn’t give me too much to work with, economics-wise, but the fact that newly-installed President Trump did not issue tariffs (yet) is noteworthy. He has said that he will impose 25% tariffs on Canada and Mexico on February 1st. Definitely time to stock up on avocados now. And that’s the problem with tariffs: they raise the price for the end consumer, not the manufacturer who passes the cost along.

You know what else raises prices? Bird flu. And bad weather. Eggs in December cost an average of $4.15 per dozen - up 14% from November. And I have a carton in my fridge that I now consider too precious to eat. 17.2 million egg-laying hens died in November and December from avian flu, according to CNN. Food prices overall rose 1.8% from a year earlier. Which doesn’t sound that bad, except that it comes on top of several years of rising costs. It is unlikely that we will see actual deflation, except in isolated markets occasionally, so we have to hope that wages continue to outpace inflation.

And it would be nice if house prices began to fall, but instead, we are seeing mortgage rates rise - now over 7% again, and prices NOT fall. Historically, rising rates cause falling prices, but as we Boomers sit in our too-big refinanced houses, rates at 7% are not low enough to entice us to sell. What would we buy? How much would we have to pay monthly? It’s no wonder that home sales have been poor for the past two years.

In other inflation measures, the Consumer Price Index rose 2.9% for the 12 months ending in December. The Producer Price Index, which measures what manufacturers receive for selling goods and services, rose 3.3% over the same period. I know you have it tattooed on your forehead, but here’s a reminder that the Federal Reserve wants to see inflation at 2%, and we’re not quite there. When inflation is high, the Fed usually raises interest rates so as to put a damper on prices and productivity. Is inflation high now? Not at all, but people FEEL like it is, and it was, recently. Will the Fed consider raising rates again, to bring down that last measure of inflation that seems intractable? The last indication that we got from the Fed was a hint that they had done enough in 2024 and might do nothing for much of 2025. Stay tuned next week for the Fed’s meeting and rate announcement.

The Congressional Budget Office is forecasting that U.S. deaths will exceed births by 2033. That’s eight years, people. And what it means is that our population could begin to decline, leaving jobs vacant and stressing working people to support retired people. This is not the fault of those fortunate enough to retire, but of the government which didn’t invest our Social Security payments for when we needed them in the future. The traditional way to overcome a birth deficit is to allow for increased immigration. And, luckily for us, skilled workers want to come here. Let them!

Today is the day that Janet Yellen said would begin the special accounting maneuvers required to keep the government open after it hit the debt ceiling. Of course, Janet Yellen is not the Treasury Secretary anymore, but the problem still exists. Trump’s Treasury pick, Scott Bessent, will have this to deal with if and when he is confirmed.

If you are a TikTok fan, you surely mourned when the app started going dark on Sunday, and rejoiced when it expanded operations again on Monday, based on the new president’s vow to postpone the Congressionally-voted and Supreme-Court-ratified TikTok ban. It may take selling TikTok’s assets to a U.S. company in order to keep it running for long, but Elon Musk has indicated an interest. Not joking. I, of course, know nothing of TikTok, because (see above) Boomer. But I have read that TikTok refugees are flocking to another of ByteDance’s apps, which surely was not the idea?

According to Mark Zuckerberg, head of Meta and Facebook, this is the year when AI begins to take the jobs of midlevel computer engineers and write useful code for corporations. I bet that’s not the kind of AI which is free and likes to summarize my email chains. Someone will monetize it! Wait. Everyone will monetize it!

For the week ending on January 17th, the Standard & Poor’s 500 finished at 5,996, the Dow Jones Industrials at 43,487, and the Nasdaq Composite Index at 19,630. The yield on the ten-year Treasury Note closed at 4.609%. U.S. crude oil cost $77.80 per barrel, N.Y. gold cost $2,708.00 per ounce, and one Euro was worth $1.04.

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) Axios, Barron’s, Bloomberg, MarketWatch, Yahoo Finance, Business Insider, Morning Brew, The Economist, The New York Times, The Wall Street Journal, The Washington Post, USA Today, CNN, CNBC, The Bureau of Labor Statistics, Reuters, and The Associated Press. If you have questions, please call us at 203.458.5220, or reply to this email to reach me, Liz Cook. Please note that I am an entirely separate person from Beth Eden (my picture is below)!

It was the 70s. Kool-Aid was cool. And red dye #2 was banned for being a known carcinogen. So why has it taken fifty years to ban red dye #3?. You officially have until January 15th, 2027 to stuff yourself with red jelly beans, maraschino cherries, and red hots. Go ahead and get started!

The National Archives would like to find amateurs who can read cursive to “translate” old documents. If you are ready and willing, please contact them. Me (with my hand way up in the air): oh oh oh oh. Yes! Boomer!

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!