Dear Reader,
Markets are closed until Monday, so I want to use the weekend to tell you about a price almost nobody watches.
It isn't a stock. It isn't the S&P. It isn't even gold.
It's diesel.
This week, Reuters reported that the price of diesel fuel in the United States hit a record high.
Not a one-year high. Not a post-pandemic high.
A record. The highest it has ever been.
And I would bet almost nothing you read this week led with that.
Why I Care About Diesel More Than the Dow
Let me explain why that number matters more than most of what gets written about.
Gasoline is what you put in your car. Diesel is what moves the country.
Every long-haul truck. Every freight train. Every container ship, every delivery van, every piece of construction equipment, every tractor in every field in Iowa.
When diesel goes up, it does not hit you at the pump. It hits you about two months later, at the register, in the price of things that have nothing to do with fuel.
Groceries. Furniture. Building materials. A bag of dog food.
None of those industries burn diesel. All of them pay for it, because somebody had to move the product to where you are standing.
I have watched this pattern for thirty-five years and it is one of the few things in this business that is almost mechanical. Freight costs are a tax on everything, collected late, and nobody votes on it.
So when I see diesel at an all-time high, I am not thinking about energy stocks.
I am thinking about what the inflation number is going to look like in November.
Which Brings Me to Friday Morning
On Friday, the Bureau of Labor Statistics reported that consumer prices rose 0.4% in August.
That puts inflation over the past twelve months at 3.4%.
Core inflation — the version that strips out food and energy — rose 0.3% for the month. A tenth of a point hotter than Wall Street was looking for.
One tenth of one percent sounds like rounding. It isn't, because of when it landed.
It was the last inflation reading the Federal Reserve will see before it votes on interest rates this coming Wednesday.
Before that report, the futures market put the odds of the Fed raising rates at roughly seven in ten. After it, nearly nine in ten.
Read that again. The market now expects the Federal Reserve to raise interest rates on Wednesday.
Not cut. Raise.
It would be the first increase under Kevin Warsh, who replaced Jerome Powell as chairman back in May.
I want to be honest with you about something. In January, almost nobody I respect thought we would be sitting here in September talking about rate hikes. The consensus was cuts.
Remember that the next time someone tells you with total confidence what the Fed is going to do next year.
And notice that the diesel number is not in that inflation report yet. That is the part that hasn't happened.
The Squeeze Nobody Has Priced
Put the two together and you get an uncomfortable shape.
Inflation is running at 3.4% and firming, not fading. Crude pushed back above $100 a barrel this week for the first time since the spring, after Iran's Revolutionary Guard struck an unmanned American vessel in the Strait of Hormuz — the channel roughly a fifth of the world's seaborne oil has to pass through. Diesel is at a record. Long-term Treasury yields are sitting near 5%.
And the central bank's answer to all of it is to make money more expensive.
That may well be the right call. I am not going to pretend I know better than they do from where I sit.
But understand what it means for you. Borrowing gets dearer at the same time the cost of living is climbing. There is no version of that combination that is comfortable for a household or for a portfolio.
In an environment like this, the standard advice is to own real assets — things whose price rises with inflation rather than getting eaten by it.
Which is where most letters stop. Own real assets. Thanks.
I want to spend an extra minute on it, because there is one specific version of that advice that almost nobody understands.
The Buyer That Doesn't Check the Yield
Everything you read about the gold price is really the private market arguing with itself — about real yields, about Fed odds, about the dollar.
But the private market is not the only participant, and it is not the biggest one.
In 1934, in the middle of a national emergency, Washington created a fund unlike anything before or since.
It can buy gold. It can sell currencies. It can move markets — in secret, on a single signature.
It does not answer to Congress. It does not answer to the courts. It does not even answer to the Federal Reserve. It answers to one man at the Treasury Department.
Most Americans have never heard its name. It has been used quietly twice in the last thirty years — Mexico in 1995, and the panic of 2008. Both times to stop a run on the dollar.
It is still sitting in the Treasury right now.
And when the United States government decides it wants gold, it does not check the ten-year yield first.
I've put together the full history of that fund, what the man who controls it has already said out loud about what he intends to do, and the one gold mine in America the U.S. government has actually financed.
The Bottom Line
Diesel at a record high is the most under-covered number of the week, and it is the one most likely to show up in your life.
Inflation came in firm. The Fed appears ready to tighten on Wednesday for the first time under a new chairman. Freight costs are climbing into that.
None of that gets resolved this weekend. But the cost of being unprepared for it compounds quietly, which is the only way costs like this ever arrive.
Wednesday afternoon we learn what the Fed intends to do about it. I'll be watching with you.
And if you want to know what the one buyer who doesn't care about interest rates is doing while all this plays out, it's worth twenty minutes of your weekend.
Enjoy your weekend.
"The Buck Stops Here,"
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Written by Dylan Jovine