September 28, 2024

 

The S&P 500 rose 0.6% as US stocks gained for a third consecutive week. The S&P 500 is heading for its best first nine months of a year since 1997. Treasury bonds rallied while the dollar declined for a fourth straight week. Gold rose 1.2% and Bitcoin jumped 4.4%.

The most important news this week was a stimulus announcement by Chinese monetary officials. A variety of other central banks across the globe also lowered interest rates, including: Switzerland, Mexico, Hungary and Czech Republic.

The Fed's preferred inflation gauge (PCE) rose 2.2% in August. Lower gas prices helped boost consumer sentiment in the University of Michigan survey. National home prices continue to levitate higher, albeit at a slower pace. The S&P/Case-Shiller Home Price Index ticked up 0.1% last month, putting home prices up 5.0% year-over-year.

 

 

 

China Waves The Stimulus Wand 

 

 

China's economy and stock market have struggled to bounce back from Covid. Housing starts have fallen off a cliff. Youth unemployment is way too high. And many white collar workers are being forced to take dramatic pay cuts as part of the nation's "common prosperity" drive. 

To combat an array of deflationary pressures hanging over the Chinese economy, monetary officials announced several new policy initiatives. The monetary easing includes cuts to the policy rate, mortgage rates and bank reserve requirement ratios, while also providing an extra dose of liquidity to directly prop up the equity market. In China, if the government doesn't like the trajectory of the market, it just starts buying stocks. This explains why China's A-share market surged over 15% this week, delivering the biggest weekly gain since 2008. 

The current stimulus measures are primarily focused on reducing interest rates and reserve requirements. However, these steps are unlikely to be effective since the economy is already in a liquidity trap. Chinese households and businesses are focused on repaying debt rather than borrowing. So, lower interest rates aren't likely to stimulate credit growth much. This is the same kind of problem Japan has battled in its lost decades. The only way to sustainably boost the Chinese economy is via direct government spending. Perhaps we'll see more of that soon.

 

 

 

The Best Way To Hedge Inflation Is To Own It

 

 

When China stimulates, the world inflates.

Since China is the number one marginal buyer of most commodities, this week's monetary policy news drove up commodity prices. Top performers included: rare earth metals +16.4%, lithium +15.6%, uranium +7.1%, aluminum +6.5%, steel +6.4%, and copper +5.9%.

If the US and China both continue to ease monetary policy, it may produce an ironic outcome by reigniting inflation. Inflation came in waves during the 1940s and 1970s, and that could be the case again. Policymakers only have two ways to manage a swelling budget deficit: austerity or inflation.

Milton Friedman said, "Inflation is the one form of taxation that can be imposed without legislation." Inflation is the easiest political path, so we want to hedge that risk in our portfolios by owning inflation. Silverlight managed accounts are long inflation beneficiaries such as energy, materials, real estate, bitcoin, gold, and uranium.  

 

 

 

States Restrict AI Use In Elections

 

 

State legislatures are racing to restrict generative AI use in elections. 19 states have already passed laws, and seven states are considering similar measures. These regulations have bipartisan support. 

The main concern is deepfakes that could mislead people. For instance, in July 2023, a pro-DeSantis super PAC used generative AI to recreate Donald Trump's voice. And earlier this year, fake robo calls went out in New Hampshire impersonating President Biden. 

The new regulations vary in scope. Texas has the most restrictive rules, including an outright ban on producing any "deceptive video with intent to influence the outcome of an election." California has taken a slightly less rigid approach, banning dissemination of deep fakes within several months of an election. Minnesota and Michigan have adopted similar measures, while Florida, Indiana, and Wisconsin require campaigns to disclose use of AI content. 

 

 

 

Two Social Security Changes Will Put More Money In Seniors' Pockets

 

 

In 2025, Social Security will undergo two significant changes that could benefit retirees financially.

First, there will be a cost-of-living adjustment (COLA) to help seniors maintain their purchasing power as inflation rises. While the exact percentage won't be known until October 10, estimates suggest a 2.5% increase. This would be lower than the 3.2% adjustment last year, because inflation has been lower over the last year. 

Second, the earnings-test limit for seniors who work while receiving Social Security benefits will increase. This limit determines how much money retirees can earn before their benefits are reduced. The new limits are also expected to rise in line with inflation.

 

 

 

Stem Cells Reverse Woman's Type-1 Diabetes

 

 

In a groundbreaking medical achievement, a woman with Type-1 diabetes has been cured using her own stem cells. This pioneering procedure, conducted by Chinese researchers, involved reprogramming the patient’s cells to produce insulin-producing islet cells. These cells were then transplanted into her abdominal muscles. Remarkably, within two and a half months, she began producing enough insulin to eliminate the need for external insulin injections. She has maintained this level for over a year. This success offers hope for over a million adults living with Type-1 diabetes and could revolutionize diabetes treatment.

 

 

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This material is not intended to be relied upon as a forecast, research or investment advice. The opinions expressed are as of the date indicated and may change as subsequent conditions vary. The information and opinions contained in this post are derived from proprietary and non-proprietary sources deemed by Silverlight Asset Management LLC to be reliable, are not necessarily all-inclusive and are not guaranteed as to accuracy. As such, no warranty of accuracy or reliability is given and no responsibility arising in any other way for errors and omissions (including responsibility to any person by reason of negligence) is accepted by Silverlight Asset Management LLC, its officers, employees or agents. This post may contain “forward-looking” information that is not purely historical in nature. Such information may include, among other things, projections and forecasts. There is no guarantee that any of these views will come to pass. Reliance upon information in this post is at the sole discretion of the reader.​​