Is the ‘House’ on Solid Ground?

“I am the house now.”

-U.S. Treasury Sec. Scott Bessent

Wow. I will admit that as a spiritual man, I have one sin that occasionally comes back to haunt me and that I don’t often see it coming in real time. I do try to guard against it, but it does often sneak past me before I realize that once again, I have gone down that path. Many men or women struggle with a sin or two (or more) throughout adulthood.

Many in our profession struggle with greed. Fortunately, that has never been my problem. I have given away almost as much as I haven’t over the years. Many struggle with sins of the flesh. As a man who lives by a code and had developed a keen sense of discipline as a youngster, this too has not been an issue for me. What has been an issue for me, repetitively, has been the sin of arrogance.

I will readily admit that when all is going well and my decision-making abilities are functioning at an elite level, that I start believing that inanimate objects such as financial markets will do what I expect almost simply because it is what I expect. Arrogance. I will, when going into a meeting, do the math based on numbers of individuals and occupational averages. Why? Simple. So that I have a clue before it is my turn to speak, to know if there is a greater than 50% probability that I might not be the “smartest man” in the room. Arrogance.

I may even unintentionally take offense when I think I may not be that smartest man. That’s arrogance, my friends, and it’s a sin. I will fight it. I will pray about it. Before I realize it, I will do it again, until I get put in my place, which happens. Maybe the sin is pride. Maybe it’s arrogance and pride. U.S. Sec. of the Treasury Scott Bessent is brilliant. On that, there is no doubt. He did, though, make a statement on Tuesday where he reminded me a little of myself and I didn’t like what I read.

Speaking from Southern Methodist University, Bessent said, “I am the house now, so when we intervene with the Japanese yen, I have pretty good insight into what the Japanese, what the Bank of Japan is going to do, what Japanese policymakers are going to do and you can bet against me if you want.”

The comment was among the Secretary’s most aggressive yet in a campaign to bend debt markets to U.S. needs. Let’s not forget that this is a former hedge fund executive, who made his claim to fame in currency markets. He does have a clue. He recently orchestrated the first purchases of Japanese yen by U.S. government authorities in roughly three decades. Bessent also surprised bond traders in August with plans to more than double federal repurchases of U.S. Treasury debt securities as part of the agency’s liquidity management program.

Bessent added, “Whenever people say, ‘Oh, well, (the) Treasury Secretary is taking a risk,’ — well, it’s my dream, I have asymmetric information.”

The U.S. Treasury did venture into the joint purchase of yen with the Japanese government back on July 31. In late July, one U.S. dollar bought almost 164 yen. This morning, one U.S. dollar can buy less than 154 yen.

The Bank of Japan (Japan’s central bank) is believed to be leaning toward a tighter trajectory for monetary policy going forward. Expectations are for an increase of a quarter percentage point to be made to Japan’s benchmark interest rate on Sept. 18. Many economists also believe that rate hikes in Japan may accelerate from there. On that matter, Sec. Bessent has implied over the past year that he would prefer the BOJ to take short-term interest rates higher to support the yen rather than have to intervene in that market. Guess, we’ll know more soon enough.

News Items….

1. U.S. Pres. Donald Trump on Tuesday signed orders banning the import of multiple dairy products, alcoholic beverages and motorcycles from Canada in retaliation for new Canadian tariffs that had been implemented earlier in the day. The president also modified some existing 50% tariffs on imported Canadian goods. He removed levies on cement, road salt and some hospital products, while also imposing new 50% levies on some all-terrain vehicles, boats and cheeses. The changes to existing tariffs are set to take effect on Sept. 15, while the trade prohibitions are set for Sept. 29.
2. Brent crude Oil prices rose above $100 per barrel for the first time since July early this morning as WTI crude traded above $95 per barrel. This came after U.S. forces, according to CENTCOM, destroyed five Iranian oil tankers on Tuesday in response to fresh attempts by Iranian forces to strike U.S. Navy ships in the Middle East over several days. Since Friday, the Iranian military has reportedly fired ballistic missiles at one U.S. aircraft carrier, several U.S. destroyers and one U.S. amphibious assault (Marines) ship. CENTCOM has informed that all of these attacks have failed, but some officials have described a couple of them as close calls. Additionally, Jordan’s armed forces reported having intercepted 18 ballistic missiles fired at US forces in that country from Iran and that two additional missiles fell in unpopulated areas.

Just Super

The Wall Street Journal is reporting that Jacob Coxon, an Anthropic “researcher who specializes in training new AI models by having them consume vast amounts of data, said Tuesday that he is leaving the company, because he doesn’t want to participate in an industry-wide rush to build AI systems that can improve themselves, worried such systems could spiral out of control and destroy humanity.”

The article, penned by Amrith Ramkumar, is worth reading.

Marketplace

Tuesday was a tough day for U.S. markets. Treasury yields moved somewhat higher as did crude oil prices. This combo worked to suppress equity prices. The S&P 500 gave up 0.58% on Tuesday while the Nasdaq Composite gave back 0.32%. The small to mid-cap indexes underperformed broader markets as did the banks and the transports.

The semiconductors, despite a drag on the memory space, did well. The Philadelphia Semiconductor Index popped for a gain of 1.3%, supported by Intel (INTC) and Advanced Micro Devices (AMD). The two Sarge-folio stalwarts were up 9.15% and 5.9% respectively. Both are trading lower through the zero-dark hours on Wednesday morning.

Looking at breadth, just three of the eleven S&P sector SPDR ETFs closed out the Tuesday session in the green, led by Energy (XLE). Health care (XLV) easily led the losers as Novartis (NVS) was hit for a loss of 13.9%.

Losers beat winners on Tuesday by a rough 11 to six margin at the NYSE and by about five three at the Nasdaq. Advancing volume took a 38.5% share of composite NYSE-listed trade and a surprising 55.4% share of composite Nasdaq-listed activity. Aggregate trading volume popped on Tuesday, up 21% from Friday for NYSE-listed names and up 18% from Friday for Nasdaq-listed names. The advancing volume across those Nasdaq-listed names is the reason why we still do not have an official “day one” bearish reversal of trend.

Economics (All Times Eastern)

07:00 – MBA 30 Year Mortgage Rate (Weekly): Last 6.79%.
07:00 – MBA Mortgage Applications (Weekly): Last 0.8% w/w.
08:55 – Redbook (Weekly): Last 9.6% y/y.
1:00 p.m. – Ten-Year Note Auction: $39 billion.
4:30 p.m. – API Oil Inventories (Weekly): Last -2.6M.

The Fed (All Times Eastern)

Fed Blackout Period.

Today’s Earnings Highlights (Consensus EPS Expectations)
Before the Open: CHWY (.36), KFY (1.36), SIG 1.74)
After the Close: ACAV (.25), COO (1.12)

At the time of publication, Guilfoyle was long INTC, AMD equity.