5 Key Investment Insights: Beware of Rebound Inflatio

This week’s main topic is government mismanagement of the economy. Two main points stand out: 1. The government should intervene less in the economy, and 2. We could have titled this “The Government is Mismanaging Things Edition.” After the Fed’s early rate cut, the Core CPI has risen, and energy costs are likely to increase. The intended effect of lowering borrowing costs didn’t happen; instead, Treasury yields went up. In China, stimulus boosts the stock market, but when the stimulus halts, the market drops. Lastly, Liz Warren highlights crypto crime while a major bank admits to laundering money for drug cartels. Our advice: tackle the issues within the sectors you regulate first before trying to control others.

This week’s topics are:

• Fed rate cuts and rising Core CPI.

• Why Treasury prices are increasing despite rate cuts.

• The impact of China’s stimulus on its stock market.

• TD Bank’s money laundering scandal vs. crypto regulation.

• Advice for young people wanting to save without a finance background.

Let’s get started:

1. One Month After Fed Cuts, Core CPI Rises:

The Core CPI rose to 3.3%, surpassing last month’s 3.2% and expectations of 2.3%. The Fed cut rates a month ago, but inflation isn’t under control. We’ve termed this the “Arthur Burns mistake” akin to the late 1970s. Rising oil prices will present challenges in upcoming reports.

2. The Fed Cut – and – Interest Rates Are Rising?!:

After the Fed cut rates, Treasury yields rose instead of falling. This is because the bond market anticipates higher future inflation. The Fed manages overnight rates, but longer-term yields respond to market conditions, showing that ongoing government spending is affecting inflation.

3. Hang Seng Market Volatility:

The Hang Seng index rose sharply due to Chinese stimulus but fell back when additional funds weren’t injected. This showcases the risks of relying on government support, as the market quickly reacted once stimulus dried up.

4. TD Bank’s Money Laundering vs. Liz Warren’s Bitcoin Regulation:

TD Bank admitted to laundering millions for drug cartels, while Elizabeth Warren criticizes the crypto market. There’s a contradiction here, as Warren should focus on tackling existing crime in regulated institutions before extending oversight to newer financial systems.

5. Saving for Young People Not in Finance:

A reader asked how to save without a finance career. Key advice: live below your means, invest in tangible assets like Bitcoin or gold, and consider low-cost index funds. Exploring active investment management, especially tailored for students, can also be beneficial.

Stay ready for a week of inflation updates. Let’s work through it together!