Stocks Say ‘Everything Is Awesome!’ While Bonds Sneak Out the Back Door

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Originally published at: https://peakprosperity.com/stocks-say-everything-is-awesome-while-bonds-sneak-out-the-back-door/

Be warned: Trump and Bessent are serious about rapidly reforming the global economic order. While a lot of good things could come from their efforts, it’s also true that a lot could go wrong.

For example, Japan seems to be losing control of its bond market, which could mean that the yen carry trade is blowing up, which could reverse market liquidity and possibly trigger a crash.

While the global long-dated 30-year bond market is weak across all countries, Japan stands out (in red below) as veering sharply higher.

(Source)

Say what you will, but long bond yields screaming higher isn’t a positive development for over-leveraged economies.

In this week’s podcast, Paul Kiker and I also discussed the Federal Reserve’s role in inflating bubbles, which has led to a significant wealth gap in the U.S., where 10% of families own ~67% of the wealth. This wealth disparity, we noted, isn’t due to hard work alone but largely because of the Fed’s policies that favor the rich.

The conversation shifted to the recent market dynamics, where despite higher tariffs and increased costs, there has been an unexpected surge in stock prices. This doesn’t align with traditional economic theory, where higher costs should lead to lower demand and economic slowdown. However, the market seems to be driven by the expectation that the Fed will intervene, a behavior we’ve seen repeatedly.

Moreover, we discussed the global economic shifts, particularly Japan’s struggle with its debt-to-GDP ratio and the potential for a reset in U.S. foreign relations, especially with Saudi Arabia, aiming for more cooperative and less dictatorial engagements.

Lastly, we emphasized the importance of understanding these risks and maintaining a strategy that isn’t swayed by emotional reactions to market swings. The current environment requires vigilance and a long-term perspective, especially as we navigate through these uncharted economic waters. Remember, investing should be based on a plan, not on emotions. Stay informed, stay cautious, and keep your financial health in check.

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Very cool chart on the 30-year JGB. I mean, “kinda” cool.

I asked our new investment assistant what the loss to capital is, if I purchased a 30 year bond at 0.5%, and then 5 years later, the yield rose to 3%.

It was a 43% loss on this trade.

The loss to capital for a big rise in yields is conceptually due to “losing 2.5% yield” (3.0% - 0.5%) times 25 years. So to sell the now lame-assed bond, you have to offer a nice discount. In this case - a 43% discount.

Now imagine if a bunch of Japanese banks bought up a bunch of those 30 year bonds back in 2020…

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When it comes to onshoring manufacturing, can’t tariffs be a large piece of the puzzle making it cheaper to manufacture domestically?

Use the revenue to be able cut taxes on corporations that manufacture domestically and their hourly costs go down.
Also use the revenue to allow for personal income tax cuts - reducing the hourly wage needed to survive.

Can also have workfare instead of welfare for able bodied people where they’re required to work, and can start factory work at minimum wage ($10 to $15 per hour) with clawback on welfare payments → and the people use as a stepping stone to get out of poverty.
8 hour a day at minimum wage is a hell of a lot better than what welfare pays.

The free market alone I don’t think solve this issue - north america is in such a deep hole.

If the problems weren’t created in the first place especially central banks creating inflation - yes free market would ensure plenty of domestic work including manufacturing.

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I guess it depends on what we’re discussing. For anything complicated, like a smartphone, you need both a skilled workforce and a robust set of integrated supply chains.

Heck, even for a luxury handbag, the skills and supply chains needed are not likely to be replicated easily in a new country with an unskilled management and workforce:

https://x.com/RT_com/status/1912004128529957087

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What do you make of this? Is the USDJPY such a strong signal because of the carry trade?
And why does it take seven months for the stocks to follow? It seems too good of a predictor to be true.

https://x.com/i3_invest/status/1917338102957539456

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Damn why would leather in us be so expensive, americans produce plenty of beef if anything there should be a surplus!

Don’t need to be a purist when on-shoring manufacturing, have to start somewhere.
For example building a smart phone, could start with no tariff on the electronic components imported but final assembly is done domestically.

A lot of thought has to be put into design of tarriff programs especially dealing with complex fragile supply chains - the trouble with trump’ss tarrifs is they’re too broadly applying.

Of everything to onshore it makes the most sense to start with essential less complex goods like furniture, clothing.

The idea shouldn’t be to eliminate global trade and be an island but have sensible trade which works’s in america’s best interest.

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Flip side on that Ag chart… 2AM EST and 2PM Bejing, right in the afternoon liquidity window gives us one of the clearest V-shaped reversals in gold this year; $120swing or roughly 4% in 36hours. This time window matches historical gold reversals and bid strength observed during PBoC accumulation phases. Today 5/15, equities up, gold up, Treasuries seeing inflow, so Peter isn’t paying Paul and something smells. PBoC may have started Au accumulation but it was picked up and then institutionally controlled; retail is not the driver.

All this occurring shortly after Fed accepts 4Billion in Treasury buybacks … though offered 30Billion. The $30B in offers shows that the Treasury market is under pressure even in short-duration bonds.

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I really don’t know where to post this, so i’ll do it right here. Good a place as any i figure. Long time follower of Chris here, since 2009 or 2010 and although I don’t participate often in the discussions, i do follow the tribes comment. Anyhow, stumble upon this video/song this morning by chance. Thought it was pretty à-propos for the tribe here at PP and what Chris is building. I personally love the melody and the lyrics. So without further ado, here is what i think could become the official anthem of the PP tribe. Enjoy. https://www.youtube.com/watch?v=yDVl3WHoymI

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Proverbs 11:1

The Lord detests dishonest scales, but accurate weights find favor with him.

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This is the Great Reset. Trump’s latest round of global financial negations is the reset we’ll be living with for the rest of our lives. The details will probably come in due time but changes have been agreed. My question is did London surrender? Will Europe pivot toward America? The global commodities capital may have just left London and moved East. I see way too many world leaders with smiling faces.

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Can’t help but wonder sometimes, are the markets really irrational, or are the naysayers?

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I’d like to add simplest marketing tool here: these luxury preferences can be culturally shifted… afteerall cigarette smoking, diamonds, coca-cola drinking, chewing gum and many others were introduced in culture this way. Luxury handbag is luxury, thus people would quickly shift to desire something else if “culture” trend changed.

Aligning with that, PBD podcast reminded 2026 has many US cultural events lining up: World cup tournament (Soccer), 250 year US celebratuion and possibly other events. These usually raise mood of nation and that generally means more positive spirit towards future and thus business gets boost. That is why countries want to have these big events despite they are huge loss directly. Not to mention huge attention from world which can be leveraged by inviting world leaders and business or other key people to visit US spotlight, further boosting this development. That is, if economy and life is on stable grounds. I would say smartphone is also luxury product, heck we’ve only “needed” it some 15 years.

This is totally plausible. If they are serious in onshoring, good marketing and political leadership helps here; start smaller and start from that… formula that every poor country used(poor in sense no manufacturing at all). I’d say “soft power” leverage here is more important than hard tariffs and other measures. Afterall those electronic components are dirt cheap, like soap, so that is not why everyone buys a smartphone nor upgrades to latest one. I dont have new iphone but it must be way more valuable whole than individual pieces of it, thus arguing big price people are willing to pay for it, also outside US.

Why emphasizing some humbleness all over? Because US and europe by far biggest flaw for 20+ years has been hubris, dont admit any mistakes, go all over world tell how people should be and do (btw this already shows in family level in west, ripping them apart). That’s good way to crash and burn.
There are good opportunities out there but those slip through fingers with wrong attitude. Timing is also very important to nail motivation and success.

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He updated it. Still can’t figure out why the 6/7 month lag… is it because they are deploying their capital slowly?

Also I imagine it works only as long as the investors who are selling yen believe the market will keep rising, otherwise they would put their $$ elsewhere.

https://x.com/i3_invest/status/1917338102957539456

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Wish i was smart enough tocommen.i have to look upso many words.my$ ignorance is trulyshocking. Ugh.

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I am not editing prior post. 'Unsure if PBoC caught the knife but my sources say Goldman Sachs bought the dip which in my opinion, even better than PBoC buying the dip.

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If you want to talk about losing trades.

From 1913 until 2008 the value of the USD fell 98-percent. Common knowledge. This is bad enough, however, the Great Financial Crisis (GFC), if you include the accompanying Crash of 2008-09, these two events saw a third event taking place which was the remaining value of the USD, that 2-percent, simply falling away, too.

The FED likes to think that it caught the free fall of the market, but it simply tried catching a falling knife. And we all know how that works out. How many fingers were lost is still, to this day “Classified”.

The look on J. Powell’s face says it all. It’s the look of an amputee feeling around for that ghost limb. He still believes it’s there, the value of the USD. Somewhere. If he just prints a little more the USD will come back. Good luck with that. Pop some more of those QE pain pills.

But make no mistake about it, since 2010 the value of the USD has been Zero. The irony here is how becoming broke, busted, and bankrupt is the same as “pricing yourself out of the market” which is what has happened in the United States, in every way imaginable. Just like Western Civilization has priced itself out of existence.

We are all dead. We just don’t know it, yet.

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I’ve been saying that, for various reasons, the west is a ship holed below the waterline. It won’t sink tomorrow or the day after, but it will sink and no one can stop that.

There are plenty of good meals left in the restaurant and drinks at the bar - especially for those with a few quid and decent tickets. But get them while you can, as they are going to get harder and harder to get and we don’t know when they will stop.

This has been an unprecedented Golden Era for us plebs and it is ending and I suspect it will never be repeated. Whatever you want to do. Do it now.

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The US is exporting all the dead leather to China.

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Former Rep. Dave Brat brings the charts and addresses the US Debt and interest payments.

https://x.com/CitizenFreePres/status/1923872202371346891

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Ugh he manages to tell it in even more dramatic way than Chris. It is worse than just that law of surpassing interest cost vs defense.
But +50% gov budget spending from 2019 still is way beyond reasonable inflation bump. Also alarming is defense budget was only one shrinking, which shouldnt be that way.

I hope Trump policies can steer the ship but at this point DOGE cuts seem more like 1mm shaving than cutting 2inches of excess hair.

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