The Week in Review – Rising Interest Rates

The Question of the Trump-Kim Summit

Is it on? Is it off? Is it on again? Surely the greatest drama of the week has been Trump’s on-again, off-again meeting with Kim Jong-un. For many people watching, this is a breathtaking example of The Donald’s basic inability to a) filter his mouth and b) grasp the complexities of international diplomacy. But for once, in this case, it may not actually matter.

Central to this is the observation by people in the know that actually, the conference might have accomplished very little. The North Korean view of ‘complete denuclearization of the Korean peninsula’ means precisely that – complete denuclearization by everyone.

Conversely, for the bushy-mustached hawk that is John Bolton, as well as his bewigged boss, denuclearization means unilateral disarmament by North Korea – which, from the Kim dynasty’s perspective, makes about as much sense and emigrating en masse to Uruguay. For these, and other reasons, it’s important not to be too let down if the whole enterprise clatters off the rails once and for all before June.

One ray of hope, however, is Ireland’s staggering vote for reproductive rights. Whatever your personal view, however, geopolitically it poses an interesting quandary. With Brexit looming, Northern Ireland remains the only part of the UK with no abortion laws – and a hard border will reduce movement between north and south. How will citizens in Ulster respond to their being cut off from what is, at the moment, a far more progressive regime in the south?

The Week Ahead

Watch out for Italy’s bond market and its impact on global stock markets – especially the banking sector. The case of Italy has been brewing up for some time, but it hasn’t been on investor’s top agenda. Now, Italy poses a  real threat to Europe’s financial stability and if it gets worse it will have serious implications for the rest of the world. It shows what could go wrong when investors have very rosy expectations and get too comfortable.


This coming week Friday all eyes will be on the Fed and US jobs data. Economists expect the non-farm payroll report to show an uptick in wages and the pace of hiring. Yet, they are still divided on whether the Fed will be raising interest 3 or 4 times this year. This week Friday data will provide more material for heated debates among professional soothsayers.

The numbers they come up with are bizarre, to say the least. In the financial press (Financial Times) you can read something like that:

“Average hourly earnings are expected to rise 0.3%t month-on-month in May, having edged up just 0.1 % the previous month. The US is expected to have created 193,000 new jobs, up from 164,000 the previous month, while the unemployment rate is projected to remain unchanged at 3.9 %. The labor force participation rate will also be scrutinized as the drop in April’s unemployment rate was driven by the departure of 236,000 people from the labor force.”

The wide range of different forecasts deviating from plus 20 to minus twenty percent from the consensus and the fact that they predict some numbers to the second digit after the comma illustrates their almost esoteric existence in the world of high finance.  Certainly, their educated argumentations and reasoning are much more important than some simple figures. In the end, their guesses are as good as yours. They don’t know anything!

We at the Monthly Truffle make no efforts to make any predictions whether the Fed will be forced to raise rates three or four times. In fact, it doesn’t concern us. What remains is the simple fact that interest rates in the US are rising and they have been rising for some time. This alone is enough to know that our financial system, leveraged to the hilt, will face some very adverse conditions in coming months and years.

The most astounding fact is, that most investors worldwide still seem to be ignoring their new reality. The risk of wider financial implication to public and private debt has increased substantially, yet market valuations have been feeding on a positive momentum, though at a much slower speed.  In our eyes, this represents an enormous chance to profit.

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