Daily Commentary

MarketMinder’s View: Three weeks ago, we featured the initial takedown of the titular investment, which appeared to be a new company called Yield Wealth that was gearing up to sell “term deposits” that yielded up 17.1% annually over 10 years and were FDIC-insured up to $2 million … despite not being a bank. The complex structure, too-good-to-be-true yield and the fact that the FDIC’s coverage is limited to banks and has a much lower limit got the reporter’s spidey senses twitching. His investigation prompted the man behind it to take Yield’s websites down, and he assured the reporter none of the products had been sold. Story over? Nope. “What I’ve learned in the ensuing weeks is even crazier. It’s a tale of nonexistent companies, illusory returns and unlicensed salespeople making absurd claims.” The investments are still being marketed, despite Yield vanishing from the Earth and terminating its registration. Sellers are pitching the products. “One seller shared with me screenshots of what he described as an online sales leaderboard for the products. The screenshots show that at least 49 salespeople have collectively sold no less than $59.1 million of the high-yield products in 2024.” Several of those interviewed for this piece didn’t have licenses to sell securities, which would be legally required. Many of the sellers “are deeply in debt and desperate to earn high commissions so they can get themselves back in the black.” The investments now purport to be “the biggest purchaser of Obamacare policies,” which the Department of Health and Human services has confirmed isn’t a thing—there is no third-party market for such policies. And now Yield’s founder states all of this is being done without his involvement, misusing branding he created. After more sleuthing, the article concludes Yield and its founder were likely exploited by someone who was barred from the securities industry two decades ago and has allegedly dabbled in fabulism since. We likely haven’t heard the last of this, given it appears money has changed hands. We will stay tuned for more, but in the meantime, remember that if an advertised return (or any growthy return with capital preservation hype) sounds too good to be true, it isn’t true. 

MarketMinder’s View: This essay, written by a former Fed economist and creator of the Sahm Rule—an indicator observing that recession is typically underway when the unemployment rate’s three-month moving average moves half a point above its 12-month low—greets the Fed’s -0.5 percentage point (ppt) rate cut with a giant shrug. As it notes, “typically, when cutting rates, the Fed sticks to smaller, one-quarter point increments unless there is intense economic or financial market strain.” Hence, the larger cut “led some commentators to worry that Wednesday’s cut would signal that the economy is in crisis.” However, the Fed’s rationale was a lot blander. It has a dual mandate to foster tame inflation and maximum employment. The inflation rate is down close to its 2.0% target, while unemployment has ticked up and hiring has slowed. Ergo, the Fed believes it is cutting now “from a position of strength” to prevent labor markets from weakening significantly. Now, we think the whole endeavor is a bit silly, given hiring isn’t a function of interest rates. Rates can somewhat affect economic growth, which is what leads to hiring, but the relationship is tenuous—as we have seen the past two and a half years, when GDP grew a-ok alongside rising and high (relative to the past 15 years) rates. But if Fed head Jerome Powell and friends felt a need to signal they are focused on both halves of the dual mandate, not just the inflation half, ok cool. It isn’t a massive economic driver, but it perhaps signals some lingering disconnect between sentiment, which worries the Fed spied trouble, and reality.

MarketMinder’s View: With a little over a month to go until new UK Chancellor of the Exchequer Rachel Reeves unveils the next fiscal year’s budget, speculation about borrowing and tax hikes continues. This article features lots of political overtones, as usual, so we remind you MarketMinder favors no politician nor any party and assesses developments for their potential economic and market impact only. And our assessment here is simply that there is really no way to know, now, what the budget will include. Everything here is a moving target, and the numbers seem to change almost daily. For instance, just yesterday, there was a lot of cheer over the Bank of England’s (BoE’s) decision to reduce the amount of bond sales, which will reduce its realized losses—meaning the Treasury will need to transfer less than expected to cover everything. That added an estimated £10 billion of fiscal headroom. But today, with the news debt crossed 100% of GDP, worries are back, along with speculation about tax hikes, spending cuts and the titular potential borrowing binge. We suggest tuning it out and waiting for actual announcements. There is no need to predict fiscal policy, and markets are hard at work assessing probabilities and pricing in the chatter. Meanwhile, UK debt remains more affordable than the coverage suggests.